USA BANK COLLAPSES - FDIC Closes Republic First as USA Interest Rates Claims First Financial Victim
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Republic First Bank has Collapsed into Insolvency becoming the first official Financial victim of the rapid rise in Interest Rates in the USA over the past 18 months. In this video I provide more details on the collapse and discuss the possibility of more bank failures in 2024.
For specific details please check out the CHAPTER list below.
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Chapters:
0:00 Intro
2:15 FIRST REPUBLIC COLLAPSE
4:31 REASONS FOR FAILURE
12:05 FAILED BAILOUT
13:25 AUDITORS
15:05 USA BANK FAILURES
16:40 SUMMARY & CONCLUSION
#republicfirstbank
#globalfinancialcrisis
#SILICONVALLEYBANK
#SILVERGATE
#bankingcrisis
#signaturebank
#usa
#GLOBALFINANCIALCRISIS
#RUBLE
#SWIFT
#RECESSION
#CHINA
#USA
#NATO
#WW3
#WORLDWAR3
Let you know that Republic First Bank is NOT a peasant bank. It is a specialty bank that deals in retail. It also only have 20 branches. So I am not worried at all. In fact I said good that it failed. It is not the responsibility of the government to bail out failing businesses.
They should have called it Republican.
You know, catering to the monied and being a failed enterprise.
Well true, but its going to be put to the test very soon with the rise of automation and AI... cos equally you can't as a government, stand by doing nothing, while a techno revolution removes the need for a human workforce.
are you so young that you dont remember the last time banks crashed?
@@stephaniewaters1777
On average, about 25 banks fail each year in the U.S.. However, outside of crisis periods, banking failures have generally been uncommon.
The 2007-2008 financial crisis led to many bank failures in the United States. The Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks from 2008 to 2012. A 4-year average of 116 a year.
Of the 568 bank failures from 2000 to 2023, 465-or 82%-occurred from 2008 to 2012. Bank failures hit a peak in 2010 at 157 in one year-more than double the number of bank failures we’ve seen in the last 10 years combined.
I believe we are not close to a crisis yet. Given that this is the first bank failure of the year (as of April 2023), our situation seems quite stable. Typically, by this time, we would expect about eight failures to meet the average. Even if 24 more banks were to fail in the next eight months, it would still be considered an average year for bank failures.
@@stephaniewaters1777 There's a difference between one bank being too dumb to run their business and failing and an entire sector being too dumb to run their business and failing.
You can't compare this situation to 2008, full stop.
when I was talking to a guy who works on wall street about Republic bank going under he said not to worry because thousands of banks go under every year. not sure I should listen to him or trust him.
That sounds about right. All sorts of financial institutions fail - unpredictability of money, of course. - but FDIC insured banks like Republic First have secure deposits up to $250,000 (slightly simplified).
He's right of course. You shouldn't worry about A particular bank failing. What you should be concerned about is if the reason that particular bank failed is a systemic problem stretching across the whole sector and if so is this just the first of many others that are going to be affected by this systemic problem (double whammy of high interest rates pushing ARM mortgage holders into default at higher rates than expected + commercial real estate diving in value making a lot of loans underwater and poised for default and losses). The issue from what I've heard is not a major concern for large banks (they tended to have good risk managers who hedge for interest rate risk with derivatives and have higher capital requirements so they can absorb commercial losses). The issue is going to be smaller, regional banks and credit unions, but the majority of smaller banks are actually at less risk from the commercial real estate collapse because a lot of them do a smaller percentage of commercial real estate loans than big banks. The big danger is if you are a smaller that specialized in commercial real estate (such as Republic First). This does mean there will be more to follow but we probably aren't looking at a situation like 2008 when the whole sector is poised to fall off a cliff (albeit if there is mass panic and bank runs everywhere that would put the banking sector under a lot of stress even for healthy banks that should in theory survive, but at least they have higher capitalization ratios than in 2008 due to stricter financial regulation that came out of that event).
50 or so banks A YEAR EVERY YEAR fail in the US. You gotta contrast this with HOW MANY banks are in the U.S. All 32 branches are re-opening by Saturday as Fulton Bank.
Yes, there are SO many banks in the US it’s hard to believe. Every week a new one opens up near me, it seems.
This is inaccurate.
Exactly. Many banks around the world collapse every year. If you have 5000 or so banks and 50 of them fail, what's the % of failed banks as compared to successful banks?
