The Bank Crisis:
Big Banks Profit and Grow

May 15, 2023

On May 1, the federal government seized the First Republic Bank and immediately sold it to JPMorgan Chase. The First Republic bank failure is the second-largest in U.S. history, after the collapse of Washington Mutual in 2008, and it was the third bank to fail this year after Silicon Valley Bank and Signature Bank collapsed in March. These first three bank failures are already very large, far larger than the first 25 banks that collapsed in 2008. And that previous bank crisis was the worst bank collapse since the Great Depression.

A Much Wider Crisis

These three bank failures are only the first stage in an ongoing financial crisis. Other large regional banks, including Comerica, M&T Bank, PacWest and Huntington, have been forced to borrow from federal programs just to be able to keep their doors open and continue to pay their bills.

Why? Right now, all the banks in the United States, including some of the biggest banks in the world, are sitting on literally hundreds of billions of dollars of potential losses. According to the Federal Reserve’s own figures, at the end of 2022, the securities that the banks had on their books had lost about $620 billion of their value, which was equal to about 28% of all their capital.

On top of that, these banks have trillions of dollars of loans and mortgages, with very low interest rates. Banks buy and sell loans all the time. But if they would sell those loans and mortgages now, when interest rates are much higher, those loans and mortgages would be worth much less money and they would have to sell them at a loss.

If you include all the loans and mortgages that these banks have out, estimates are that their losses could amount to 1.75 trillion dollars, or 80% of all their capital, if they were forced to sell them right now, as First Republic, Silicon Valley Bank and Signature Bank were forced to sell some of their securities.

JPMorgan Chase to the Supposed “Rescue"

This system-wide crisis has hastened and accelerated the increasing concentration in the banking sector, as depositors and businesses flee from the smaller and weaker banks to the biggest banks. The biggest banks’ underlying financial situation is no less disastrous. But they appear to be safer simply because they are so huge and powerful. As the Economist magazine recently pointed out in an article called How Deep Is the Rot in America’s Banks, "Banking is a confidence game."

The biggest banks have so far profited greatly from the collapse of regional banks. Thus, JPMorgan Chase moved in to take over First Republic—but only after the FDIC paid 13 billion dollars to cover all the losses, while also promising to cover most future losses in their entirety. No wonder JPMorgan Chase’s stock soared by two percent on the day of the bank collapse and takeover, while it announced that it would make a profit of over two billion dollars from the deal!

In fact, it has been through past banking crises that JPMorgan Chase has grown spectacularly, by picking up troubled banks at bargain basement prices. Some of its biggest deals took place during the 2007—08 crisis, when JPMorgan Chase picked over the carcasses of both Washington Mutual Bank and Bear Stearns, the bankrupt investment bank.

A Profit Bonanza

These takeovers have helped fuel a huge growth in profits. In the past decade, between 2013 and 2022, the six biggest banks (JPMorgan, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley) made a trillion dollars in profit for the first time. Each bank made more than almost any other company in the country. And as the banking crisis began to take shape, those profits have continued to flow. In the first three months of the year, JPMorgan Chase alone made 12.6 billion dollars in profits, beating last year’s totals by more than 50%.

No, the biggest banks never let a crisis go to waste. They find a way to profit, no matter how much their system falls apart and people suffer.