All magic tricks require distracting the viewers’ attention so that they focus on the magician’s very visible hand, while the obscured one does the dirty work. It seems that’s what happened, again, in Washington on Wednesday.
While the world was transfixed by today’s announcement by Fed Chairman Jerome Powell of an expected 25-point rise in interest rates, a quiet two-day conference was held in Washington, D.C. of the country’s top eight bankers to try to concoct a scheme to put out the raging fire at First Republic Bank of California, and cook up a broader approach to deal with the fact that as many as 190 additional U.S. banks may be teetering at the edge of bankruptcy, according to a new study reported by CNN.
JPMorgan Chief Executive Jamie Dimon and his fellow bankers met for a quarterly meeting of the Financial Services Forum, after which Dimon went to meet with Lael Brainard, the director of the White House’s National Economic Council, Reuters reported. It is not known at this point what Dimon and Brainard discussed, but Reuters said that “the banks were aiming to work out details for what needs to be done for First Republic within the coming 24 hours.”
But the problem goes way, way beyond First Republic. CNN reported today on a March 13, 2023 study published on the SSRN site titled “Monetary Tightening and U.S. Bank Fragility in 2023: Mark-to-Market Losses and Uninsured Depositor Runs?” by lead author Erica Xuewei Jiang of the University of Southern California, which explained that “the U.S. banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets.” This is in part due to sharply rising interest rates, which Powell just continued with today’s announcement. Although the average fall in value across all banks has been 10%, “the bottom 5th percentile (is) experiencing a decline of 20%.”
That means that about 190 banks are at risk of becoming the next First Republic.
Fox explained: “The gathering (of the eight top bankers) is generating more attention than usual considering the big lenders are in talks to help stave off contagion after a series of bank failures in recent weeks.” First Republic Bank, which got a $30 billion bailout from 11 large banks a week ago, but is still hanging on by its fingernails. According to the Wall Street Journal, First Republic has not only hired JPMorgan to “advise” it, but has now also taken on Lazard Ltd. (for help with “a review of strategic options that could include a sale, capital infusion or asset trimming") and McKinsey & Co. ("to help map out a postcrisis structure for the bank").
There sure are a lot of doctors gathered around the failing patient.
The Financial Services Forum is an economic policy and advocacy group, and its members include JPMorgan Chase’s Jamie Dimon, Bank of America’s Brian Moynihan, Citigroup’s Jane Fraser, Wells Fargo’s Charles Scharf, Goldman Sachs’ David Solomon, Morgan Stanley’s James Gorman, Bank of New York Mellon’s Robin Vince and State Street Corporation’s Ronald O’Hanley.
