Can First Republic Bank avoid FDIC receivership?
Can First Republic Bank avoid FDIC receivership?
Fintech Headlines for April 28, 2023: First Republic Bank continues to fight for survival, FDIC is not happy with Cross River Bank's lending practices, and Federal Reserve takes blame for the collapse of Silicon Valley Bank
Hi!
Welcome to the “Popular Fintech” newsletter! I didn’t intend to write so much about banks when I launched this newsletter, but yesterday was all about banks and their regulators:
First Republic Bank continues to fight for its survival, while investors speculate if it can avoid going into FDIC receivership,
In the meantime, the FDIC told Cross River Bank that it is not happy with its lending practices, and, finally,
The Federal Reserve finished the review of Silicon Valley Bank’s collapse and even took (partial) blame for it.
Can First Republic Bank Avoid FDIC Receivership?
First Republic Bank’s (NYSE: FRC) stock continued the decline yesterday, as investors tried to evaluate the future prospects of the bank and whether it will be able to weather the storm. First Republic reported a $100 billion deposit outflow on its earnings call on Monday and announced the intention to shrink its balances to shore up capital. However, the bank’s efforts fell short so far and it now faces three potential outcomes: liquidating assets at a loss but remaining independent, accepting an acquisition offer from one of the better-capitalized banks, or… going into the FDIC receivership.
According to the Wall Street Journal and Reuters, the Federal Deposit Insurance Corporation, the Treasury Department, and the Federal Reserve held urgent talks and are trying to orchestrate the rescue of the bank, while JPMorgan and PNC are preparing their bids should the FDIC take over the lender. In March, eleven largest U.S. banks tried to stabilize First Republic Bank by pledging $30 billion in deposits, but that did little help. The bank’s share price declined 75.39% during this challenging week and is now down 97.11% since the beginning of the year.
Image source: First Republic Bank
✔️ JPMorgan, PNC Bidding for First Republic as Part of FDIC Takeover
✔️ First Republic’s Fate Uncertain After Stock’s Harrowing Drop
✔️ First Republic most likely headed for FDIC receivership, sources say
✔️ First Republic Plunges to Record Low as Rescue Plan Proves Elusive
FDIC Is Not Happy with Cross River Bank’s Lending Practices
Cross River Bank, the banking partner and infrastructure provider for many Fintech companies, including Coinbase, Upstart, and Affirm, has received an enforcement order from the Federal Deposit Insurance Corporation over its lending practices. The FDIC has accused the bank of engaging in unfair and deceptive practices related to its lending activities and has ordered it to take corrective action. The enforcement order requires Cross River to establish a compliance management system to ensure that its lending practices are in compliance with federal regulations and consumer protection laws.
The company is also required to receive FDIC approval for onboarding clients and launching new credit products. Nevertheless, according to Bloomberg, Cross River Bank expects no “meaningful impact” from this enforcement order, as the required actions “have [ already ] been completed or will be completed in the coming months.” In 2022, Cross River Bank raised $620 million in funding at a valuation of $3 billion to further expand its product offering for Fintech and cryptocurrency companies. The funding round was led by Eldridge and Andreessen Horowitz with participation from T. Rowe Price.
Image source: Cross River Bank
✔️ Cross River Bank Gets FDIC Enforcement Order Over Lending
✔️ Crypto-linked Cross River Bank receives FDIC order
✔️ Cross River Bank goes from tiny to mighty, with a $3B+ valuation and a crypto-first strategy
Federal Reserve Takes Partial Blame for the Collapse of Silicon Valley Bank
The Federal Reserve has released a report on the collapse of Silicon Valley Bank, in which it faults both the bank's managers and central bank regulators. The report states that SVB's management failed to adequately manage risk, leading to significant losses and ultimately the bank's collapse. Additionally, the report criticizes the Federal Reserve and other regulators for not effectively monitoring and supervising SVB, allowing the bank to continue taking excessive risks. At the time of its collapse, the bank had triple the average number of unaddressed safe and soundness supervisory warnings.
The collapse of SVB is expected to have significant repercussions for the broader financial system, as the report calls for a comprehensive review of regulatory oversight of banks. "Following Silicon Valley Bank's failure, we must strengthen the Federal Reserve's supervision and regulation based on what we have learned," said Vice Chair for Supervision Barr, who was leading the review. The central bank plans to revisit the rules that apply to financial institutions with more than $100 billion in assets, including stress testing and liquidity requirements.
Image source: Wikipedia
✔️ Fed Seeks Stronger Bank Rules While Detailing Oversight Lapses
✔️ Fed Says It Failed to Act on Problems That Led to Silicon Valley Bank Collapse
✔️ Federal Reserve Board announces the results from the review of the supervision and regulation of Silicon Valley Bank
✔️ Signature Bank had liquidity problems years before collapse, regulator says
Chart of the Day
While the share price of First Republic Bank is trending toward zero, I decided to take a look at how the largest U.S. banks faired recently. As you can see from the chart below, the share prices of JPMorgan, Bank of America, Wells Fargo, and Citigroup bottomed after the collapse of Silicon Valley Bank, but recouped part of the losses on the back of strong Q1 2023 earnings.
Chart made with Koyfin
Jobs in Fintech
Senior Fair Lending Compliance Manager
@ Cross River Bank
Fort Lee, NJ, United States
Fair Lending Compliance Manager
@ Cross River Bank
Fort Lee, NJ, United States
Fair Lending Compliance Analyst
@ Cross River Bank
Fort Lee, NJ, United States
@ Federal Deposit Insurance Corporation
Washington, DC, United States
@ Federal Deposit Insurance Corporation
Washington, DC, United States
That’s it for today! Thank you for reading and see you tomorrow!
Jevgenijs
Cover image source: First Republic Bank
Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.