S&P/ASX 200 Index (ASX: XJO) banks are in the spotlight today as First Republic Bank (NYSE: FRC) teeters on the brink of collapse in the United States.
Friday saw another massive fall in the First Republic Bank share price.
After stock in the bank had already crashed 49.4% last Tuesday, First Republic shares closed Friday down another 43.3%. All told, the First Republic share price is now down a disastrous 98% since the banking crisis began to unfold in the US on 8 March.
That crisis has already seen the collapse of two US banks, Silicon Valley Bank and Signature Bank.
Contagion from those collapses also spread to Europe and led to the government-engineered takeover of Credit Suisse by rival bank UBS.
We'll have a look at why First Republic is now teetering on the brink of collapse below.
But first, how are the big four ASX 200 bank shares holding up today?
How are ASX 200 banks responding today?
The big four ASX 200 banks are displaying their resilience today.
Here's how the big bank stocks are tracking in morning trade on Monday:
- Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares are up 0.2%
- National Australia Bank Ltd (ASX: NAB) shares are up 0.6%
- Westpac Banking Corp (ASX: WBC) shares are up 0.3%
- Commonwealth Bank of Australia (ASX: CBA) shares are up 0.5%
It appears investors are confident that the ASX 200 banks won't be subject to the same pressures sending numerous US banks into receivership.
That's likely driven by recent reports revealing that the big four banks are the most capitalised in the world, as gauged by their common equity tier 1 (CET1) ratios.
If you're unfamiliar, CET1 ratio measures the core equity capital of the ASX 200 banks compared to their risk-weighted assets.
With that said, here's why First Republic finds itself well underway on the road to collapse.
What's happening with First Republic Bank?
First Republic Bank has been badly hit by fast-rising interest rates in the US.
The bank's large holdings of low-interest rate loans left it particularly vulnerable to the past year's series of rate hikes from the US Federal Reserve.
Following another horror day for the bank's shares on Friday, the US Federal Deposit Insurance Corporation (FDIC) looks all but set to place First Republic Bank under receivership.
Should that eventuate, it would mark the third bank collapse in the US this year. None of which, remarkably, have done lasting damage to the share prices of the big four ASX 200 banks.
Commenting on First Republic's woes, professional bond investor James Wilson said (quoted by ABC News):
The First Republic collapse is set to be the second-largest bank to fail in US history, in a sign that credit markets are showing signs of seizing as a result of the aggressive [interest rate] tightening cycle we have seen from the [Federal Reserve] and global central banks.
The fear and contagion is spreading through and while inflation data continues to print at lofty levels, the Fed will not be able to cut rates unless we have a systemic issue which may be approaching.
In the most recent development, Bloomberg reports that the FDIC has reached out to major US banks including JPMorgan Chase & Co, PNC Financial Services Group, and Citizens Financial Group to submit offers to take over the embattled bank.
If that approach fails, US regulators could step in to take ownership of the bank.
With their world-leading capital positions, that's a development we're unlikely to see with the big four ASX 200 banks.
