JPMorgan Says the First Republic's Crisis Reflects Larger Trend

Bob Michelle warned that the collapse of the First Republic Bank may have a domino effect on the other regional banks in the United States.

KEY TAKEAWAYS

• The collapse of First Republic Bank is a highly concerning issue.
• Bob Michele says this may affect other banks in the State.

The Chief Investment Officer of JPMorgan Asset Management, Bob Michele raised the concerns. Saying that the liquidity issues that led to the fall of First Republic Bank are not limited to the bank itself. He also called people ‘naive’ for thinking that it was just a First Republic problem. As he thinks this could leave a potential negative impact on the entire banking industry.

Michelle’s concerns are mostly associated with the upcoming expiration of the emergency lending programs. Which were led by the Federal Deposit Insurance Corporation (FDIC) and Federal Home Loan Banks (FHLB). He further raised the concern because he is doubtful of how the regional banks will operate when these programs expire. Moreover, the collapse of First Republic Bank could exacerbate the situation.

Banking is one of the most heavily regulated and capitalized industries in the world, as per Michele. In addition, he considers the issue faced by First Republic Bank highly irresponsible, and it should have never happened. This issue ultimately highlights the bigger issues that need to be timely resolved.

Issues need to be resolved

The Chief Investment Officer has emphasized the urgent need for resolving the issues of First Republic Bank’s collapse. Especially to prevent it from spreading throughout the broader financial system.

Michele blamed this on the high price of everything. Also, this forces the bottom quartile of earners to deplete their deposit balances just to live. According to him, the banks are highly dependent on emergency lending programs. Lending programs such as FDIC and FHLB and what impact they will have on the operation of banks when these programs expire.

This raises the concern of more banks collapsing in the future. Majorly, until the Govt recognizes the Federal Reserve’s policies rather than crypto as the root cause. Additionally, the US Dept of Treasury is probably studying ways to expand the current deposit insurance. Beyond the cap of $250K to cover the rest of the deposits in the US. According to FDIC, the bank deposits were valued at $17.7 trillion as of Dec 31, 2022.