It seems that in the US the time has come for a wave of consolidation in the banking industry. A key program that kept US banks afloat ended last month, and everyone knew what that would mean.
By the last Friday of April, the FDIC had taken Republic Bank’s assets and had already arranged to sell them to Fulton Bank. But at the time this became known, everything in the US was closed. By the following Monday, everyone had forgotten about them. At the time it was seized, Republic Bank had 32 branches in New Jersey, Pennsylvania and New York.
Philadelphia-based Republic First Bank (doing business as Republic Bank) was closed today by the Pennsylvania Department of Banking and Securities, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, the FDIC said.
To protect depositors, the FDIC entered into an agreement with Fulton Bank, National Union of Lancaster, Pennsylvania to assume substantially all of the deposits and purchase substantially all of the assets of Republic Bank.
Republic Bank’s 32 locations in New Jersey, Pennsylvania and New York will reopen as Fulton Bank branches, and depositors can access their money by writing checks or using ATMs or debit cards. Checks issued to Republic Bank will continue to process and loan customers should continue to make their payments as usual.
The pattern repeats itself
Already market analysts have seen a pattern emerging that they will likely continue to see for future bank failures. Before this seizure was even announced, a deal had already been made for a larger bank to take Republic Bank’s assets.
Of course, taxpayers weren’t exactly exempt from this deal. According to the FDIC, this deal will cost the Deposit Insurance Fund $667 million. As of January 31, 2024, Republic Bank had approximately $6 billion in total assets and $4 billion in total deposits.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) associated with the failure of Republic Bank will be $667 million. The FDIC has determined that compared to other alternatives, Fulton Bank’s acquisition of Republic Bank is the least expensive solution for the DIF, an insurance fund created by Congress in 1933 and administered by the FDIC to protect deposits in the country’s banks.
If only a few banks fail this year, the Deposit Insurance Fund will be able to handle it. But what if dozens of banks start to fail?
The problems that continue to exist
It’s been clear for a long time that Republic Bank was in trouble. It had “unrealized bond losses of $262 million” and Republic’s share price had fallen to 1 cent. The bank’s share price fell from just over $2 at the start of the year to about 1 cent on April 26, leaving it with a market capitalization of less than $2 million.
Its shares were delisted from Nasdaq in August and are now traded over the counter. But there are several other banks that are currently on shaky ground. For example, the New York Community Bank would have already collapsed completely if a group of investors had not been convinced to pour a billion dollars into this troubled institution.
Recently, New York Community Bank saw its share price swing sharply as customers began pulling out their cash after it said it had identified a “material weakness” in the company’s controls. The bank received a $1 billion investment from investors including former Treasury Secretary Steven Mnuchin’s firm Liberty Strategic Capital in March.
Of course, it’s not just Community Bank of New York that’s treading on thin ice. In the next three to five years, thousands more regional banks will fail.
The reasons
One of the main reasons why so many banks are on the brink of collapse is because they are facing a commercial real estate collapse of historic proportions. In St. Louis, the tallest office building recently sold for 98% less than what it was worth in 2006, about $3.5 million.
The Railway Exchange Building, once the crown jewel of downtown St. Louis with its famous Barr Department Store and large offices, is also now a vacant lot.
Across the states, commercial real estate values have fallen dramatically, and small and medium-sized banks are sitting on mountains of commercial real estate loans. Meanwhile, more signs continue to emerge that the overall economy is moving rapidly in the wrong direction. For example, Walmart just announced that it is closing two more stores, while in 2024 alone it has already closed six.
