While China grapples with an all-encompassing crisis stretching from banking to real estate, the situation in the United States is not too different. The American banking crisis deepens with Republic First Bank emerging as the latest casualty. This is the first American bank to fail in 2024, following several such closures last year. Reports indicate that the Federal Deposit Insurance Corporation (FDIC) has seized the bank due to numerous deficiencies.
Why did FDIC seize the bank?
According to a Reuters report on Business Today, the American banking sector has received the worst news of the year. Last Friday, the FDIC announced that American regulators have seized Republic First Bancorp and agreed to sell it to Fulton Bank.
In Pennsylvania, New Jersey and New York, the regional bank Republic First Bank had assets worth $6 billion and almost $4 billion in deposits as of January 31, 2024. Post-failure, the Deposit Insurance Fund might bear a burden of approximately $667 million.
Fulton Bank Takes the Reins
Following the failure of Republic First Bank, Fulton Bank has taken over, acquiring all its deposits and assets. As of Saturday, all 32 branches of Republic First Bank have been opened under the Fulton Bank name. This follows the closures of Citizens Bank, Silicon Valley, and Signature Bank, which are significant indicators of the deepening banking crisis in the US.
Last year, Wall Street Journal had reported that Republic First Bank had struck a deal with an investment group, which unfortunately fell through by February 2024. FDIC had then restarted efforts to seize and sell the bank after the deal failed.
Signs of Crisis Apparent Since Last Year
The crisis at Republic First Bank began to deepen last year when the bank initiated substantial job cuts. The bank had also exited the mortgage business due to high costs and lack of profitability improvements. By 2024, the bank's share prices had plummeted from $2 to nearly 1 cent on April 26, and its market capitalization also decreased to less than $2 million.
A Key Reason Behind the Failures
There are many reasons behind these bank failures, but one of the primary ones is the continuous decline in the value of outstanding loans against property. Notably, persistently high US policy rates and a downturn in commercial real estate values have increased financial risks for many regional and community banks.
