Amna Nawaz:

Another major bank failure has shaken the U.S. financial system.

Federal regulators' seizure of First Republic Bank comes less than two months after Silicon Valley Bank and Signature Bank collapsed.

To help us understand why this happened and the state of the banking industry, I'm joined by Roben Farzad. He's host of public radio's "Full Disclosure" podcast.

Roben, welcome back. Always good to see you.

As you well know, as you came on the show to talk about, after those previous bank collapses, some of the biggest banks rushed in to shore up First Republic Bank, $30 billion of a rescue package handed over there. Why didn't that work? Why did federal regulators have to step in here?

Roben Farzad, Host, "Full Disclosure": Because it wasn't enough of a firewall.

This is all a confidence game. And I don't mean that pejoratively. You could look at this cynically, like all these banks would love to get bank of First Republic's prestige and brand standing and clientele with financial aid from the FDIC or the Fed or anybody else that cares to backstop it.

So, that $30 billion, you can look at as kind of a collective down payment. Maybe, if Wall Street is saying that we'd like to put in our money and it's not going to be protected above $250,000, in theory, then that would put this story to bed, finally. But, no, it didn't happen.

They had an earnings call. They came out. They kept hemorrhaging deposits. The stock kept tanking. And you had an 11th-hour bailout through the entirety of the weekend. And you see J.P. Morgan emerge victorious. It shows you how really truly thin the business model of banking is, how much of it ultimately comes down to psychology and confidence.

Roben Farzad:

Shareholders are going to get wiped out.

And that's a — I mean, it's a breathtaking loss. If you told me at the beginning of the year that First Republic, something was lurking beneath it that was kind of a mundane interest rate risk, that they were getting sandwiched between markdowns on these generous loans that they made and the Fed taking up interest rates, which has been something that the entire economy has had to deal with in whiplashing fashion, I would not have predicted that it would have led to the second largest bank failure in history.

I mean, think about the season of autumn 2008 and spring 2009. That was subprime. There was rot everywhere. There was panic everywhere. This is not exactly a panicked economy. Unemployment is close to 3.5 percent. But there are certain moments where you get complacency in banks.

And if investors jump ship and depositors jump ship, there's only so much you can do without the intervention of the government and other banks.

Roben Farzad:

Gosh.

And even, Amna, if you were to take Bank One, which is very familiar to people in the Midwest, and accordion that out to First USA and all the other various dozens of banks that Bank One have — has rolled up over the decades, and it's now a footnote in this behemoth of a Wall Street giant.

I think, at last count, it had $2.5 trillion of assets. Even if it didn't do anything, it was collecting $50 billion in deposits as everybody was leaving these regional banks. So it has this really unique status, this really unique citizenship.

Too big to fail doesn't even begin to describe it anymore. If it was Jupiter, it's kind of now the sun. And I think that's the danger for the Fed, that what do you do if — J.P. Morgan is the good citizen of Wall Street right now. He is the heir apparent to J. Pierpont Morgan from 120 years ago.

But what happens? How do you get your arms around a J.P. Morgan or any if it's too-big-to-fail kin if anything like this were to happen there? And I think that that's something that, broadly, regulators in this economy have punted on.

Roben Farzad:

You know, this is a problem that — if you have this echo chamber on Twitter, and if you have investors selling something, and it forces management to step up and say, we're good, we're good, but we're not going to take calls on an earnings call.

Depositors ultimately have the deciding vote. If they pull their money, then the FDIC comes in, and it has to size up the situation and bring in other pillars of support. Brand management is only so valuable in banking, when it's up to the quality of your deposits and your loans.

And as we have learned really painfully this year, that can be pretty ephemeral.

Roben Farzad:

Scrutinize your $250,000 max, which, by the way, the FDIC has some papers out saying that maybe we need to reconsider it.

What used to be $100,000 insurance max, I mean, inflation has eaten away at that. You have small businesses that need to have hundreds of thousands of dollars on hand for working capital. I predict that Congress and the FDIC are going to come in for higher insurance limits. But it pays, really, truly, to read the fine print in the meantime.