The three banks that have failed this year are bigger than the 25 that crumbled in 2008

The three U.S. banks that have failed so far this year are greater than the 25 that failed in 2008, data shows.

Officials announced Monday that they have closed San Francisco-based First Republic Bank, making it the third major U.S. bank to collapse in the past two months after Silicon Valley Bank and Signature Bank crumbled in March.

Experts urge calm and say consumers should not worry at this stage because of the differences between today’s problems and those of the 2008 crisis.

The three banks had a combined total of $532 billion in assets, which is more than the $526 billion of all U.S. banks that collapsed in 2008 at the height of the financial crisis, according to the New York Times and adjusted for inflation. .

First Republic had about $213 billion in total assets, and late last year the Federal Reserve ranked it 14th among U.S. commercial banks.

Silicon Valley Bank, meanwhile, had total assets of $209 billion, while Signature Bank had $110 billion, bringing its combined total assets to $532 billion.

While all three were smaller than Washington Mutual — America’s largest pre-collapse savings and loan association in 2008, which had $430 billion in assets — the other 24 that collapsed that same year totaled $94 billion.

In fact, the collapse of First Republic is the second largest bank failure in US history, behind only Washington Mutual. Like Washington Mutual 15 years ago, First Republic was acquired by JPMorgan Chase today.

Thanks in part to stricter regulations introduced in the aftermath of the global financial crisis, fewer banks have failed.

But higher interest rates have eroded the value of assets on banks’ balance sheets, straining the financial system and making it more difficult for banks to repay depositors if they decide to withdraw their money.

The collapses of Silicon Valley Bank and Signature Bank in March snowballed as concerned investors looked for signs of weakness in the broader banking sector in the United States and Europe.

Swiss banking giant Credit Suisse became the most notable victim in the banking world when it was forced by regulators to accept a takeover by its rival UBS.

Meanwhile, to avoid another bank crash, authorities reached a deal with 11 major banks in March to extend a $30 billion lifeline to First Republic.

But that was not enough to reassure investors.

At the end of Friday, First Republic was worth just $654 million, down from more than $20 billion at the start of the year and $40 billion at its peak in November 2021.

At first glance, First Republic seemed well positioned: it was known to have a wealthy clientele that invested large amounts of money.

But the series of bank failures shocked customers, and a majority of First Republic’s loans were fixed-rate mortgages, which have lost value due to rising interest rates.

Observers are watching closely for wider implications of the collapse of the latest financial institution, while experts have taken action to ease contagion fears.

“First Republic was identified as a problem bank as early as mid-March and the announcement of its closure is not a new cause for concern,” Nicolas Veron, an economist at the Peterson Institute for International Economics, said prior to announcing the acquisition.

“If another bank turns out to be vulnerable, that would be another problem,” he added.

Shortly after the First Republic seizure was announced, the US Treasury Department stepped in to address concerns.

“The banking system remains healthy and resilient, and Americans should have confidence in the safety of their deposits and the ability of the banking system to perform its essential function of providing credit to businesses and households,” a Treasury Department spokesman said. .

Someone’s money is safe if it’s in a U.S. bank, insured by the Federal Deposit Insurance Corp. and they have less than $250,000 there. If the bank fails, they get their money back because almost all banks are FDIC insured.

For those who have more than $250,000 in a single bank, which most people don’t, experts recommend moving the rest of their money to another financial institution to make sure it’s also insured.

Meanwhile, federal officials have taken steps to ensure other banks are not affected.

“You shouldn’t worry too much about your money if it’s in one of the bigger banks, and even some regional banks and the credit unions,” said Caleb Silver, editor-in-chief of Investopedia, a financial media website.

Experts have said the US is not yet in a full-blown financial crisis, largely because of collapsed banks dealing in riskier assets, such as cryptocurrency and tech start-ups.

In contrast, in 2008, irresponsible lending caused a housing bubble that burst when borrowers failed to pay their mortgages, leaving the country’s largest banks with trillions of dollars in nearly worthless investments.

However, some experts have still expressed concern that the stress tests conducted in the aftermath of the 2008 financial crash failed to take into account the fall in value of US Treasury bonds as a result of the Fed’s interest rate hikes.

To write for Market overviewJoseph E. Stiglitz – a Nobel laureate in economics and a professor at Columbia University, said this shows a need for reform, especially in the modern era of digital banking.

“The fact is that regulators – including the Fed – have failed to keep the banking system safe,” he argues, saying banks depend on trust and depositors should be confident that they can withdraw their money at will.

‘It’s always been that way. What has changed is the ease with which billions of dollars can be withdrawn online in a nanosecond,” he says.

“Even a hint of danger of not getting their money back is enough to induce rational people to withdraw uninsured funds, and even insured amounts, if there is a risk of delay,” he writes.

Calling for meaningful reforms in the banking sector, the professor writes: ‘It remains to be seen whether the still-simmering financial turmoil caused by the collapse of the SVB will culminate in a deeper crisis, but investors and savers have no reason to trust on the guarantees of the Fed. that it won’t happen.’