It was a special rescue operation. This week, the First Republic Bank managed to survive with the help of eleven major banks. Investors could breathe a sigh of relief, but the fear of a new banking crisis is far from over, says eToro’s market analyst Jean-Paul van Oudheusden: “The fear is good.”
Since the collapse of the Silicon Valley Bank, there has been unrest in the financial market. The small First Republic Bank also got into trouble this week. The problems arose partly because investors feared that this bank would also go under. Many customers therefore tried to transfer their money to a larger bank. These banks are generally more resistant to financial blows. This settlement reaction quickly caused the First Republic Bank to lose 75% of its market value.
Record loan amount
With $ 30 billion, the major competitors managed to turn the tide. However, The First Republic Bank is not the only bank that is short of money. Other smaller banks already knocked on the door of the Federal Reserve this week, where they can take out loans on favorable terms. It is therefore used en masse, according to Van Oudheusden. “Currently, that amount is $165 billion.”
‘People come to the rescue because they fear a raging fire.’
However, the Federal Reserve cannot absorb all the blows, says Van Oudheusden. That is why competitors banks like Citibank and JPMorgan are coming to the aid of First Republic Bank. The Fed can’t bail out all the banks. After Silicon Valley Bank and Silvergate, that’s just not realistic.’ That is why the financial sector is helping now, he says. This is not the first time this has happened, in 2008 a similar scenario unfolded when Bear Stearns was bought by JPMorgan. ‘People are afraid that this situation will turn into a raging fire.’
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