According to Bob Michele, the chief asset officer of Asset Management firm, J.P. Morgan, the recent liquidity crisis faced by First Republic Bank may cause a ripple effect in the whole banking industry. Additionally, Michele expressed concern over how regional banks will operate once the emergency lending programs offered by the Federal Deposit Insurance Corporation and Federal Home Loan Banks expire. He stated that regional banks are heavily dependent on these programs, and their potential expiry could lead to dire consequences, media reports said.
Michele believes that the current banking crisis should not have occurred as banking industry is highly regulated and capitalized globally. He blames the high prices of everything for the recent banking crisis, which has hit the lowermost quartile of earners the hardest, causing them to exhaust their deposit credits.
Michele stressed that it is not a solitary incident and it would be naive to assume that it is only restricted to First Republic Bank. He believes that there requires to be a continuous effort to resolve the influence of the bank’s downfall to contain the situation and prevent it from circulating throughout the financial system.
In recent times, regional banks like Silvergate and Signature Bank have received considerable loans from the Federal Home Loan Bank, but they finally collapsed owing to major deposit outflows.
On April 29, the CEO of Messari, a blockchain investigation firm, named Ryan Selkis, expressed his concern that if the government continues to blame crypto instead of recognizing the responsibility of the Federal Reserve’s policies, more banks can possibly encounter similar situations in the future. To prevent such situations from occurring, the U.S. Department of the Treasury staff is allegedly exploring options to extend the current insurance deposit coverage, which currently has a highest cap of around $250,000, to include all depositions in the US.
