Monday’s First Republic Earnings Report showed that the bank had lost $100 billion in deposits, after the crisis sparked by the bank run on Silicon Valley Bank.
Banks are liable to bank runs because of the fractional reserve system that US banks use, a bank only holds a fraction of its deposits and lends out the rest, when too many depositors take their money out, banks can’t satisfy the reserve requirements and are shut down. In that case, the FDIC, Federal Deposit Insurance Corporation, pays the bank’s customers up to USD250,000 in their accounts.
What made FRC particularly liable for a bank run was the fact that it had a log of wealthy customers with deposits over 250000 dollars. So, after the SVB failure, the lender was in distress. But the bank survived, supported by bigger banks led by JPMorgan Chase who deposited 30 billion in FRC combined.
The bank's financials show that it has 45 billion in cash and unused borrowing capacity, enough to cover its deposits. But there are still questions of the bank’s survival, let alone, the stock price and recovery of profits.
The lender had to borrow at very high rates to cover its deposit outflows which resulted in low interest rate margins this will probably show its effects on the Q2 financials as the crisis happened towards the end of Q1. The bank had a 33% decrease in profits this quarter.
First Republic said it would cut its headcount and decrease executive pay. And pledged to rebuild their profitability. It seems that the bank has a long way to go to build its share price and profitability back.
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