The seizure of Philadelphia’s Republic First Bank last week may have been the first bank failure of the year, but it won’t be the last, warned Joseph Lynyak, a banking attorney at Dorsey & Whitney.
Pennsylvania’s bank regulator shut down Republic First on Friday, while the Federal Deposit Insurance Corp. (FDIC) struck a deal for Fulton Bank to buy its assets. The failure is a sign that more banks—both small community and larger banks—will also fail, said Lynyak said, who specializes in bank failures and receiverships.
He pointed to two culprits: higher-cost deposits that exceed the yield on low-yield treasury securities and similar bank investments, as well as “deteriorating commercial real estate market and commercial real estate loans.” Additionally, regional banks have struggled because customers are looking for the safety of “too-big-to-fail” institutions, while higher interest rates have affected the value of their loan books.
“The FDIC has indicated that banks have potentially significant unrealized losses in their investment portfolios, and many banks will ultimately need additional capital to address these unrecognized losses,” Lynyak said.
