A little fresh air, yes, but for how long? On Monday May 1, the American bank First Republic was taken over by JP Morgan Chase. The fact remains that this new bankruptcy comes in a context where several banking establishments have been in the grip of great difficulties in recent months. Although welcomed, this recovery does not completely eliminate the risks associated with a recession or the rise in interest rates.
“Any failure of a bank is regrettable”; But Monday’s agreement “will boost confidence in the country’s banking system,” said the head of the American banking federation ABA, Rob Nichols. According to him, it shows that the sector has resources and procedures are in place to protect customers. JPMorgan boss Jamie Dimon also repeated it several times during a conference with reporters: the takeover of First Republic “will help stabilize the system”. “Obviously if in the future there are recessions and rate hikes and things like that, more cracks may appear in the system,” he added, however. pointing the finger in particular at activities related to commercial real estate.
Another factor to explain their fall, the rapid increase in interest rates initiated in 2022 by the American central bank (Fed), which mechanically lowered the value of their fixed rate assets. Many customers of regional banks took fright, fearing that their establishment would fail for similar reasons, and withdrew their money to place it in larger institutions, considered too important not to be saved in the event of unrest.
The financial results published since mid-April by several regional banks showed that the flight of deposits had stabilized after a panic in mid-March. “That doesn’t mean all the problems are solved,” says Wells Fargo’s Mike Mayo, listing risks related to a recession, commercial real estate, or the need for banks to borrow at high rates to survive. finance. But there shouldn’t be any new bankruptcies “anytime soon” among the banks included in the benchmark stock index S
The probability of seeing an institution facing a bank run seems to have moved away, the most at risk having already fallen, adds Philipp Schnabl, professor of finance at New York University. On the other hand, the fact that rising interest rates lower the valuation of banks’ assets, and in turn affect their ability to lend to companies, “remains a source of concern”, he said.
In a similar vein, Clifford Rossi, a professor at the University of Maryland, believes that the biggest risk for the banking sector is the possibility that a recession will lead to defaults on the part of bank customers and encourage the latter to lend less. This credit crunch is more problematic for the economy in general, not necessarily for banks in particular, he points out. We must not forget that if the American central bank fights against inflation by raising rates, it is to “reduce the loans granted to the economy”, underlines Philipp Schnabl.
Monday on Wall Street, while most of the big banks ended up, regional banks lost ground like PacWest (-10.6%), Zions (-3.7%) or Western Alliance (- 1.8%). The banking crisis has also revived calls for tougher rules.
“I have asked regulators to strengthen the regulation and supervision of large banks and regional banks,” Joe Biden recalled Monday. “We have to make sure that we don’t find ourselves in this situation again. Fed chief bank supervisor Michael Barr, however, said in a report on Friday that while adjustments in liquidity and capital levels were desirable, they would likely take “years” to materialize. to be placed.
