State and federal banking regulators closed the San Francisco-based First Republic Bank over the weekend, after which it was acquired by JPMorgan Chase Bank.
First Republic is the second-largest U.S. bank to ever fail, with $229 billion in total assets and $104 billion in total deposits as of April 13. Only Washington Mutual was bigger; it went under during the 2008 financial crisis.
The Federal Deposit Insurance Corporation (FDIC) has been appointed as the bank's receiver, according to a Monday announcement from the California Department of Financial Protection and Innovation. After that, the FDIC revealed that JPMorgan had purchased First Republic and would be "assuming all of the deposits" and "substantially all of First Republic Bank's assets."
The 84 branch locations of First Republic in eight states reopened as JPMorgan branches on Monday. Approximately $173 billion in loans and $30 billion in securities will be transferred to JPMorgan. Additionally, $92 billion in deposits, including $30 billion in large bank deposits, will be assumed. These deposits will be repaid after the close or eliminated during the consolidation. According to a press release from the bank, JPMorgan will not be accountable for First Republic's corporate debt or preferred shares.
"In carrying out this transaction, JPMorgan Chase is supporting the U.S. financial system through its significant strength and execution capabilities," according to the bank.
The chairman and CEO of JPMorgan Chase, Jamie Dimon, stated "Our government invited us and others to step up, and we did. Our financial strength, capabilities, and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund."
The FDIC calculated that the collapse and sale of First Republic would cause a $13 billion damage to its Deposit Insurance Fund. The loss to the fund after Silicon Valley Bank's (SVB) demise was anticipated to be $20 billion.
Since SVB's failure on March 10, First Republic's stock price has fallen precipitously. The bank saw a deposit outflow of about $100 billion. On March 16, $30 billion was deposited with First Republic by eleven big banks, including JPMorgan, in an effort to stop the bleeding. But that injection of cash was unable to address First Republic's financial issues.
The failure means that since March 10th, First Republic ($229 billion), SVB ($209 billion), and New York-based Signature Bank ($110 billion) have all shut their doors, making them the second-, third-, and fourth-largest U.S. bank failures in history.
The banking turbulence also expanded to Europe, When struggling Credit Suisse announced on March 19 that it might be acquired by bigger rival UBS.
The bankruptcies of SVB and Signature Bank have left mid-sized banks scrambling to deal with the aftermath, although Treasury Secretary Janet Yellen stated on March 21 that federal authorities might be willing to provide financial assistance—possibly even extended deposit insurance—to these institutions.
The FDIC issued a summary of the deposit insurance system on Monday as well. The research suggested three reform options, which were condensed in a news release from the agency:
- Maintain limited coverage but perhaps increase the $250,000 per account limit;
- Extend unlimited deposit insurance to all depositors; or
- Consider targeted coverage, which would apply “significantly” higher deposit insurance limits for business payment accounts.
The FDIC stated it supports targeted coverage, stressing that any such modifications to the deposit insurance regulations would necessitate congressional approval.
Other regional banks, like Alabama's Regions Financial Corp., Utah's Zions Bancorporation, and California's PacWest Bancorp, are still in trouble.
Federal Reserve Board, FDIC, and New York State Department of Financial Services reports outlining the oversight errors made by regulators prior to SVB and Signature Bank's failures were released on Friday. The authorities made a commitment to improve regulatory and supervision practices for mid-sized banks going forward.
By fLEXI tEAM