First Republic Bank: The Contagion Is Here

Banking crisis is how it starts, recession, or worse, is where it ends.

A smaller bank model might have run its course. It is becoming increasingly obvious that the recent events in the banking sector are not coincidental, systemic in nature and, that there is more to come.

After First Republic Bank suffered a dramatic stock price drop, it became quite clear that the future scenario would be similar to the one we have already seen just a little over a month ago.

First Republic Bank stock price chart indicates a dramatic drop in a short period of time.

First Republic Bank's deposits were substantially drained by $103.7 billion, or 58.7% , cash outflow during the recent banking crisis (after deducting the $30 billion of time deposit from the U.S. “big” banks) to $72.7 billion by April 21, 2023.

Besides the truly unprecedented deposit outflows, the bank took a hit as the result of higher interest rates. Silicon Valley Bank had similar challenges. The Federal Reserve, by design, knew that aggressive rate hikes would cause such issues. By the end of the first quarter 2023, total interest bearing liabilities of First Republic Bank rose to $144.36 billion at an average interest rate of 2.73% and interest expense of $974 million, compared to $118.13 billion at 1.76% interest rate, and interest expense of only $525 million as of December 31, 2022.