The Bank Run Problem Won't Be Solved By First Citizens Buying SVB, According To Jim Cramer

Despite the mini-banking crisis dragging on, CNBC's Jim Cramer is positive that the Fed will continue raising interest rates for as long as there is a recession. But, if a bigger bank fails, Cramer believes that rates will eventually come down and that "a lot more pain" will accompany it.

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Despite the fact that the failed Silicon Valley Bank is now being acquired by First Citizens Bancshares at a sweetheart discount of $16.5 billion, Cramer called it a "sweetheart deal," since it's buying $72 billion in loans for $72 billion. Despite the fact that Citizens' stocks soared 53% Monday, Cramer said that the deal does not necessarily solve the problem of bank runs.

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In his view, it is only possible to carry out this kind of transaction upon a bank's failure, when a receivership has already been put in place. This removes a great deal of risk for the buyer, he said. “But our system isn't prepared for a wave of bank failures.

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A report from Cramer on Friday said that First Republic Bank, which rallied as a result of the SVB news, would be the next to be acquired by a bank due to the fact that it would be harming the acquirer in the short term. He added it would be necessary for First Republic to fall hard before a deal could be reached.

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As a result of the collapse of SVB, depositors' confidence was shaken, so the Fed raised interest rates by 25 basis points last week to restore confidence. Despite the fact that Cramer predicted that the Fed would raise rates until wage inflation cooled down, he said that if another large bank like First Republic collapsed, the Fed would definitely do the job.

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The analyst noted that he believes that the bank crisis may result in a tightening of the monetary policy by approximately 100 basis points over the next few months if it continues, and that it might be the most deflationary event that could happen to an economy in the future.

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Despite the possibility of collateral damage that tends to be far worse than the long-term hike in interest rates, it gets the whole darned thing over with quicker than endless rate hikes.

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Cramer pointed out, despite the fact that First Republic's deposit base remains unclear, that First Citizens' "shotgun wedding" to SVB shows that some banks are willing to take on troubled banks after they've been wiped out, meaning that some banks may be capable of taking on troubled entities.