@@summer031977do you have a calculator?
Ok, but are they usually that large? Or lose 400mill? Also those other bad assets are now in foltens book burning them now as well
This is the first & only fully technical breakdown on this failure I've come across.
A lot of lessons to be learned in this presentation. Nicely done, Thanks for your time puttting this together.
Glad Joe is back and in his flow.
Joe be in the Flow! GO JOE GO. FLOW JOE FLOW. Like GI JOE my HERO
THIS is main Joe Blogs. Great work 👏 thanks!
Brilliant info, thanks for sharing much appreciated 👍
Thank you for covering this important topic -this information should be appearing on my bank statements.
Thanks for the heads up Joe. Always a fan and I always tell people to check yeah out.
Clear presentation! Thank you, Sir!
Seems to me it boils down to poor management of the bank and not being willing to face the situation honestly. When their best answer to bad news from the auditors was to fire them you have z huge problem.
Thanks!
Brilliant video thank you
Joe gotta love you for that intro, never rename the channel using first or republic in any way
Danke!
Good analysis as usual and an important one if you’re an investor.
prepare prepare prepare......Great video....keep rockin.
They strung out the failure to allow the affluent to retrieve their uninsured money.
Actually, it's the other way around for once,
these slow pops allow the gov and other financial institutions to pay their 250k insurance to deposit holders, they cover these assets first now in the event of a bank failure and investors are the big loser when this sort of thing happen now. Which is good for the general population. Bad for investor who lost out on a bad investment, as things should be.
The uninsured money is invariably a matter of the money being spent by the bank on uninsured products. No money to retrieve until those failed products are sold back at a loss.
Thanks Joe. I appreciate economics far more with your explanations and your insights on world economics 👍
Thank you Joe. Please keep us up to date. A lay person will not always understand anyone
Alright!! He managed to get it thru the door!! Great video as always!
Excellent information.
Thanks for this. It doesn't seem something we should be too worried about.
Very clear and concise explanation. Thank you!
Ironically I quit working for Fulton Bank last November.
Probably a good move.
? Incidentally, perhaps.
Very good, Joe. Makes me want to spreadsheet a model to examine the sensitivity to realistic changes in interest rates.
Thank you
Thanks
Fanatic is a reference to the Philadelphia baseball team Phillies.
The Philadelphia Major League Baseball team mascot is named the Philly Phanatic. I think somebody at the bank was trying to be “cute” with a local cultural reference in their slide.
Which team has Gritty?
Good catch, Brian. I think you're correct about that. The presentation should have gone all out and use the colloquialism phanatic instead of fanatic. At a minimum, the Joe Blogs team would be less puzzled about their use of the word fanatic.
@@chumpzilla30
Gritty is the hockey team mascot.
Flyers suck!
There were other typos in that slide, I would suggest it was just another typo.
Thank you! 21:37
I have been told not to be fooled, stocks and etfs are not the economy, I had 180k put aside waiting for the feds to stop raising rates, now I’m ready to get back in the market, but it looks like the pause is forever and Faang will still rise/fall, I’m confused, what could be the way moving forward
The stocks will go down further, and good luck on the feds pausing rate hikes with all the hawkishness that has failed to keep up with inflation
If unemployment is able to remain steady while the fed hikes and inflation falls back to target a soft landing might be on the table
Don’t expect a soft landing, we know inflation is still far from it’s 2% destination -the FOMC didn’t reduce rates yet, we can never foretell their moves these days
Fixed income Tbills and bonds may work for you while you try to figure out the next entry point for stocks
It’s always good to have a fin-plan, I work with a professional planner, multi-market and fixed-income strategist, the fixed income portion of your portfolio won’t simply serve as a buffer to the volatility of the equity portion of your portfolio but will provide a legitimate income
It makes you wonder how many more banks are in the same situation and are going to go bust.
Are we still not regulating midsized banks? This is embarrassing.
Every bank is heavily regulated. Are you saying that because a bank is regulated that it should be impossible to fail? Not sure what your point is.
Regulation isn't really the issue here.
The theme of these failures is that their customers refinanced at ultra low rates a couple years ago. And the banks took a nice little refinance fee for each loan up front in exchange for those longer term low rates. These refi fees were paid out as dividends to shareholders instead of cashed up to buy assets to pad out their portfolio, so they lost their moat.
