The Federal Reserve will continue to raise interest rates as long as the mini-banking crisis lasts, CNBC’s Jim Cramer reported Monday. But if a big bank fails, Cramer said, the decision to raise rates would come quickly “with a lot of pain.”
First Citizens Bancshares called the failed Silicon Valley bank’s branches, loans and deposits a “sweetheart deal” as it buys $72 billion in loans at a $16.5 billion discount. Citizens’ stock jumped 53% on Monday, but Cramer said the deal doesn’t necessarily act as a solution to the bank’s operating woes.
“This kind of thing only happens in receivership, after a bank has already failed, and it removes a lot of risk for the buyer,” he said. “Our system is unprepared for a wave of bank failures — and that’s not an ideal solution.”
Kramer pointed to First Republic Bank, which rallied on the SVB news. He said the banks are not going to rush to buy First Republic because it would hurt the acquirer in the short term, so First Republic would have to fall hard before a strong deal could materialize.
The central bank raised interest rates by 25 basis points last week after the collapse of SVP dented depositor confidence. The Fed will continue to raise rates until wage inflation slows, but if another big bank like First Republic collapses, “it will certainly do the job,” Cramer said.
Cramer said he thought it would be as high as 100 basis points if the banking crisis continued, and he noted that it could be the most deflationary event that could happen in an economy.
“It’s more shocking than endless rate hikes, but it’s getting a really bad process, even with the collateral damage that’s so bad,” he said.
While it’s unclear what will happen to First Republic’s deposit base, Cramer said First Citizens’ “shotgun marriage” to SVB is that some banks are willing to take over troubled institutions after they liquidate them.