Apr 30, 2023

Regional Bank Collapse Feared as FDIC, FHLB Emergency Programs Expire

Bob Michele, Chief Investment Officer of JPMorgan Asset Management, has expressed his concern about the future of regional banks in the United States when the Federal Deposit Insurance Corporation (FDIC) and Federal Home Loan Bank (FHLB) emergency lending programs expire. In an April 27 Bloomberg television interview, Michele warned that the potential collapse of First Republic Bank could lead to a domino effect across the banking industry.

Michele believes that the liquidity issues faced by First Republic “should never have happened”, as the banking industry is “most heavily regulated capitalized industry on the planet.” He blames the “high price of everything” as a major factor leading to the recent banking crisis events, as the “bottom quartile of earners” in the United States have been “most punished”, depleting their deposit balances “just to live.”

Michele believes that a resolution is urgently needed as regional banks are “heavily dependent” on both the FDIC and FHLB. According to the FDIC, domestic U.S bank deposits totalled $17.7 trillion as of December 31.

During the last quarter of 2022, both Signature Bank and Silvergate Bank reportedly received substantial loans from the FHLB – a consortium of 11 regional banks across the United States that provides funds to other banks and lenders – totalling nearly $10 billion and at least $3.6 billion, respectively. However, despite the financial assistance, both banks eventually collapsed due to significant deposit outflows.

Ryan Selkis, CEO of blockchain research firm Messari, suggested in a tweet to his 322,000 followers on April 29 that unless the government recognizes that the Federal Reserve’s (Fed) policies “are to blame and not crypto,” more banks may face collapse in the future.

The Treasury Department is reportedly studying ways to expand the current deposit insurance beyond the maximum cap of $250,000 to cover all deposits in the United States. However, Michele is unsure how regional banks are “going to operate” when the FDIC and FHLB emergency lending programs expire.

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The emergence of NFTs and the web3 space has opened up a range of opportunities for companies and individuals to capitalize on the growing trend. However, the banking industry is facing an uncertain future, and it remains to be seen how regional banks will operate when the FDIC and FHLB emergency lending programs expire.

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