Proactive Investors - JPMorgan Chase & Co (NYSE:JPM) boss dubbed the US banking crisis “over” on Monday, preaching sentiment that First Republic Bank (NYSE:FRC) may be the final failure on the back of rising interest.
“No crystal ball is perfect but […] I think the banking system is very stable,” chief executive Jamie Dimon said, following his bank’s takeover of First Republic.
“A lot of the deposit outflows were because of quantitative tightening, it wasn't because these people were having runs.
“There are only so many banks offside this way – there may be another smaller one, but this pretty much resolves them all – this part of the crisis is over.”
JP Morgan agreed to take on First Republic’s $173bn worth of loans and US$92bn of deposits on Monday morning, following weeks of struggle and ultimate collapse of the regional over the weekend.
First Republic had become the latest to succumb to high-interest rates of 5% in the US and “a lack of adequate capital requirements,” Zaye Capital Markets analyst Naeem Aslam explained, following failures by Silicon Valley Bank and Signature Bank in March.
According to analysts, the takeover will not deter the US Federal Reserve from hiking rates this again week though, despite resulting from the second-largest failure in US banking history.
“The Fed remains undaunted by bank failures,” Mazars economist George Lagarias said, “when rates are high, smaller lending organisations may fail. It's part of the game”.
A “final” 0.25% increase in US interest rates is anticipated for Wednesday, though analysts suggest the focus will largely be on any future guidance provided by the central bank.
“What will be infinitely more important this time around is the statement, where Jay Powell’s policy team is expected to provide some guidance” on future hikes, Lagarias added.
AJ Bell analyst Russ Mould was less optimistic though, referring to a “still smouldering bank crisis,” and the “obvious” response to Dimon’s claims that “he would say that wouldn’t he”.
“If another domino was to fall then the relative calm seen in the market could soon break,” Mould continued, though “for now, the system has been able to absorb the shock” of failures.
British banks HSBC (LON:HSBA), Lloyds (LON:LLOY) and Barclays (LON:BARC) all rose early on Tuesday following the news, with the former climbing 5.6% to 606p come the afternoon.