Thursday, June 8, 2023

Big US banks hold key to preventing banking crisis

In the previous banking crisis in the United States, which also affected the Old Continent, titans such as JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo have grown even bigger and have used their strength and stability to prevent more failures at smaller banks.

The latest example happened on Monday morning when US regulators intervened in First Republic Bank and reached a settlement. sell most of its operations to JP Morgan, America’s biggest bank for $10,600 million (9,664 million euros), thus avoiding a chaotic collapse that threatened to restart the recent banking crisis this March.

San Francisco-based First Republic, the second largest bank to fail in US history, lost $100 billion in deposits following the collapse of another California lender, Silicon Valley Bank (SVB).

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

Our government invited us and others (banks) to come forward, and we did.”JP Morgan CEO Jamie Dimon said.

In addition, in mid-March, Bank of America, Citigroup, JP Morgan, and Wells Fargo announced they would deposit $5 billion of uninsured funds to the First Republic, which together with seven financial institutions raised $30 billion in the first rescue effort. Wasn’t enough.

Too big to fall

The Silicon Valley bank failure caused many Americans to fear for the future of their savings and choose to move their money from smaller banks to the most powerful banks in the United States, on the principle that the latter are “too big to fail”

JPMorgan said it received about $50 billion in new deposits from jittery customers looking to move their money to a bigger 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 He was afraid of having all his company’s money in “one account”. And he left SVB and opened three new accounts: one at JPMorgan, another at Bank of America, and finally First Horizons Regional Bank.

Hardest said, “I’ve spent 10 years getting to this point. It’s my life’s work. It was a terrible moment to think about it disappearing in an instant because of these forces beyond my control.”

JPMorgan projects to have raised $2.4 trillion in deposits by the end of the first quarter of 2023.

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

The preponderance of large banks is also noticeable in the number of US banks, as in 1994 there were 10,000 banks and in 2021 the number has decreased to less than half (4,237 institutions).

However, some experts point out that smaller banks are important to sectors such as commercial real estate – where they account for about two-thirds of all loans – and point out that as trust in regional banks wanes, bankers may be less likely to make new loans. Can stop making. or impose more stringent conditions, thus disrupting the economy.

World Nation News Desk
World Nation News Desk
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