As long as the bank can continue to attract new deposits, then they can use that to create new loans as rates rise, and nudge their bond rates upwards over time. But the issue is when they can't attract new customers, and can't generate new loans. If people pull their liquid assets out, then the bank is forced to sell their underlying assets and portfolio. But when the rate of the products is 2% in a 6-9% environment, then the bond price is discounted to bring the rate in line for the buyer. This means that a lot of assets bleed out, cash flow tanks, and the bank is forced closed.
The good thing here is that we are at the 2 year mark of higher interest rates. People need to move sometimes, car loans never hit anywhere near those 2% rates and have higher turnover, and business loans tend to have 1-3 year terms. So more and more of these low rate loans are adjusting upwards over time. Banks that aren't losing customers are going to be in the clear soon if they aren't already. As rates are beginning to drop I'm already considering a cash out refi to convert my 2% home loan and 8% heloc into a single lower rate long term loan because I have something I want to buy that will make the loan worth it once rates drop under that 5% level. Others are waiting for that 5-6% range before pulling the trigger on moving or buying their first house. Rates are higher for longer, and while a 6%+ rate is prohibitive things are softening and we will see rates come down to a more reasonable sub 6% rate within the next year and people will refi and generate new loans again, putting banks in a really good spot.
We may see a few more failures before that happens, but republic bank is probably the last big one in this kind of major pinch which is why it isn't making headlines. If you didn't buy bank stocks last year when everyone panic sold, then now is your chance. Not financial advice, but you should at least take a look. As people refi to higher rates and the fed slowly lowers rates then banks will be in the opposite position to where they are now and will be in very good shape for a good long while.
When a moronic administration is in-charge to oversee based upon DEI, what do you expect….
That last chart is AMAZING. I'd like to have heard a bit more about that.
Was my favorite bank! Vernon Hill who founded Commerce bank. Was first bank to have Saturday & Sunday hours and extended hour's. Imagine that! ?? Had free change counting machine. Was very customer friendly community bank in South Jersey. Was sold to TD bank which basically took away all the decents things but the extended hours. Vernon Hill went to UK
Started a bank with weekend hour's and Brits were apparently shocked but then loved the idea!
He then came back to the states started Republic bank. Oh one thing TD bank was ripping people off with the change counting machines ao they took that away too.
Republic bank had the machines and they were accurate.
Was a hostile take over by disgruntled board member.
He got voted out and I guess the rest is history to some extent.
Comprehensive, as always.
It was kinda cool hearing Joe say the name of my city “Philadelphia”🙌🏽
Great Video Joe, My observation as a ex bank manager is that USA has far to many small banks and a few large banks that operate in all geographies and all banking markets, it's hardly surprising that small banks with limited capital get into trouble from time to time, thanks for sharing
Futon Bank is a very stable and well run bank. Even during the last bank crisis they were still making money. So the Republic Bank customers can rest easy.
Not Unless those bad assets continue to fail harder on there books now.
In my language "bank" can also be a couch or sofa or bench (besides a financial institution). And then you misspelled Fulton as futon.
This is funny to me.
When people think about degenerate gamblers, they may think casino goers or even WSB dwellers, but the true regards are at the top of banking business.
Currency and debt derivatives on the us debt clock hasn't been updated yet, its currently at 624Trillion but was around 672Trillion 2yrs ago. This is 17.997 times the government debt but at it's height was 21times the US government debt.
Vernon Hill was involved with Metro Bank in the UK, a challenger bank.
Joe - it cannot be a coincidence that this is the first bank failure since the Bank Term Funding Program came to an end in March
😂😂😂😂... i like the simplicy and humor added to this sad story failure of corporate governance
Great stuff Joe. Much more pertinant than flame throwing robotic dogs. 👍👍
I will remember the flame throwing robotic dogs long after I have forgotten what banks failed.
Thanks joe, i wonder how meny MOREare going to close? Sitting here watching.
Interesting on how banks reached out to long term maturities for the higher yield. But what about pensions? With low interest rates they too were SOL also. I haven’t heard of any difficulties with pension funding valuations.
Pension funds are notoriously under funded…but union failures are swept under the rug…especially in an election year.
Pensions hold a wide variety of assets, ranging from stocks, index funds, bonds, real estate, and private equity. Maybe venture capital. They also have very long time frames, so can make up for some losers by offsetting winners over time.
Pension funds are not facing solvency issues so long term investments are not a problem.
