JPMorgan continued its long tradition of riding to the rescue of the embattled banking sector.
What does this mean?
A series of poor decisions and a stampede of frenzied withdrawals sparked a financial disaster: that's not the story of the current banking turmoil, it’s how the 1907 financial crisis played out. Back then, a group of influential Wall Street titans swooped in to save the banking system, spearheaded by none other than John Pierpont Morgan. Fast forward 116 years, and it’s JPMorgan heading up yet another financial rescue mission. This time the firm has rallied its Wall Street comrades to extend a $30 billion lifeline to First Republic Bank, an institution caught in the eye of the current financial storm.
Why should I care?
Zooming in: Ulterior motives.
JPMorgan’s CEO Jamie Dimon is a businessman first and foremost – so you can be sure he’s not getting involved out of the kindness of his heart. He could be intervening to keep the bank alive long enough to take its clients. (First Republic does have a nice roster of high-flying customers). Or he might be genuinely worried about a spillover: after all, even smaller banks can create shockwaves strong enough to shake the behemoths.
The bigger picture: A $20 trillion problem.
Financial pundits seem to have a one-size-fits-all solution to the banking blues: just have the Federal Reserve (the Fed) whip out a blank check, guaranteeing all bank deposits everywhere in the US. And sure, the mere promise alone could very well slam the brakes on withdrawals – possibly sparing the Fed from coughing up a single penny. Thing is, there’s almost $20 trillion in US bank deposits nationwide. And while the chances of everyone rushing to yank their cash out are virtually zilch, in a world of wild hypotheticals, it could happen – and not even Uncle Sam has pockets deep enough to cover that.
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