First Republic: will UK banks survive unscathed?

The Treasury has sought to reassure the public that the British banking system is safe after First Republic became the third major US bank to fail in two months.

“As the independent Bank of England has confirmed, the UK banking system remains safe, sound and well capitalised,” a spokesperson for the Treasury told Reuters.

The official added that First Republic was “a matter for US authorities”.

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‘Emergency measures’

After its collapse on Monday, First Republic was taken over by US federal authorities. The “substantial majority” of its assets were then swiftly sold to JP Morgan, including $173bn (£138bn) of loans.

The bank’s collapse “follows the failures of US lenders Silicon Valley Bank and Signature Bank after investors withdrew funds”, Sky News said.

The US central bank, the Federal Reserve, has been forced to “step in with emergency measures”, the broadcaster added, in a bid to “stabilise the markets to prevent more funds being withdrawn amid growing fears of a new wider banking crisis”.

‘Confidence crisis’

The rescue of First Republic has “failed to calm market fears about the integrity of the United States banking system,” said Al Jazeera, with “regional bank shares plummeting for a second straight day”.

PacWest Bancorp, based in Los Angeles, saw its share price plunge by nearly 30%, while Western Alliance Bank and KeyCorp fell by 21% and 10%, respectively, said the news site.

Bigger banks, including Citigroup and Bank of America, also saw losses, but not nearly as steep as their mid-sized counterparts.

“If a ‘confidence crisis’ can happen to First Republic, it can happen to any bank in this country,” Jake Dollarhide, chief executive of Longbow Asset Management, told Reuters. “This is potentially a big deal, which hopefully won’t materialise to anything significant.”

‘A delayed reaction not a new phrase’

Some traders believe that following the collapse of First Republic, “other banks could also now be in trouble”, said This Is Money, though many say that this is “not a ‘Lehman’s moment’”.

First Republic’s issues were most likely a “delayed reaction to the turmoil in March rather than the opening of a new phase in the crisis”, the financial website added.

Jamie Dimon, the boss of JP Morgan, sought to calm concerns about a spiralling banking crisis after its hurried takeover of First Republic.

He “played down any other similarities with the 2008 crash, which triggered the start of an international financial crisis that plunged the global economy into recession”, The Guardian said.

Dimon described the US banking system as “extraordinarily sound”, and said that JP Morgan’s takeover meant the sector was “getting near the end” of the spate of bank collapses and would “hopefully help stabilise everything”.

HSBC’s chief executive Noel Quinn also sought to calm concerns about the health of the global banking system “We’re pleased that there was a resolution on First Republic at the weekend so that that situation has been resolved,” The Telegraph quoted him as saying. “We do not believe there is a global banking crisis on the horizon. We think there are some challenges that have been evidenced in some of the regional banks in the US, but we do not believe that’s systemic in the US, or across all banks.”

Discussing the possibility of contagion to the UK banking sector, LBC’s David Buik was equally confident. “Stress tests are regular occurrences and exacting,” the financial commentator said. “Many would be surprised to see a banking crisis in the UK barring an act of God!”