Fears that the collapse of Silicon Valley Bank could bring down First Republic Bank, as investors express concern about losses on their investments and fear a possible run on deposits
- Silicon Valley Bank was taken over by the government on Friday morning, the biggest bank failure since the fall of Washington Mutual in 2008.
- The bank’s demise is a combination of a difficult economic environment and rising interest rates: whether a savior can be found remains to be seen.
- Now investors are worried about First Republic Bank, whose share price plunged 50 percent on Friday.
Fears rose Friday over the safety of First Republic Bank, following the collapse of Silicon Valley Bank on Friday and the ensuing domino effect.
Silicon Valley Bank, the 16th largest in the United States, specialized in supporting technology companies and has been hit hard by both economic conditions and inflation.
It passed to government control on Friday and executives hope another financial institution will step in to keep the bank afloat.
Other banks were rocked by the demise of Silicon Valley Bank, including First Republic, the 14th largest, whose shares plunged 50 percent on Friday before closing down 15 percent.
First Republic issued a statement late this morning seeking to reassure investors, noting its “continued safety and stability and strong capital and liquidity positions.”
First Republic Bank tried Friday to reassure uneasy investors after the collapse of Silicon Valley Bank
A Brinks worker walks to a truck after leaving Silicon Valley Bank in Santa Clara, California, on Friday.
The bank, founded in San Francisco in 1985, has 80 branches in 11 states across the country, primarily on the West and East coasts.
Michael Roffler, President and CEO of First Republic
Analysts expressed alarm when they noticed that First Republic, like Silicon Valley Bank, had a large difference between the fair market value (the estimated value) and the balance sheet value (the actual value) of its assets.
Silicon Valley Bank’s difference was in debt securities, while First Republic’s was in loans.
Similarly, both First Republic and Silicon Valley Bank rely heavily on customer deposits: at First Republic, wealthy individuals, and at Silicon Valley Bank, tech startups and venture capitalists.
With interest rates rising, First Republic customers have plenty of other places to park their cash and might try to withdraw it.
First Republic told nervous investors that their deposits were safe.
“Sources beyond a well-diversified deposit base include more than $60 billion of available and unused lending capacity at the Federal Home Loan Bank and the Federal Reserve Bank,” they said.
Regarding its financial position, First Republic said it “has consistently maintained a strong capital position with capital levels significantly higher than regulatory requirements to be considered well capitalized.”
