First Republic is technically insolvent, similarly to SVB. The Bank Term Fund Program (BTFP), provides liquidity at the par value of underwater T-Bonds and Mortgage Backed Securities. This liquidity would allow First Republic to cover any immediate outflows of depositors. However, if there is a protracted run on First Republics deposits then it will be unable to make enough to pay back the borrowed funds from the BTFP and will go into default. Equity markets are a forward looking indicator, and its clear that First Republics balance sheet is under serious duress, and it's unclear how they return to profitability. The bottom line is that even with the BTFP and JPM liquidity offer, if there is a bank run at First Republic, they will go under.
The problem is that First Republic has $24 billion of off-balance sheet fair value losses, but only $4 billion of that is in securities eligible for the BTFP. $20 billion of losses is in its internal loans book. Even assuming the entire securities hole was patched, the loans losses alone makes First Republic insolvent.
Precisely. First Republic is an extremely weak financial position. Given the aggressive nature of the FDIC, in seizing Signature, I would be very surprised if they aren't forced to take action here. The stock should be worth zero, and bankruptcy declared soon.
FDIC did not seize Signature.
Any bank would go under when run.
Does the share price of this bank have any particular impact on its ability to operate as a bank for current depositors?
It could be interpreted as loss of faith in the bank and the risk of a bank run, which impacts the ability to get investment to support current depositors needs. That’s essentially what happened at SVB.
Yes. Banks are required to have a certain amount of their balance sheet as equity. If that gets too low, they have to increase it. That means selling more shares. Only if your price is already very low, you cannot sell more shares because no one will buy. So then you cannot get your capital ratio right, and the FED (or other institution steps in to take over). This is not a problem for day-day operations, but it can rapidly become a problem week-week...
The share price doesn't have an impact on the day-to-day operations of the bank, but, in this case, the share price is a reflection of perceived solvency of the bank.
Is the share price itself a factor in actual solvency in any way?
I guess technically. SIVB, for instance, tried to do an equity offering to shore up their books. It didn't work though.
It impacts the ability to raise more capital if that is needed to ensure solvency.