Why First Republic may not be the end of the crisis

The bank had been in trouble for weeks, and finally collapsed early Monday morning.

Why First Republic may not be the end of the crisis

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First Republic Bank collapsed at the early hours of Monday.

Federal regulators immediately seized the bank, and sold the majority of its assets to JPMorgan Chase. This was a quick way of resolving the second largest bank failure in US History after Washington Mutual (which then became JPMorgan Chase).

Three US bank failures have occurred in the last two months.

What is going on?

Here's a quick recap of how we got to where we are:

Signature and First Republic were similar to SVB in that they catered to high-end coastal clients in tech and private equity.

Markets seemed to be, if they weren't thrilled, then at least not completely freaked out, by the First Republic Resolution. The stock market ended the day slightly lower, but not by much. Investors will be watching many events closely this week, including the First Republic announcement. Get excited! We have JOLTS, Fed policy meeting and April jobs report.

Jamie Dimon, the man who presented the sale of the company as the bookend of the crisis, appears to be the one drinking the punch on Wall Street.

Dimon told investors on a call held Monday that he believes the banking system to be very stable. This part of the crisis has ended.

Not everyone is as optimistic, however.

Robert Hockett is a Cornell University law professor who specializes in public finance. His opinion was decidedly less rosy.

Hockett stated that contrary to the optimistic predictions of Wall Street and Washington made over the weekend this was not the end but the beginning of the banking crisis in March.

According to him, the sale will only make JPMorgan, which is already the largest bank in the United States, even larger, and the power held by the Wall Street banks more concentrated. This has the effect of hollowing out the regional banking sector.

Hockett, among others, argues that it is time to lift or scrap the $250,000 deposit insurance limit, and stop the panic which causes depositors flee.

This idea received a boost when, on Monday, the FDIC released a document advocating an increase in deposit insurance limits for business payment account. According to reports, lawmakers in DC are in discussions about temporarily expanding the FDIC's upper limit.

Although $250K may seem like a lot to a normal person, it is the accounts of businesses that make bankers nervous. These companies have payrolls and other expenses that easily exceed that amount.

Hockett stated that there was no need for the caps. Hockett said, 'There's no need for there to be those caps.'

He said: "There is no way we will be able finance production, startups and small business in all regions of the country with only a handful of banks in Wall Street and San Francisco."

In order to eliminate caps, banks would have to pay a larger premium into the Deposit Insurance Fund. However, he envisages a system where large banks who take on greater risk will pay a higher rate.

He said that federal deposit insurance is similar to nuclear weapons. You only have them to avoid having to use them.