Fears of Silicon Valley Bank Collapse Could Topple First Republic Bank
- Silicon Valley Bank was taken over by the government Friday morning – the largest bank failure since the fall of Washington Mutual in 2008
- The bank’s demise is a combination of a tough economic environment and rising interest rates: it remains to be seen whether a savior can be found
- Now investors are concerned about First Republic Bank, whose stock price plummeted 50 percent on Friday
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Fears for the safety of First Republic Bank intensified Friday, following Friday’s collapse of Silicon Valley Bank and the resulting ripple effect.
Silicon Valley Bank, the 16th largest in the United States, specializes in backing technology companies and has been hit hard by both economic conditions and inflation.
It came under government scrutiny on Friday, and executives hope another financial institution will step in to prop up the bank.
Other banks were shaken by Silicon Valley Bank’s demise — including First Republic, the 14th largest, whose shares plunged 50 percent on Friday before closing 15 percent lower.
First Republic issued a statement late this morning to appease investors, pointing to its “ongoing security and stability and strong capital and liquidity positions.”
First Republic Bank on Friday tried to reassure shocked investors after the shocking collapse of Silicon Valley Bank
A Brinks employee walks toward a truck Friday after leaving Silicon Valley Bank in Santa Clara, California
Founded in San Francisco in 1985, the bank has 80 branches in 11 states across the country – primarily on the West and East Coasts.
Michael Roffler, the President and CEO of First Republic
Analysts were alarmed to note that First Republic, like Silicon Valley Bank, had a large disparity 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.
Likewise, both First Republic and Silicon Valley Bank rely heavily on customer deposits: in First Republic’s, wealthy individuals, and in Silicon Valley Bank’s, technology startups and venture capital investors.
With interest rates rising, First Republic’s customers have plenty of other places to park their money and try to withdraw money.
First Republic told nervous investors that their deposits were safe.
“Resources beyond a well-diversified deposit base include more than $60 billion in available, unused borrowing 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 above regulatory requirements to be considered well capitalized.”
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