JPMorgan Chase Acquires Assets of First Republic Bank in Second-Largest Bank Failure in US History
JPMorgan Chase & Co. has acquired most of the assets of First Republic Bank in a deal announced on Monday, just after the federal government seized control of the troubled regional bank. First Republic was bought by JPMorgan Chase after regulators took control of the bank. First Republic was seized by regulators on Monday morning and JPMorgan Chase acquired a major portion of the bank's operations. JPMorgan Chase acquired $173 billion of loans and $30 billion of securities in the deal, as well as taking responsibility for $92 billion in deposits, including $30 billion in large bank deposits.[0] This marks the second-biggest bank failure ever in the US, after Washington Mutual in 2008. It is also the third big bank failure in two months, with Silicon Valley Bank and Signature Bank collapsing in March.[1] The shareholders of First Republic will face a complete loss, while JPMorgan will compensate the government insurance fund by paying $10.6 billion.[2] As part of the deal, the Federal Deposit Insurance Corp. agreed to provide JPMorgan with $50 billion in long-term loans and take on 80% of any losses that JPMorgan suffers in the next five years on loans that First Republic made to companies, and the same for the next seven years for residential mortgages.[2]
The failure of First Republic Bank, a San Francisco-based bank that had been teetering for weeks amid worries about its profitability, shows how deregulation has made the too-big-to-fail problem even worse, said Elizabeth Warren (D-Mass.[3]), who has long criticised Trump-era deregulatory moves.[4] The CEO of JPMorgan, Jamie Dimon, stated that the aftermath of Silicon Valley Bank's collapse, which occurred six weeks ago, has concluded.[5] However, this probably isn’t the end of the crisis.[6] The FDIC estimated that the cost to its Deposit Insurance Fund of the First Republic collapse will be around $13 billion, considerably higher than the estimated $2.5 billion for Signature Bank but beneath the $20 billion estimate of resolving Silicon Valley Bank.[7]
This marks the second-largest bank failure in US history, after Washington Mutual in 2008. The deal confirms that banks, by their nature, are fragile institutions, potentially subject to runs by depositors that can hit them in short order.[2] Whenever a big bank looks like it’s about to fail, the federal government usually steps in with guarantees or taxpayers’ money because of fears that an uncontrolled collapse could prompt panic and lead to an economy-wide financial crisis.[2]
0. “What First Republic's Sale to JPMorgan Means for Real Estate” The Real Deal, 1 May. 2023, https://therealdeal.com/national/2023/05/01/watch-breaking-down-first-republics-seizure-and-sale-to-jpmorgan
1. “Why did First Republic Bank fail” Vox.com, 1 May. 2023, https://www.vox.com/business-and-finance/2023/5/1/23706910/first-republic-bank-failure-crisis-fdic
2. “Deregulating Banks Is Dangerous” The New Yorker, 1 May. 2023, https://www.newyorker.com/news/our-columnists/deregulating-banks-is-dangerous
3. “First Republic fallout: Democrats fume as regulators bail out yet another failed bank” The Hill, 1 May. 2023, https://thehill.com/business/3982091-first-republic-fallout-democrats-fume-as-regulators-bail-out-yet-another-failed-bank/
4. “Why JPMorgan's deal for a failing bank has Elizabeth Warren upset” POLITICO, 1 May. 2023, https://www.politico.com/news/2023/05/01/jpmorgans-dimon-sparks-new-clash-over-too-big-to-fail-banks-00094735
5. “Regional bank stocks, including HBAN, KeyBank slump more in day after First Republic deal” Seeking Alpha, 2 May. 2023, https://seekingalpha.com/news/3963500-regional-bank-stocks-slump-further-in-day-after-first-republic-deal
6. “First Republic Deserved To Die” New York Magazine, 1 May. 2023, https://nymag.com/intelligencer/2023/05/first-republic-deserved-to-die.html
7. “‘Other problems might be lurking': Strategist is unconvinced by Jamie Dimon's bank crisis comments” CNBC, 2 May. 2023, https://www.cnbc.com/2023/05/02/strategist-left-unconvinced-by-jamie-dimons-crisis-comments.html
