By The lull was short-lived. After the failures of SVB (Silicon Valley bank) and Signature Bank at the beginning of March, and then in another context, of European bank Credit Suisse, the western banking system is once again hit hard: First Republic Bank fell, in the second largest bank failure in the history of the United States.
The San Francisco creditor was immediately acquired by a fellow banker, JPMorgan, which won the bidding against at least three rivals, with an offer of 10.6 billion dollars. Yet Jamie Dimon's bank should not have been able to acquire FRB. Indeed, the rules that govern banking institutions prohibit a single institution from controlling more than 10% of American deposits. The absorption of the troubled bank now gives JPMorgan $2.4 trillion in deposits.
So why? For the good of the system. Faced with fears of a domino effect, regulators and the FDIC (Federal Deposit Insurance Corporation, the agency that guarantees American bank deposits) opted for solidity. JPMorgan was also the only bank that could buy almost all of First Republic, including the mortgages, an unattractive asset. In addition to stabilizing the banking sector, this acquisition is also intended to protect real estate. Some also argue that the 10% rule could be circumvented because it would not apply to the purchase of a bank in failure.
It is therefore JPMorgan that came out as the winner in this transaction, by reinforcing its omnipotence a little more. Industry observers note that times of turmoil tend to favor large lenders. Remember that a few weeks ago, HSBC acquired all of SVB's UK assets for £1. Nice deal.
And then there is the "too big to fail" philosophy (understand: too big to default, or: to be allowed to default). Since the 2008 crisis, the big banks have become stronger, more profitable, and more able to weather storms. Even if for some, this strength alone represents a danger. Among the criticisms that have been levelled at the operation is that the sector is too concentrated. Thirty years ago, the United States had nearly 11,000 banks, today there are just over 4,000. Already, another US regional bank is in trouble: PacWest...
