Heading into the 2024 election, Americans are grappling with a slew of economic challenges, from inflation to high–interest rates and slowing growth. Now, distressed banks teeter on the brink of failure, raising further concerns about the Biden economy and the future of banks if Biden wins another term.
On April 8, JP Morgan CEO Jamie Dimon stated in his annual shareholder letter that the banking crisis had passed. However, he warned that regional banks nationwide could face trouble due to persistently high–interest rates.
Weeks later, U.S. regulators took control of Republic First Bancorp, ultimately agreeing to its sale to Fulton Bank. With a reported $6 billion in assets and $4 billion in deposits, the bank’s collapse could cost the Federal Deposit Insurance Corp around $667 million. As Fulton Chairman and CEO Curt Myers stated, its 32 branches in New Jersey, Pennsylvania, and New York are set to reopen as Fulton Bank branches this Monday, doubling the latter’s regional presence.
Since 2021, Republic First has faced challenges from activist investors and high–interest rates. The bank reported last year that the Federal Reserve’s rate hikes to control inflation negatively impacted its commercial real estate portfolio, which represented nearly half of Republic First Bank’s loan book. Problems started during the COVID-19 pandemic, which put significant stress on commercial real estate.
According to executives, the FDIC incurred losses on RepublicFirst Bank’s securities, which were then transferred to Fulton at fair value. The FDIC has stated that the acquisition of Republic First Bank by Fulton Bank is the most economical solution.
As part of the transaction, Fulton Bank has acquired $4 billion of the bank’s deposits and $2.9 billion in loans. As a result, the combined company is expected to have $32.8 billion in total assets, and Fulton Bank anticipates that the deal will double its presence in the Philadelphia market. Fulton’s management has also indicated that it expects to receive approximately $1 billion from the FDIC. Finally, it’s worth noting that the stock price of Fulton Bank has increased by 8% in afternoon trading.
At the beginning of 2024, it was anticipated that interest rates would decrease. However, the current year is not unfolding as anticipated by the Biden administration. Inflation has been persistent, and the output has decreased. Experts have noted that the delay of interest rate cuts could challenge Biden’s reelection bid, as it may hurt economic output and exacerbate inflation-related financial pain.
According to an analysis by consulting firm Klaros Group, approximately 4,000 U.S. banks face potential losses due to shifts in social patterns accelerated by the COVID-19 pandemic, alongside impacts from rising interest rates and inflation. Managing director at Fitch Ratings, Christopher Wolfe, highlighted the risk of some banks failing or falling below their minimum capital requirements.
Federal Reserve Chairman Jerome Powell echoed concerns, particularly regarding the weakening commercial real estate sector, anticipating ongoing regional bank failures. Despite characterizing it as a manageable issue primarily affecting smaller and medium-sized banks, Powell stressed the need for continued attention.
Last week, the Federal Reserve decided not to reduce interest rates until it had “greater confidence” in slowing price increases, aligning with Powell’s cautionary stance. Jonathan Rose, CEO of Genesis Gold Group, underscored Powell’s warnings on the “Just the News, No Noise” TV show, expressing apprehension about potential bank failures and the nation’s escalating debt.
The banking sector’s vulnerabilities were highlighted by Silicon Valley Bank’s collapse last year when it could not meet a surge in withdrawals. Uncertainty regarding the FDIC’s provision of unlimited insurance for certain depositors exacerbated the situation. Rose predicts further bank failures this year, citing concerns over the nation’s trade deficit spiraling out of control.
Under President Biden’s administration, the United States has witnessed the collapse of three out of its four largest banks. The three big banks are First Republic Bank (which collapsed in May 2023), Silicon Valley Bank (which collapsed in March 2023), and Signature Bank (which collapsed in March 2023) These collapses have been attributed to a combination of high-interest rates and poor management practices. Experts are now warning that the Federal Reserve’s current interest rate policies could cause further difficulties within the banking sector.
The FDIC estimates that resolving these bank failures costs taxpayers around $36 billion.