Spectre of first global credit crunch since global financial crisis ...
It has been relatively calm on financial markets in recent weeks, but that ended late on Friday US time.
Key points:First Republic Bank's shares crashed 43 per cent on FridayThe FDIC is reportedly planning to place the bank under receivershipIt could become the third US bank to collapse this yearNews wires are reporting the US Federal Deposit Insurance Corporation (FDIC) is preparing to place First Republic Bank under receivership.
In simple terms, San Francisco-based First Republic Bank is facing collapse.
Its shares crashed 43 per cent by the close of trade in Friday New York trade.
With over $US200 billion ($302.34 billion) worth of assets and roughly 7,000 employees, its financial distress is taken very seriously by the authorities.
If it winds up, it will be the third bank collapse in the US this year.
"The First Republic collapse is set to be the second-largest bank to fail in US history, in a sign that credit markets are showing signs of seizing as a result of the aggressive [interest rate] tightening cycle we have seen from the [Federal Reserve] and global central banks," professional bond investor James Wilson said.
"The fear and contagion is spreading through and while inflation data continues to print at lofty levels, the Fed will not be able to cut rates unless we have a systemic issue which may be approaching."
Silicon Valley Bank and Signature Bank collapsed earlier this year — both, regulators said, due to poor management.
They were also victims of an evolving macroeconomic environment.
For example, Silicon Valley Bank (SVB) was too heavily invested in the bond market, so when interest rates began to rise, its bond portfolio lost value.
It became a problem when a large chunk of its customer base, many small tech companies, needed to access their deposits.
SVB was forced to crystallise huge losses on its bonds and the ensuing doubt over its ability to function as a business produced a bank run.
First Republic said this week its deposits had slumped by more than $US100 billion in the first quarter.
A consortium of 11 major Wall Street banks, led by JPMorgan Chase CEO Jamie Dimon, arranged fresh capital to the tune of $US30 billion to prop up the bank in late March.
It appears this cash injection has not been enough to restore the bank to a sustainable financial footing.
This weekend it is being reported a "troika" of US regulators is preparing to seize the bank, ahead of finding a lifeline for it.
The FDIC, the Treasury Department and the Federal Reserve were among the government bodies that orchestrated meetings with financial companies about a lifeline for the bank, Reuters reported earlier today.
The firm may then be put up for auction, or broken up and sold in separate parts.
Banks such as Silicon Valley and First Republic have been deemed by regulators to be too big to fail, which means other banks must ultimately swallow them up or taxpayers are on the hook to rescue them if they look like they are about to collapse.
A separate new report from the US Federal Reserve revealed the central bank (the equivalent of Australia's Reserve Bank) conceded it failed to "take forceful enough action" ahead of the collapse of SVB.
The major US banks are tightly regulated and are required to sit on vast amounts of good-quality securities or cash to avoid any possible repeat of the 2008 global banking crisis.
The idea being that at no point should any bank customer or client worry about getting their money back from their bank.
Thousands of US regional lenders, however, fall outside this regulation and have been poorly run in recent years, opening themselves to the potential for bank runs.
Analyst Henry Jennings from stock market newsletter Marcus Today is confident the bank has indeed met its end.
"Another one bites the dust," he said.
He said it was a continuation of the ongoing international banking crisis.
"It will not be the last," Jennings told The Drum.
"There will be other targets."
He also said it might tip the scales in favour of the Reserve Bank holding interest rates steady again when it met on Tuesday.
