Not even $30bn was enough to save First Republic. A consortium of too-big-to-fail players stumped up that 11-figure sum last month in an attempt to calm nerves, but it was to no avail; the bank went into receivership last week, with JP Morgan winning the bidding to take over the California-based lender. First Republic is now this cycle’s third bank failure, a rapid death that came after its earnings report witnessed large outflows in the wake of March’s Silicon Valley Bank and Signature Bank runs.

Though Signature was New York-based, SVB and First Republic have their headquarters in Santa Clara and San Francisco, respectively. All three banks were subject to classic runs, but the other issue that won’t go away for the other 4,844 banks in this country, conservative or aggressive, is what we call “Bank Walks.” When participating in a bank walk, the depositor does not withdraw their money because of fear, but because of opportunity, or frustration. With some Treasury bills yielding around 5%, the catalyst for a bank walk is simple: a search for something better than the 0.01% on their checking account.

Suppose we luck out: First Republic proves to be the last bank failure. The first problem for the lending mechanism in California specifically is human nature. JP Morgan is likely going to fire many First Republic employees, replacing them with their own people. Will those workers be jumping over each other to lend into the tech start-up scene? Amid the scrutiny on banks right now, doubtful. Same goes for the rump SVB operation too.

Additionally, in this scenario where no other banks fail, we have to allow for other small and mid-sized lenders to still have to contend with the bank walk, so long as the Fed seems bent on keeping the cost of overnight money around 5%. This phenomenon alone should cause lending retrenchment. After all, smaller deposits, smaller loans.

Of the banks that remain, we imagine they will be very reluctant to lend into the troubled office market, especially around tech-oriented San Francisco. Since November, the Challenger layoff report has registered the three largest months of tech layoffs on record. Office vacancy has been an issue since COVID-19—which commenced over three years ago—and no city has been hit by vacancies quite like San Francisco. The National Association of Realtors has a heat map of the United States’ office vacancies in the major metro areas. Needless to say, the biggest, reddest dot is plunked squarely on the Bay Area.

With deposit outflows across numerous U.S. community banks, it may start to become more difficult to secure a home mortgage, especially from a California-based lender. The fact that the state’s home prices are declining sharply is not helping matters either. According to the California Association of Realtors, the state’s median existing single family home price was $791,490 in March, down 7.0% from $851,130 the prior year. Even after some of the air has come out of California’s home prices, they still cost eight times median household incomes.

Another issue: population loss. The Census Bureau estimates the state had 39 million people in 2022, a loss of about 470,000 compared to 2020. Last year, U-Haul ranked California in last place for moving trucks arriving versus departing. It was ranked 48th, 49th or 50th in each of the five prior years too.

The thing about moving from California to another state: you change your household’s relationships. The old electric company in San Diego becomes some different electric company in Phoenix. Sometimes that happens with banks too, for reasons as simple as switching to whoever has the closest ATM to your house. For those who don’t switch for those reasons, there is still the bank walk. Love your bank or not, it won’t change the fact that T-Bills offer just so much more than First Republic or many other banks are willing (or able!) to pay on deposits. That issue isn’t going away anytime soon.