“Refresh the board of directors and management team” and still stabilize the business..TALL order. Watching top management disappear tends to spook middle management and the on the ground workforce.
While often categorized as a democracy, the United States is more accurately defined as a constitutional federal republic.
- Generative AI
There was also the auditors report that indicated that there were major issues with their financial reporting. Without a detailed look at that it is difficult to see if the books were ‘cooked’ or there was poor financial control and reporting that misled the directors as well. Poor financial information can mean that it is not possible to model several scenarios to identify risks. Thanks Jo informative as always.
That’s so cute trying to get his toy outside. 😊
Egads! I’m in PA & heard of this bank but thankfully it’s not my bank. Fingers crossed that my bank invested better?
The real question is the same as with Silicon Valley Bank - why didn’t they hedge? They lent on small profit margin on long-dated (and therefore highly volatile) low interest rate loans. It should have been immediately obvious to any risk manager that they were very exposed to a rise in interest rates - that is the very FIRST scenario a risk manager considers.
The natural cure for such a vulnerability is to put on a hedge - buy an asset that will increase in value when interest rates rise, such as an interest rate cap. That’s what they are there for.
Why didn’t they do this? In the case of Silicon Valley Bank, it was clear that the risk management position was vacant for a long time, and then filled by an incompetent. Was it the same for Republic First?
15:10 Is Silvergate Bank missing from this list? Why?
The Navy Federal Credit Union normally has the highest interest rates per assets. After all I think that is one of the last banks the U.S. goverment would let fail anyways.
520 some odd banks have failed in last 10 years. The FDIC comes and sells the rest off. Most people don't even feel it.
The same thing of buying low interest rate long-term bonds happened in retirement funds all over.
There will be many more smaller/mid level regional banks that go under. Mostly, this is due to failing commercial real estate, then selling bonds at a loss to cover as cash was needed at branches. There will be many more, but not a worry. This is what will happen when you invent Zoom and raise interest rates within a a year or so of each other.
4:21 it’s good to see that we’re getting a kind of orderly changeover to Fulton bank. Depositors aren’t getting burned, business basically carries on as usual.
For everyone to remember when you deposit money at a bank you're not just giving it to them to hold on to you're technically loading it to them make it keep it as long as they want they can do whatever they want with it which means if they lose out on an investment you lose all your money if it's above the 150,000 insured the FDIC
@joeblogs because Philadelphia has the Philly Fanatic as a mascot
It is not just a liquidity issue, though. It is also a solvency issue when the source of funding (liabilities) exceeds the yield on assets, aka a negative net interest margin. The Federal Reserve is in this exact same insolvency situation, with its realized losses from negative NIM exceeding twice their capital -- if they could go bankrupt, they would by now, but, since they can print money in the form of "deferred assets"and can legally enforce acceptance of their deposits at par, they will simply debase the currency and carry on.
This is the exact reason the FDIC is an organization. This is not a national issue, banks close all the time and are taken over by the FDIC and then sold off to another bank. It is nothing to worry about. But this is precisely why you don't keep more than what the FDIC cover's in your bank account, normally 250,000. For 95% of Americans, that's not an issue, we will not come close to 250k in our bank accounts. The "fanatic" slide had other typos as well, like "Ssecurities". Very nice slide they've made haha
Basic banking economics - if the cost of funds you lend to people is greater than the price you charge people to borrow those funds - you will go broke!!
I'll be waiting for a more detailed analysis of Republic First's portfolio to understand why it had to be dissolved. Unlike this video, I understand that as much of the loan portfolio was in commercial properties but I don't know how much of that might be multi unit residential vs office. Of course any bank still holding on to office properties of any type is heading to eventual ruin but even residential commercial is supposed to be strong.
At this time I haven't heard anything that other banks might fail, first a proper understanding is required why Republic First failed and questions whether the bank stress tests are doing their job . This sounds for now a case of a bank unable to hold sufficient reserves to operate and not a case of anyone threatened to lose money.
The Fed created the bank term funding program in March 2023 to counter exactly this type illiquidity risk resulting from the fast rise in interest rates. The BTFP ceased new loan creation in March 2024. I wonder if the end of that program meant Republic First could no longer function.
I'm not sure if "..providing a fanatic" is exactly the right way to phrase that. I think your right about it being a typo.
Joe, I'm thinking that firing their outside accountants should have been an outsized red flag. Why did they think they could side step the process?
Let's see how long this lasts.
