The latest on First Republic Bank:
Eleven big banks banded together last week to deposit $30 billion in First Republic in an effort to restore confidence in the lender. The San Francisco-based bank’s customers have withdrawn some $70 billion since the collapse of Silicon Valley Bank earlier this month, The Wall Street Journal previously reported.
That's more than a third of FR's deposits. The fact that they faced a run like that and remained in business is prima facie evidence that they were in pretty strong shape to begin with.
(Note that this is not the same as Credit Suisse. FR is a strong bank that got hit by a panic. Conversely, Credit Suisse has been in trouble off and on for the past decade, and the panic over Silicon Valley Bank was just the straw that broke the camel's back. They haven't been a strong bank for quite a while.)
I don't know what's going on here. But I will mention that I've long thought the answer to stabilizing the US banking system is to get rid of our thousands of little regional and community banks and consolidate them into maybe half a dozen giant banks. If you walk down any high street in Britain, that's what you'll see: the same four or five banks in every town, which collectively account for something like three-quarters of all retail banking.¹ The same is true in Sydney, Stuttgart, Milan, and most other places.
There was a time when small banks provided services that remote money center banks couldn't or didn't. But those days are long gone, and small banks don't really serve much purpose any longer. We'd be better off merging them into big banks and then regulating every bank the same way.
¹Investment and commercial banking are a different story.
Whoa there! Suddenly Kevin is in favor of market consolidation?!?
https://www.motherjones.com/kevin-drum/2015/10/hillary-clinton-wants-cut-mega-banks-down-size/
https://www.motherjones.com/kevin-drum/2018/03/banks-still-own-congress/
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agree in principal re small banks .... but not these guys. Signature & First Republic were making illegal loans to NY real estate, i.e. lending to "disruptors" who wanted to buy rent-stabilized buildings and then throw out all the tenants, claim that they'd deregulated the building (which was possible until recently, but required actual investment in the buildings, which these guys didn't do) and rent at market.
See, for example:
https://www.curbed.com/2023/03/signature-bank-failure-worst-landlords-tenants-harass.html
First Republic was not far behind Signature.
Does make you wonder if there is something deeper going on here, perhaps nefarious, that hasn't been disclosed (or discovered) yet.
https://www.theguardian.com/technology/2022/oct/15/peter-thiel-who-is-he-republican-donor-tech-entrepreneur
It’s certainly possible that Peter Thiel is basically short FRB but doesn’t have nearly enough cash on deposit to start a fatal bank run and so he and his “founders” are just working the media to keep the bank under pressure. It’s hard to say.
"We'd be better off merging them into big banks and then regulating every bank the same way."
Or, you know, just give everyone a Federal Reserve bank account (a public option for banking I guess it would be; a nationalized credit union) and remove those deposits from private banking altogether. Those deposits would always be secure. And they would do away with all the folderol (and fees) that private banks put us through.
Have you ever tried to get a national bank to manage a $3.5 million trust for a disabled person? I have. It pretty much can't be done. Those guys won't handle anything under $10 million. And even if they did, you wouldn't want them to. You'd be dealing with someone out-of-state who wouldn't know the particulars of serving as a fiduciary in your state. That's assuming you could actually get someone on the phone, which is questionable.
There are lots of banking services that require a more personal connection than you will ever, ever get from the BoAs and JPMorgans of the world.
Or help you with anything complicated if there's not a ton of money in it for them? Big banks are a nightmare to deal with for anything that is not 100% basic.
Amen. Let me add an example (although it involves a large regional bank, not one of the best-known national ones):
A few years ago I was the executor of the estate of a close relative. At some point an out-of-state office of the bank that held her mortgage sent me a letter saying that they had learned of her passing. (They had learned of it because I had reported it to the local branch, and made arrangements to continue the mortgage payments.) The letter went on to say that I had to call a particular phone number right away to make arrangements to continue the mortgage payments, or else they would move to foreclosure. When I called the number, the woman I reached had absolutely no idea what I was talking about, or why I was calling. She was, however, deeply suspicious that I was trying to trick her into providing some sort of information that I was not entitled to. Short version: the guy at the local branch was great; the national management team was clueless.
No, we don't want to consolidate all the banks as long (more than they are now) as they remain private profit-making entities. The bigger they are the more power they have to prevent themselves from being regulated and to get themselves bailed out when they overextend.
