Big US banks become the key to stopping the banking crisis

In the last banking crisis in the United States, which also affected the Old Continent, titans like JPMorgan ChaseBank of America Citigroup and Wells Fargo have gotten even bigger and have used their strength and stability to prevent further failures at smaller banks.

The latest example occurred early Monday morning, when US regulators intervened in First Republic Bank and reached an agreement to sell most of its operations to JPMorganthe largest bank in the United States, for $10.6 billion, thus avoiding a chaotic collapse that threatened to reignite the recent banking crisis this March.

First Republicbased in San Francisco, the second largest bank to fail in US history, lost $100 billion in deposits after the collapse of the other Californian lender, Silicon Valley Bank (BLS).

The megabank said today that it made an offer for First Republic to help stabilize the financial system.

“Our government invited us and others (banks) to step forward, and we did.”, pointed out the CEO of JPMorganJamie Dimon.

Also, in mid-March, Bank of America, Citigroup, JPMorgan and Wells Fargo announced that they would each make an uninsured deposit of US$5 billion for First Republic, in which together with seven financial institutions they raised US$30 billion, in a first rescue attempt that was not enough.

too big to fail

bankruptcy of Silicon Valley Bank It made many Americans fear for the future of their savings and choose to move their money from small banks to the most powerful banks in the United States on the theory that the latter are “too big to fail.”

JPMorgan He said he got about $50 billion in new deposits from panicked customers looking to move their money to a big bank after the March crisis.

An example of this is Cameron Hardesty, 37, owner of the flower shop Poppy Flowers, who told The Washington Post that she was afraid of having all the money from her company in “a single account” and that he left SVB and opened three new accounts: one of them in JPMorgananother in Bank of America and, finally, one in the regional bank First Horizons.

“I spent 10 years building up to this point. This is my life’s work. To think of it vanishing in an instant, due to these forces beyond my control, was a terrifying moment.Hardest remarked.

JPMorgan raised $2.4 trillion in deposits at the end of its first quarter of 2023.

The top five banks in the country at the end of last year controlled almost 13 trillion, which is equivalent to almost 47% of the industry’s total assets.

The weight of the big ones is also noticeable in the number of US banks, since in 1994 there were 10,000 banks and in 2021 the number dropped to less than half (4,237 entities).

However, some experts point out that small banks are key for sectors such as commercial real estate – where they account for roughly two-thirds of all loans – and point out that as confidence in regional banks wanes, bankers may stop making new ones. loans or put more stringent conditions, thus hindering the economy.

Source: EFE