I think Crow gets some creds here - being fired because you correctly told someone there were problems are exactly the auditors you need :)
Hey Joe, not sure if you’ll read my comment, but I just wanted to say that of all the economical/political channel, you’re the most neutral source, which I appreciate. Although I can be considered a pro-western person, I always frown when I see presenters that are “too” pro western and become propagandists, which I consider as no better than Russian/and North Korean propagandas.
Again, thanks for being as awesome as you are. I’m in no financial position to support you fully but I hope you know that there are many of us in the side watching you and trusting you with fact-based content.
Looks like the commercial segment got them, as well residential segment which is probably picking up losses quickly, the commercial side of this is probably dead weight at this point. Those two alone almost half their balance sheet granted not all are losses, it shows a potential for loss as the economic continues to implode...
I thought USA Bank has collapsed as well. I guess not yet. 🤷♂️
Pls publish something w/o the word COLLAPSE, it should be very refreshing
I've never heard of this bank
Was a great bank! There a back story! Was a hostile take over by disgruntled board member
When founder went it went.
“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.”-Thomas Jefferson
I'm curious, what percentage of the loans that they did they sell into the secondary market? It sounds like the management team, coming from commercial, wasn't equipped for proper decision making in the jumbo market. If they had packaged those loans and sold them they would have been more profitable and would not be holding a portfolio that was lossing value.
You always say. Ooo this is huge and yet it’s always a bank I have never heard of 😂
I have substantial assets in Fulton Bank. Can someone tell me whether Fulton bank buying republic first will put Fulton Bank in a position where they could go under easier???
Joe at 17:15 you make a small error by saying the management started making strategy mistakes in "2008 as a result of the great financial crisis" but you meant 2018 I believe. Perhaps you can edit your video and put a notice that you mean 2018 to add clarity and prevent confusion to your viewing audience.
TLDR. those who bought bonds serverly f#%kd up.
The IT folk will be working overtime this week reconciling the systems of the two banks. BTW: Was that dog on the Board?
Inflation and the associated rising interest rates are hard on a Banking Industry which has spent decades writing fixed interest rate loans. The way for Banks to fix this is by moving to a portfolio of adjustable rate loans which protect the bank in an interest rate volatile market.
Banks love Deflation and hate Inflation.
Is there any connections to Metro bank in the UK?
4:56 When the Bank offers "fanatic" customer service and you give them money, expect to wake up with a headache and a missing wallet. Heheeheh.
Around 6:40 you mentioned their use of “Fanatic”.
It’s not a mistake. In Philadelphia’s baseball mascot is the Philly Phanatic so they’re just being cute.
What is a standout is that this really small Bank was considered To Big to Fail or "systemically important" which well, there simply isn't enough money to bail out a truly massive modern US Bank such as Bank America. This would also include so many other " financialized items" the problem is not hard to see and recognize #beggar_thy_neighbor possible currency War between China and Japan.
yep. it's still happening. even Chase and BOA are in trouble. I have seven banks for budgetting purposes. online banks make it easy to have multiple banks
Chase and BOA are not in trouble. There are headwinds but I don't see either of them going under.
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Fanatic, oh they nailed it! 😅
'Geisel' means either 'Scourge' or 'Hostage' ... both concepts don't do well as a CEO ...
Never heard of it **shrug**
Why didn't they use BTFP before it expired? They had plenty of warning...
I didn’t not understand how banks in America collapse, it’s something that is unheard of in Australia because the government guarantees them.
Banks in America are generally very small. This one had only 50 branches. There are building societies in Australia that are much larger.
@@allangibson8494 Yep, but smaller are easier to rescue too.
The deposits are guaranteed here, too, by the FDIC. There are limits: "The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category." However, the bank itself can easily put their own money into other products. The depositors get their money back, the bank investors do not.
I don't understand why they would go heavy in long-term when interest rates were at a historic low obviously they would going to rise sometime in the next 20 years.
An American bank in trouble? What a surprise I don't think!
Is "liquidity" in a bank the same as "cash flow" in other companies?
2 More Banks will go before August. Time to get your money out. Clueless Executives and Managers.
. I think this bank was started out bought by the guy who started commerce Bank, later taken over by TD Bank.
I think he tried to recreate the original formula that made commerce such a success. TD made done unfortunate changes to really squeeze every dollar out of customers.
Is this a nationally chartered bank? Where was the OCC???