Think beyond banks for funding security

The latest America bank collapse has confirmed Acuity Funding’s belief that organisations attempting to secure finance for major global projects should not necessarily confine themselves to borrowing from banks.

By Jacquelene Pearson

It is the third bank to collapse in the United States of America this year. The collapse of First Republic Bank on May 1 was the second largest bank collapse in American history. As a benchmark, with US$200 billion in assets whereas the collapse of Lehman Brothers in 2008, which triggered the Global Financial Crisis, had assets worth US$600 billion.

The pattern of this latest collapse was like that of the US Silicon Valley Bank and Signature Bank and the European Credit Suisse earlier in 2023.

This time the San Francisco based First Republic suffered a run by deposit holders. Then its share price collapsed.

In fact, the stock price plummeted 75 per cent on news over US$100 billion had been withdrawn. Within days the California Department of Financial Protection and Innovation announced that regulators had seized the bank’s assets.

Many of the bank’s clients had deposits worth more than $250,000 which meant they were not insured by the Federal Deposit Insurance Corporation (FDIC).

In moves similar to those used to quarantine the impact of the Credit Suisse collapse, the FDIC was appointed receiver of First Republic. It then “accepted a bid” from JP Morgan to take over the bank and quickly issued reassurances that First Republic customers’ deposits were safe.

Professional bond investors in the US are now openly stating that they do not believe the First Republic collapse and JP Morgan “rescue” will be the end of the banking crisis, as predicted by Acuity Funding’s CEO, Mr Ranjit Thambyrajah in 2022.

US regulators were forced to break their own rules to stop the contagion from spreading following the First Republic demise. For example, JP Morgan already controls more than 10 per cent of total bank deposits in the US. That means it is not eligible to take over any other deposit taking institutions.

Now it has and that could cause more nerves from deposit holders, particularly those companies and individuals with more than US$250,000 in any one institution.

Let’s recap what has happened in banking so far in 2023. On 10 March Silicon Valley Bank collapsed. Some blamed over-exposure to cryptocurrencies. Then on 12 March Signature Bank collapsed. Within a week, Credit Suisse hit the wall. It was rescued by its major rival, USB.

Bond investors are arguing the collapses have been due to the Federal Reserve’s macro-economic policy and pursuit of higher interest rates to keep a lid on inflation. Interest rate settings are forcing banks to increase their deposit and lending rates whilst making substantial losses on their bonds.

Earlier in the year Forbes were predicting the Federal Reserve could push the US official rate to six percent. This would mean ongoing pressure on bond yields and that is not good news for traditional lenders – the banks.

If you are looking for funding in such conditions, it is worth finding a market disruptor like Acuity Funding. We source our funds from some of the world’s largest investors and we are skilled at cross-border transactions. Get in touch to find out more.