International Journal of

ADVANCED AND APPLIED SCIENCES

EISSN: 2313-3724, Print ISSN: 2313-626X

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 Volume 10, Issue 11 (November 2023), Pages: 59-66

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 Original Research Paper

The cascade effect: Are the U.S. economy and global stock markets vulnerable to the collapse of First Republic Bank?

 Author(s): 

 Abdullah Bin Omar 1, *, Hatem Akeel 2, Haitham Khoj 3

 Affiliation(s):

 1Department of Business Administration, National College of Business Administration and Economics (NCBA&E) Lahore, Sub-Campus Multan, Pakistan
 2Finance Department, College of Business and Administration (CBA), University of Business and Technology (UBT), Jeddah, Saudi Arabia
 3Department of Economics, King Abdulaziz University, Jeddah, Saudi Arabia

 Full text

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 * Corresponding Author. 

  Corresponding author's ORCID profile: https://orcid.org/0000-0001-6320-4295

 Digital Object Identifier (DOI)

 https://doi.org/10.21833/ijaas.2023.11.008

 Abstract

Following the collapse of Silicon Valley Bank and Signature Bank, First Republic Bank collapsed and is considered the second-largest bank failure in U.S. history. These bank runs can have a cascading or contagion effect on other large banks, and U.S. banking crises can flare up again. We examine the effect of the First Republic bank run on top U.S. banks, U.S. stock indices, and global stock indices using standard event study methodology. We report abnormal returns and cumulative abnormal returns for the event day (t = May 01, 2023) and the 10-day event window (t-5 to t+5), respectively, using data from the 120-day estimation window. The results indicate that on the event day, only JP Morgan Bank's returns were negative, while other banks acted as safe havens for investors. No significant change in returns on the event day is observed for U.S. sector indices (except for the healthcare sector) and global stock exchanges, except for the European and Chinese markets. During the event window, the occurrence of the event significantly affects bank returns after the event date, but no significant effect is found before the event date. Similarly, the healthcare and transportation sectors are more affected than other sectors, while the U.S. and Canadian stock markets seem to be more susceptible to the bank run. Overall, the results suggest that the U.S. government should take decisive initiatives to stop the ripple effect and protect the entire financial system.

 © 2023 The Authors. Published by IASE.

 This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

 Keywords

 First Republic Bank, Bank collapse, Event study, Abnormal returns, U.S. financial crises, Efficient market

 Article history

 Received 7 July 2023, Received in revised form 19 October 2023, Accepted 23 October 2023

 Acknowledgment 

No Acknowledgment.

 Compliance with ethical standards

 Conflict of interest: The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

 Citation:

 Omar AB, Akeel H, and Khoj H (2023). The cascade effect: Are the U.S. economy and global stock markets vulnerable to the collapse of First Republic Bank? International Journal of Advanced and Applied Sciences, 10(11): 59-66

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 Figures

 Fig. 1 Fig. 2 Fig. 3

 Tables

 Table 1 Table 2 Table 3 Table 4 Table 5

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