JPMorgan Chase Acquires First Republic Bank with FDIC Backstopping Deal While Ignoring Current Banking Laws
The topline story from the announcement by JPMorgan Chase [SEE HERE] there are no banking rules/laws in the Biden Fed/Treasury system.
The Dodd-Frank laws are still on the books, but the FDIC decision to insure all deposits, regardless of size, now means those laws, rules and regulations are not required to be followed. Additionally, as a result of JPMorgan gaining another $100+/- billion in deposit assets, the law(s) surrounding the 10% U.S. deposit maximum, within too big to fail banks, no longer exists. Noted in the announcement, “JPMorgan Chase is assuming all deposits – insured and uninsured.”
JPMorgan is also assuming assets consisting of $173 billion in loans and approximately $30 billion in securities. The FDIC is going to assume risk (with a risk sharing agreement) for current First Republic Bank mortgage and commercial loans acquired by JPMorgan, guaranteeing JPMorgan a 5-year fed fixed rate on $50 billion in mortgage bonds.
The Federal Deposit Insurance Corporation (FDIC) rule requiring the holding of 1.5% of deposits for all depositors up to $250k in all institutions is now essentially moot. If the FDIC is guaranteeing all deposits, there’s no way for the insurance corporation to capture or hold $1.5% of all banking deposits. The law is in conflict with the outcome action of the Fed/Treasury and ultimately the FDIC, ergo the law is nulled by the ignoring of it.
Mohamed El-Erian gives his take below, but seemingly missed the part of the announcement where JPMorgan states, “no systemic risk exception was required” in the deal. This means the FDIC is completely free-range with the agreement, they are not even trying to justify why they would make a too big to fail bank even bigger. WATCH:
The only reason the FDIC violated its own rules and banking regulations, was because the FDIC didn’t, likely -almost certainly- couldn’t, take the financial hit from a full takeover of First Republic Bank against the backdrop of the prior terms for Silicon Valley Bank (SVB).
When the FDIC made the (SVB) decision to guarantee all deposits regardless of size, they put themselves in a position of an insurance declaration they could never fulfill. The FDIC cannot structurally guarantee all of the First Republic Bank (FRB) deposits; they need a structure to avoid the government regulators absorbing the bank. This reality is also why the FDIC violated their own laws, rules and regulations in allowing JPM to exceed the legal U.S. deposits maximum.
In essence, what the FDIC is saying is they cannot maintain the premise of their charter without the big banks helping them. The biggest banks now control all of the leverage, with JPMorgan Chase and Jamie Dimon now controlling more financial power than the government that is supposed to regulate them.
FUBAR… All of it. Everything Biden touches turns to shit.
This is going to be a major hot mess now for Main Street investment and borrowing needs. The economy is going to feel the ramifications of this in less financing available to maintain domestic investment.
Last point. Look at the big picture, there’s no intervention protocol the legislative branch can trigger as a security against the reckless decisions of the FDIC (Fed and Treasury), without creating even bigger issues that could collapse the banking system. If the legislative branch forced the FDIC to follow the laws currently on the books, the domino of banks starts to collapse.
Post a Comment