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The U.S. banking system is undergoing dramatic changes, and the story begins with the collapse of the First Republic Bank. First Republic Bank, a bank founded in 1985 that was once the 14th largest bank in the United States, shocked the nation with the news that it had been seized by regulators and sold to JPMorgan. The bank suffered a series of crises in 2023, including the collapse of the Silicon Valley Bank and the crisis of the signature bank, which eventually led to a liquidity crisis. At one point, the bank's stock price fell more than 70%, people lined up to withdraw money, and the total amount of deposits fell by nearly 41%, falling into an unprecedented situation.
In order to stabilize the situation, a series of large banks, including Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citibank, Bank of America, Wells Fargo, injected a total of $30 billion into the First Republic Bank, and promised to maintain it for at least 120 days, a move that helped ease the panic among the population. However, over time, the US economy did not improve, and many banks fell into crisis, with industry insiders warning that at least 50 banks could fail. The situation of the First Republic Bank continues to deteriorate, and the performance report for the first quarter of 2023 shows that the bank lost more than $100 billion in deposits in March, causing the stock price to collapse again.
On April 25, First Republic Bank's share price fell from $12.23 at the opening to $8.10 at the close, a drop of 49.37%. The bank announced plans to sell its bonds and securities at a loss to raise capital and began laying off workers. The FDIC also announced it was considering taking over the bank, causing shares to plunge 43 percent to $3.50. The FDIC's eventual decision to sell the bank to JPMorgan Chase was supersonic and showed that the FDIC had a plan to respond quickly in the event of a crisis.
However, what is really shocking is that the reason for the bank failure is related to investing in US debt. As the Fed rapidly raised interest rates to fight inflation, banks such as First Republic Bank suffered huge losses when buying and holding large amounts of long-term U.S. Treasury bonds. These banks faced the dual pressure of investors selling stocks and a run on depositors, having to sell their investments in U.S. Treasuries in exchange for cash. However, most of these banks' investments are long-term U.S. bonds, and the Fed's interest rate hike has led to an increase in short-term U.S. Treasury rates, and the price of long-term U.S. bonds has fallen sharply, turning the original floating loss into an actual loss, which eventually led to the bankruptcy or forced sale of these banks.
The United States is facing not only a banking crisis, but also a problem of U.S. debt. The United States has always financed by issuing U.S. bonds, but now more and more countries no longer buy U.S. bonds, and even sell their existing U.S. bonds. This has led to a rising debt ceiling in the United States, while the value of the dollar continues to decline and inflation increases. The U.S. fell into a trap and had to keep raising interest rates to entice investors to buy U.S. bonds, but this further increased the losses of banks.
Against this backdrop, China has taken a series of smart steps. China has actively promoted the internationalization of the renminbi by providing large amounts of emergency loans to developing countries and repaying them in renminbi. The move came as a surprise to Western countries that China was quietly changing the international financial landscape. At the same time, China continues to enhance the international status of the renminbi and promote the use of cross-border renminbi payment systems, which has paved the way for the internationalization of the renminbi.
The United States is facing unprecedented challenges, the trend of global de-dollarization is accelerating, and the demand for diversified settlement currencies is growing. U.S. economic policy needs to be revisited, because freezing is not a day's cold, and there is no turning back. The world is looking for alternative solutions to the dollar, a trend that will continue to shape the global economic landscape.
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