The First Republic Bank of the USA came under the control of the American authorities today, which was resold – for the most part – to JPMorgan Chase. This is the third bank failure in the US in two months.
First Republic Bank has been under heavy pressure since the early March failures of two similarly-profiled US banks, Silicon Valley Bank and Signature.
Based on the amount of assets ($229 billion as of April 13), this is the second largest bank failure in United States history (excluding investment banks such as Lehman Brothers) after that of Washington Mutual in September 2008.
The deal with JPMorgan
Under the deal, JPMorgan will take all of the bank’s deposits, as well as “substantially” all of its assets, according to a statement from the Federal Deposit Insurance Corporation (FDIC).
The transaction makes JPMorgan the largest U.S. bank, something government officials have tried to avoid in the past.
“Our government called on us, and others, to step in, and we did,” Jamie Dimon, JPMorgan’s chairman and chief executive, said in a separate statement.
“Our financial stability, capabilities and business model allowed us to propose an offer that allows us to execute the transaction in a way that minimizes costs to the deposit insurance fund,” the FDIC added.
As part of the deal, First Republic’s loans are to be revalued downward, and the FDIC has agreed to absorb a portion of those losses: the agency estimates the deal will cost it about $13 billion.
The bank’s branches will be able to open today as usual.
How First Republic Bank Collapsed
The banking institution has been in turmoil since the bankruptcies of SVB and Signature, which were taken over by regulators after mass exodus of customers worried about their viability.
The authorities and other major banks then rushed to rescue First Republic to avoid the same fate, with 11 financial institutions agreeing to disburse a total of $30 billion for this purpose.
But that was not enough to reassure investors and the stock continued to fall on Wall Street.
The bank has been unable to come up with a satisfactory rescue plan, and when it confirmed last Monday that many customers had withdrawn their deposits in the first quarter of this year, totaling more than $100 billion, its stock plummeted.
At the close of the Stock Exchange on Friday, First Republic was now worth just $654 million, compared to more than $20 billion at the start of the year and more than $40 billion at its peak in November 2021.
The authorities, who seemed reluctant to rush to bail out another bank, finally took action.
The FDIC and the Treasury Department asked banks for expressions of interest in the middle of last week, and on Friday they allowed a handful of them to access more financial information about First Republic.
The bidding process was “highly competitive” and resulted in a transaction “compliant with the lower cost requirement,” the FDIC said.
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**Interview with Financial Analyst Jane Doe on the First Republic Bank Acquisition by JPMorgan Chase**
**Editor:** Thank you for joining us today, Jane. The news about First Republic Bank’s acquisition by JPMorgan Chase has taken many by surprise. Can you give us some background on what led to this significant bank failure?
**Jane Doe:** Absolutely. First Republic Bank has been under significant pressure since early March, following the collapses of two major banks: Silicon Valley Bank and Signature Bank. These failures created a ripple effect, raising concerns about the stability of similar institutions. First Republic was particularly vulnerable due to its exposure to high-profile clients and a concentrated deposit base.
**Editor:** This acquisition marks the second largest bank failure in U.S. history in terms of assets. What does that signify for the banking industry overall?
**Jane Doe:** Yes, it’s a pivotal moment. The failure is pointing to deeper issues within the banking sector, particularly regarding risk management and exposure to interest rate changes. With $229 billion in assets, it underscored the vulnerabilities that can arise when institutions fail to adapt to shifting economic conditions. This situation also reignites discussions around regulatory frameworks and whether more stringent measures are needed to prevent future collapses.
**Editor:** JPMorgan Chase has now emerged as the largest bank in the U.S. following this deal. Are there concerns about this level of consolidation in the banking sector?
**Jane Doe:** Definitely. While consolidation can bring about efficiencies and stability in uncertain times, over-consolidation poses risks. A larger banking entity can become “too big to fail,” which raises concerns about moral hazard and potential taxpayer exposure in a future crisis. Regulators have historically been wary of allowing any one bank to dominate the market to this extent.
**Editor:** Jamie Dimon mentioned that JPMorgan responded to a call from the government to step in. How important is that collaboration between large banks and government authorities in times of crisis?
**Jane Doe:** That collaboration is crucial. In times of financial distress, having larger institutions step in can help restore confidence in the banking system and reduce panic among depositors. However, it must be balanced with careful oversight to ensure that these interventions don’t lead to reckless behavior. Ultimately, the goal should be to stabilize the financial system while safeguarding consumer interests.
**Editor:** Thank you, Jane, for your insights on this unfolding situation. It’s certainly a crucial time for the banking sector and the economy as a whole.
**Jane Doe:** Thank you for having me. It’s important for consumers to stay informed as these developments unfold.