One Small Bank On The Brink Could Trigger The Next Industry Crisis

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Will Kessler Contributor
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A small bank based out of Philadelphia is following the same path as banks that collapsed earlier this year, worrying some that it could trigger another banking crisis, according to The Wall Street Journal.

Republic First Bank, which holds $6 billion in assets, is following the same path as First Republic Bank did earlier this year, which ultimately led to the collapse of the bank as a part of a broader industry crisis, according to the WSJ. The banking sector faced a crisis starting in March after frightened depositors triggered a bank run at several banks, including the medium-sized Silicon Valley Bank and Signature Bank. (RELATED: Regional Banks Still Shaky Six Months After Major Collapses)

“With Republic First, we’re just worried about pure contagion,” Lawrence White, an economics professor at New York University and former banking regulator, told the WSJ. “The uninsured depositors at Republic First running, and that then causing other uninsured depositors at other somewhat similar banks running, and then the contagion grows.”

The smaller Republic First has heavy paper losses that would weigh on its equity if they were counted on its balance sheet, with the company having $183 million in total equity but $304 million in unrealized losses, according to the WSJ. These deficits are only speculative at the moment and would only come to fruition if the bank’s depositors trigger a bank run.

The bank also tried and failed to raise $125 million in capital in the same manner that First Republic did before its collapse, according to the WSJ.

Currently, around 60% of deposits at Republic First are not insured by the Federal Depositors Insurance Regulator (FDIC), according to the WSJ. The FDIC insures depositors at banks up to $250,000 in the event the bank cannot pay out.

First Republic, formally the 14th largest commercial bank in the country, had the majority of its assets acquired by JPMorgan Chase in May after being seized and auctioned by the FDIC.

Janet Yellen, Treasury Secretary, suspended the FDIC’s $250,000 limit on deposit insurance following the bank runs earlier this year in order to bail out depositors, noting that other exceptions, including for small banks, would be made on a case-by-case basis, according to the WSJ.

The bank has taken steps to shake up its approach recently, announcing a new leadership team in December, including a new CEO, Thomas Geisel, according to a press release from Republic First.

“Republic Bank is very different; we DO NOT lend to start-ups and are not involved in Crypto,” Geisel said in a previously public letter given to the DCNF. “We lend primarily to established businesses. We lend against collateral and cash flow, we lend to profitable companies that can service the debt, and we typically have personal guarantees. Our portfolio is not overly concentrated in any one specific class or industry.”

Republic First deferred the Daily Caller News Foundation to statements previously made by the bank.

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