The First State Bank, which is based in Barboursville, West Virginia, has become the first bank to fail due to the Coronavirus induced economic crash. At this point the bank’s name seems quite prophetic, since it is the first bank to be bailed out by the state since the economy began to crash.
Fortunately for everyone involved, The First State Bank was relatively small and only had $152.4 million of assets and $139.5 million of deposits. In this case the Federal Deposit Insurance Corporation (FDIC) managed to arrange an instant bailout, by having MVB Bank, which is based in Fairmont, West Virginia, assume responsibility for The First State Bank’s deposits and buy up almost all of its assets, although the FDIC still had to inject a $46.8 million bailout to save the bank.
Although this bank closure seems to be obviously due to the major economic crash the United States is experiencing amid the Coronavirus pandemic, the FDIC avoids that notion, and only says that The First State Bank has been having problems since 2015, and as of the end of 2019 its capital levels were too low to continue operating.
Although The First State Bank is a small bank, it is still a bank failure nonetheless. It could perhaps be speculated that this is the beginning of a default chain reaction, where high levels of unemployment and business closures due to Coronavirus quarantines will lead to mortgages and loans in general defaulting en masse, leading to banks going bankrupt, leading to even more defaults, and so on and so forth.
Only time will tell if this is an isolated incident or a telltale sign of the beginning of a default chain reaction. If a default chain reaction does develop it could lead to stocks going back to new lows, and would undoubtedly impact the crypto market as well, although it is hard to say which way the crypto market will go.
Therefore, it may be a good idea for crypto traders to monitor the FDIC press release page, since if more banks go belly up it will be posted there, and if more bank failures begin to roll in it could indicate that some major market movements are about to happen in both the stock and crypto markets.