- First Republic Bank collapsed, following the failures of Silicon Valley and Signature Bank
- Analysts point to rapid interest rate hikes as the cause of the collapse
- To safeguard against a threatened financial system, investors are turning to gold
First Republic Bank Collapse
The banking crisis continued as First Republic Bank collapsed. JPMorgan Chase is set to take on “all of the deposits and substantially all of the assets of First Republic Bank” after the Federal Deposit Insurance Corporation (FDIC) confirmed that the troubled bank had collapsed on Monday.
First Republic was America’s 14th largest bank as of the end of 2022. Its demise follows the collapse of Signature Bank and Silicon Valley Bank – the 2nd and 3rd largest bank failures in American history. First Republic had lost more than $100 billion of deposits in the first quarter of the year. The losses sent investors and regulators into panic mode.1
Prior to the collapse, eleven larger banks had previously infused $30 billion of deposits into First Republic to buy some of its assets at above-market rates. But there was no saving the bank.
First Republic’s appeal for a government bailout failed. Instead, the government worked to protect depositors. The FDIC said, “All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits.”2
Analysts are laying the blame for the collapse on Fed Chair Jerome Powell and Treasury Secretary Janet Yellen. The bank carried billions in unrealized losses, due in part to its book of mortgages that were issued when rates were significantly lower. Rapidly rising interest rates decimated the value of First Republic’s holdings. The collapse of SVB and Signature, for the same reason, sparked a run on First Republic and its ultimate demise.
Effects of the Failure
Experts don’t believe the banking crisis will divert Fed policy. Inflation is still much too high, as the most recent GDP report showed. Hence, the Fed is still likely to hike rates at their next meeting, further endangering hundreds of other at-risk banks.
The bigger issue is how far will the banking crisis spread and how it will ripple throughout the economy. Almost 200 more banks are on the brink of collapse, including financial giant Deutsche Bank.3,4 Cascading effects could include banks tightening credit. This could make it harder for people to get mortgages or credit cards, and for businesses to get loans. And that could lead to an even worse outcome – a prolonged and severe recession. 5
As the banking crisis threatens to destabilize the global financial system, the price of gold is predicted to hit all-time highs.6 As a result, Americans are facing a severe recession and a drastic loss in their savings. People who want to preserve the value of their funds should look to safe haven assets that exist independent of the banking system. To learn how precious metals within a Gold IRA can safeguard your retirement, contact us today at 800-462-0071.