Again, the small banks will have small deposits that are fully insured, so they won't be subject to runs. They are not the problem now that they were in 1929-33.
At some point the problem of excessive corporate size must be addressed. Either the big corporations must be broken up or there must be more public control of them. The "free market" doesn't work when there are only a few competitors.
I second what Skeptonomist writes above, power dynamics is a very important consideration in market freedom, as the long history of both politics and monopoly show. Do we always have to keep learning the same lessons and pretending it's the first time?
The Three Stooges demonstrate how banks work,
https://twitter.com/DannyDeraney/status/1637950778584498176
"There was a time when small banks provided services that remote money center banks couldn't or didn't. But those days are long gone, and small banks don't really serve much purpose any longer."
Au contraire. I just finished watching a short seriers all about a person trying to create a small bank in the UK to provides services large banks don't (and being blocked by regulators obviously captured by larger interests), precisely because large nation spanning banks aren't interested in local conditions, only larger, self serving, interests.
A locally vested bank that saves, lends and invests in local concerns without distraction seems much more necessary when large national banks will refuse to lend to small businesses that can't compete on rates related to New York and London.
Yeah -- and please keep it local. When San Francisco and Silicon Valley banks are lending to NYC multifamily properties, it's not local.
So let's allow local banks that really and truly are tied into the communities.
Midsize banks, regional banks and Credit Unions actually pay you interest. JP Morgan/Chase saving rate? .10. No we need regional banks and credit Unions. Not a well thought out decree there Kevin Btw. Businesses are free to put their cash anywhere.
You can pry my credit union (Del Norte, NM) from my cold dead hands.
And I'll bank with JP Wells Chase Morgan Fargo Bank America Bank the day it freezes over in hell.
Wow. Just wow. This post really bothers me.
Kevin normally posts about things he knows well from personal experience (tech, marketing) or has researched (lead poisoning, the failure of SVB). He normally explains the problem, if not obvious, before presenting a solution. And he typically links to sites for further information. None of that here.
Small and regional banks are a problem because ... what? They widely fail, disrupting the economy? They consistently prove to be scams for investors? They only get customers by tricking them, with high churn rates? They are notorious for underpaying their workers? They're notorious polluters? They are heavily subsidized by the government, and otherwise wouldn't exist?
Just very strange, and unusual.
(And don't get me started on why, for many if not most people, credit unions are better than banks.)
Yeah, count me out of the mass consolidation. The huge banks suck. And that's the halfway honest ones, I'm not even talking about the ones that outright cheat their customers, like Wells Fargo.
I use a little regional bank, recently merged with another so it is a little less little. They're totally boring, I love them. I also use a credit union. They're even more boring, and I love them even more.
If the US were to go that way, I'd want postal banking as a consolation prize. All I want out of a bank is a safe store of cash connected to the interchanges. I'll do everything else through the retail investment shops.
Make the Post Office a no-frills bank and you can have BofA fight with Wells Fargo for who can be shittiest to their customers.
USPS offered banking services for more than 50 years, but stopped in 1967.
They should do it again. (This is mostly for people of limited means who need a financial institution to navigate the retail/rental world.)
You are my twin. My day-to-day stuff is through a credit union with fewer than a dozen branches. I have a secondary account with a bank that has seven branches, all in two counties. This is after the merger. My original side had, I believe, three locations.
The remarkable assertion that local banks don't serve any purpose large banks don't makes me wonder how much retail banking Kevin does. Dealing with large banks universally sucks, even when, as you point out, they aren't actively defrauding their customers. For those who think this is a law of nature, it would be eye-opening to deal with a local outfit.
Thirty years ago there was a legitimate issue with ATM networks. This was the only advantage a large bank had. Nowadays, with us nearly post-cash and retail businesses eager to give you cash back to get it out of their hands? There is absolutely no good reason for an ordinary person to deal with a large bank.
Came to the same conclusion when I lived in Amsterdam in the mid 90s. Hell, even China has 4-5 major banks across the country.
It's part of the cult of the small and local in our country. Which works for some things, like upper-end restaurants, but is just prone to inefficiency, corruption, and incompetence. Same with local government.
Wash that mouth with soap and water. I will never do banking with a large institution.