Since the collapse of Silicon Valley Bank, there has been turmoil in the financial market. Tiny First Republic Bank also got into trouble this week. Problems also arose because investors feared that this bank would also fail. Many customers then tried to move their money to a bigger bank. These banks are generally more resistant to financial blows. This settlement reaction quickly caused First Republic Bank to lose 75% of its market value.
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With $30 billion, major competitors managed to turn the tide. However, The First Republic Bank isn’t the only bank short on cash. Other smaller banks have already knocked on the Federal Reserve’s door this week, where they can borrow on favorable terms. It is then used en masse, according to Van Oudheusden. “Currently, that amount is $165 billion.”
“People come to the rescue because they fear a raging fire.”
Still, the Federal Reserve can’t absorb all the blows, says Van Oudheusden. That’s why competing banks like Citibank and JPMorgan are coming to First Republic Bank’s aid. The Fed cannot bail out all the banks. After Silicon Valley Bank and Silvergate, this is unrealistic.’ That’s why the financial sector is helping now, he says. This is not the first time this has happened, a similar scenario occurred in 2008 when Bear Stearns was bought by JPMorgan. ‘People are afraid that this situation will turn into a raging fire.’
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