By Pam Martens and Russ Martens: June 27, 2023 ~
Between March 10 and May 1 of this year, three of the largest bank failures in U.S. history occurred.
On March 10 the Federal Deposit Insurance Corporation (FDIC) seized Silicon Valley Bank after $42 billion in deposits had exited the bank the day prior with another $100 billion queued up to leave the next day – meaning it was possible for a federally-insured bank to lose 85 percent of its deposits in the span of 48 hours in the digital age. (For a closer look at what was going on at Silicon Valley Bank, see our report: Silicon Valley Bank Was a Wall Street IPO Pipeline in Drag as a Federally-Insured Bank; FHLB of San Francisco Was Quietly Bailing It Out.)
Two more bank failures followed in short order: Signature Bank on March 12 and First Republic Bank on May 1. Both banks were experiencing bank runs as a result of a loss of confidence by their customers.
First Republic Bank, Silicon Valley Bank, and Signature Bank were the second, third and fourth largest bank failures in U.S. history, respectively. (The largest failure was Washington Mutual during the financial crisis of 2008.)
The Fed’s answer to this crisis of confidence was to allow JPMorgan Chase, officially the riskiest U.S. bank with a string of felonies, to buy the failed First Republic Bank. At the time, First Republic was the 14th largest bank in the U.S. and JPMorgan Chase was the number 1 largest bank with $3.3 trillion in consolidated assets. (Is there any logic, whatsoever, in allowing the riskiest bank in the United States to get even larger? The only possible explanation is regulatory capture.)
So here we are today. The banking crisis has pretty much disappeared from the headlines but the smoldering remnants of the crisis are very much still with us.
The Federal Reserve has released a listing of the largest banks in the United States by assets as of March 31, 2023. We decided to check to see how much the 15 largest banks by assets have lost in market value in the past year and a half – from their closing price on December 31, 2021 to their closing price yesterday, June 26, 2023.
Per the chart above, among the 15 largest banks, the following five banks have performed the worst in terms of share price declines since December 31, 2021: Truist Bank (ticker TFC), Citizens Bank (CFG), U.S. Bank (USB), PNC Bank (PNC), and Bank of America (ticker BAC).
Bank of America is the second largest bank in the United States with $2.5 trillion in consolidated assets and 3,804 domestic bank branches. It has lost 37 percent of its market value (market capitalization) in a year and a half.
But by far, the worst performer in the above group is Truist Bank – a name that grew out of the merger of SunTrust and BB&T banks in 2019. Truist Bank has lost 49 percent of its market value in a year and a half.
As of March 31, Truist was the sixth largest bank in the United States with consolidated assets of $565 billion and a whopping 2,006 branches. According to its regulatory filing of March 31, it held a total of $416.9 billion in deposits, of which $176 billion were uninsured deposits, or 42 percent.
Uninsured deposits, those exceeding the FDIC’s $250,000 insurance cap per depositor/per bank, were one of the key problems in the run on the banks earlier this year.
As we reported in January, in the past decade and a half, the Fed has rarely seen a bank merger it couldn’t wrap its arms around. (See In 16 Years, the Fed Has Approved 4,506 Bank Mergers and Denied One.) But there was one regulator’s voice that did speak out boldly regarding the SunTrust and BB&T merger in 2019.
At the time, Martin Gruenberg was a member of the Board of Directors of the FDIC. (Today, he is the Chairman of the FDIC.) This is a portion of his stated concerns on the merger that created today’s Truist:
“Based on September 30, 2019 Call Report data, BB&T and SunTrust together hold approximately $150 billion in deposits in excess of the deposit insurance limit. The combined institution is expected to hold approximately $331 billion in deposits, indicating that about 45 percent of the deposits would be uninsured. In addition, the combined institution is expected to have over 14 million deposit accounts based on recent Call Report data from the individual institutions.
“Total assets of the combined institution are expected to be about $450 billion. The individual institutions each report some long-term unsecured debt, which if combined would amount to approximately 3.6 percent of total assets at the time of the merger.
“In the event of failure of the merged institution, the universe of potential acquirers would be quite limited for an institution of this size. It is likely that only a Global Systemically Important Bank, or GSIB, would have the capacity to make such an acquisition. Even then, based on the experiences in the financial crisis, interest in, and support for, such acquisitions may be limited among the GSIBs. Absent a viable purchase and assumption bid, the FDIC would likely have to establish a bridge bank to manage an orderly failure of the institution.
“The large branch network, substantial IT systems, and millions of account holders would make the management of a bridge bank a significant operational challenge. The volume of accounts, combined with the estimates of uninsured deposits, would also pose a challenge to an orderly resolution with a rapid deposit insurance determination over the course of a weekend.”
There was also this from Gruenberg:
“Given the limited availability of potential acquirers if the merged institution were to fail, the heavy reliance on uninsured depositors, and the lack of an unsecured debt requirement, the failure could well pose a ‘risk to the stability of the United States banking or financial systems.’ ”
Despite these grave warnings, the merger went through.
Today, the U.S. Treasury Secretary, Janet Yellen (who took millions in speaking fees from Wall Street banks before taking her seat at Treasury) is prepping the public that more bank mergers will likely be necessary.