- Base Layer
- Posts
- 🏦 Down goes First Republic Bank 👀
🐳
GM everyone. This is 2036, the newsletter that makes you smarter on crypto in 3min/day.
No, this is not the chart of the latest crypto or memecoin.
It’s the stock chart of one of the largest custodians of money in the United States - First Republic Bank:
Over the last two months, the stock is down -96%.
Yesterday alone, it tanked -30%.
Shortly after, bitcoin rose by nearly 10%.
WTF is going on?
Here’s the only summary you need.
🤌 Our Top Picks
Stories to read if you’ve only got 1 minute
💡 Learn
Get smarter on crypto in 2 minutes
You probably know US banks are in trouble.
But the situation just got a whole lot worse.
Last month, Silvergate, Signature, and Silicon Valley Bank all went belly up.
Now it’s First Republic Bank’s turn. Here’s why.
1/ During the panic last month, First Republic Bank lost 40% of all its deposits - $100 billion.
Remember, banks are in trouble because they used customer deposits to buy government bonds that tanked in value as US interest rates increased 47x in 2 years.
In short, they don’t actually have your money.
First Republic Bank received a $30 BILLION rescue package just 38 days ago, but they managed to mess that up too.
Just like the deposits, it seems.
First Republic Bank managing $30 billion
2/ The government now has 2 options:
Option A: let First Republic Bank fail and let the FDIC insure all deposits below $250,000.
In this scenario, it is unsure what will happen to deposits above $250,000.
What’s sure is that stockholders will get wiped out, and the bank will go under.
Option B: step in and guarantee all deposits at the bank.
This is what happened with Silicon Valley Bank. The Treasury stepped in and guaranteed ALL deposits at the bank.
So far, that seems to be what the market thinks is going to happen.
But guaranteeing all deposits sets a precedent that is hyperinflationary.
If the Treasury guarantees all the deposits at all the banks, it could need to print up to $18 TRILLION if things go haywire.
That’s why bitcoin was up nearly 10% yesterday.
3/ In both cases, the US banking system is a tough spot.
If the Treasury saves First Republic Bank, it could need to save all the banks.
If it lets it fail, then every other bank with the same issues will go under shortly too.
It would be an enormous crisis for the US banking sector - a game of roulette to see who gets a bailout and who doesn't.
The Treasury right now
4/ The most likely solution is lower interest rates
Remember, banks used deposits to buy bonds that collapsed in value because interest rates went up.
If the Federal Reserve lowers interest rates, other problems would appear, but this one would probably go away for a while.
That’s why famous billionaire investors are betting on interest rates going lower from here.
For now, deposits will continue to flock to the banks considered Too Big to Fail - those for which ALL deposits are already guaranteed (Bank of America, Citibank, Wells Fargo, and JP Morgan).
Big 4 banks accepting First Republic customers today
But investors are also realizing that if the US banking sector is screwed, so is the US dollar.
That’s why bitcoin and gold are up this year despite the crisis. In fact, they’re up partially because of the crisis.
They’re both hedges to the instability of the dollar - which is only getting worse by the day.
And people want to save their money - not run around managing their cash like a mini-hedge fund.
We don’t know what will happen with First Republic Bank yet. But we’ll keep our eyes on it firmly and keep you in the loop 👀.
Until then - stay safe.
👋 Say hi on TikTok
🖼️ Crypto meme of the day
From across the world wide information superhighway
