FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California.

FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California.
First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!

Source: https://www.fdic.gov/news/press-releases/2023/pr23073a.pdf

TLDRS:

  • FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California.
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!

Looky here!

r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!
r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!

Wut Mean?

  • The report cites โ€œa loss of market and depositor confidence, resulting in a bank runโ€ following the March 2023 failures of Silicon Valley Bank and Signature Bank as the primary cause of failure.

The report notes there were attributes of First Republicโ€™s business model and management strategies that made it more vulnerable to interest rate changes and the contagion that ensued following the failure of Silicon Valley Bank.

  • These attributes included, โ€œrapid growth and loan and funding concentrations, overreliance on uninsured deposits and depositor loyalty, and failure to sufficiently mitigate interest rate risk.โ€
  • The report notes that โ€œ[f]or an institution of its size, sophistication, and risk profile, the bank should have taken additional proactive measures to mitigate interest rate risk.โ€

The report notes that FDIC supervised First Republic under a continuous examination process and that the dedicated examination team issued required examination products timely, assigned generally positive examination ratings, and issued few Supervisory Recommendations.

  • However, the report acknowledges that the FDIC could have been more forward-looking in assessing how increasing interest rates could negatively impact the bank and could have done more to effectively challenge and encourage bank management to implement strategies to mitigate interest rate risk.
  • Given First Republicโ€™s size, there were also opportunities for the FDIC to take a more holistic approach to supervising the bank, including greater involvement of FDIC headquarters supervision resources and leadership in assisting the San Francisco region with effectively challenging bank managementโ€™s strategies and assumptions, and bringing a broader horizontal perspective and understanding of risks.

Why is this interesting?

Banks unrealized losses on securities totaled $558.4 billion in the 2nd quarter, up $42.9 billion (8.3%) from the 1st quarter. Unrealized losses on held-to-maturity securities totaled $309.6 billion in the 2nd quarter, while unrealized losses on available-for-sale securities totaled $248.9 billion.

r/Superstonk - FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California. First Republic's unrealized losses on held-to-maturity securities sure do stick out, especially with the FDIC quarterly report yesterday!

WhatCanIMakeToday:

Recalculating the total unrealized losses as of now: $17.5T ร— 3.9 ร— 2.7% = $1.84 trillion which is $0.14 trillion more in unrealized losses since March 2023. Oof, there goes that $0.1 trillion to land $0.04 trillion underwater. Which is why banks have upped their BTFP usage to access $107.4 billion worth of cash as of last week (Aug 23) to get an extra $40 billion ($0.04 trillion) from the liquidity fairy to barely survive another day on the bleeding edge of bankruptcy.
Banks would be bankrupt already if it wasn't for BTFP.

Oh yeah:

BTFP offers higher interest rates but longer terms--to need over $100 billion in liquidity at near 5.5% interest must really be all about 'surviving another day'?

  • How did all these banks pass those 'Stress tests' the other day needing all this liquidity?!?!...

"The updated guidance encourages depository institutions to incorporate the discount window as part of their contingency funding plans."

  • The liquidity fairy is now ENCOURAGED?

The FDIC noticed that some banks aren't correctly reporting the amount of deposits they have that aren't covered by federal insurance. Some banks mistakenly think that if a deposit is backed by assets (like collateral), it doesn't need to be reported as uninsured.

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