The Collapse of Banks
The collapse of banks is a rare event that shakes the financial industry to its core. In the span of just 11 days, four banks have collapsed, sending shockwaves through the economy. These collapses have been caused by various factors, including exposure to the crypto industry's meltdown, significant losses on investment portfolios, and customer withdrawals. Let's take a closer look at each of these incidents.
The first bank to collapse was Silvergate Capital Corp. The bank was done in by its exposure to the crypto industry's meltdown, which led to a sell-off of assets at a loss to cover withdrawals by its spooked customers. The collapse of Silvergate Capital Corp. sent a warning signal to other banks that had invested heavily in the volatile crypto industry.
The second bank to collapse was Silicon Valley Bank. The bank had already been on edge when it announced a plan to sell $2.25 billion of shares, as well as significant losses on its investment portfolio. US regulators moved toward a breakup of the bank when they failed to line up a suitable buyer. First Citizens BancShares Inc. is still hoping to strike a deal for all of Silicon Valley Bank.
The third bank to collapse was Signature Bank, which became the third-largest bank failure in US history on March 12. A surge in customer withdrawals totaled about 20% of the company's deposits, leading to its collapse. New York Community Bancorp's Flagstar Bank took over Signature Bank's deposits and some of its loans.
The fourth bank to collapse was Credit Suisse Group AG. Swiss officials brokered a deal with UBS Group AG for a 3 billion-franc ($3.2 billion) acquisition aimed at avoiding a broader financial crisis.
First Republic Bank also fell victim to the same customer flight that ultimately sank three of its US rivals, with one estimate of potential deposit outflows pegging the figure at $89 billion. Eleven US lenders tried to prop up First Republic Bank with a $30 billion cash infusion. But the San Francisco-based company, which caters to the personal-banking needs of tech's elite and other wealthy individuals, has nonetheless dropped to an all-time low amid multiple credit-rating downgrades.
In response to these collapses, JPMorgan Chase & Co. hatched a new plan to aid First Republic Bank. The bank plans to inject $30 billion into the company as a capital infusion, which will hopefully stabilize the bank and prevent any further collapses.
These collapses serve as a reminder that the financial industry is not immune to the effects of a volatile economy. Banks must be careful with their investments and ensure that they have enough reserves to weather any storm. It also highlights the importance of strong regulations and oversight to prevent these types of collapses from occurring in the future.