JPMorgan Chase & Co. Acquires First Republic Bank in Second-Largest US Bank Failure
On Monday, JPMorgan Chase & Co. announced its acquisition of First Republic Bank, a San Francisco-based bank that had been struggling for weeks amid concerns about its profitability.[0] After depositors withdrew over $100 billion in the first quarter of 2023, regulators seized the bank and quickly sold the majority of its operations to JPMorgan. The acquisition includes all of First Republic's $92 billion in deposits as well as most of its assets, including $173 billion in loans and $30 billion in securities. The Federal Deposit Insurance Corp. (FDIC) will split the losses and loans with JPMorgan.[1] The collapse of First Republic Bank follows similar situations at New York’s Signature Bank and Santa Clara’s Silicon Valley Bank, which collapsed suddenly in March after panicked depositors took their money out.
The failure of First Republic Bank marks the second-largest failed bank in US history, following Washington Mutual, which collapsed in 2008.[2] The bank's shareholders will be wiped out, and JPMorgan will pay the government insurance fund $10.6 billion.[3] The FDIC agreed to provide JPMorgan with $50 billion in long-term loans and take on eighty per cent 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.[4]
Like Silicon Valley Bank, a significant share of First Republic's deposits were uninsured because they exceeded the $250,000 insurance protection offered by the FDIC.[5] Banks of this nature are at a higher risk of experiencing bank runs as apprehensive depositors tend to withdraw their funds at the slightest indication of a problem.[5] Following the downfall of Silicon Valley and Signature Bank earlier this year, First Republic began encountering issues. Concerned depositors hurried to withdraw their funds, fearing their bank would be the next to face trouble.[6]
U.S. President Joe Biden defended the deal, arguing that it would shore up the banking system without costing taxpayers money.[7] “These actions are going to make sure the banking system is safe and sound, and that includes protecting small businesses across the country,” Biden said.[8] “Depositors are being protected, shareholders are losing their investments and, critically, taxpayers are not the ones who are on the hook.”[7]
The collapse of First Republic Bank shows how deregulation has made the too-big-to-fail problem even worse, according to Senator Elizabeth Warren.[9] “A poorly supervised bank was snapped up by an even bigger bank—ultimately taxpayers will be on the hook.[10] Congress needs to make major reforms to fix a broken banking system,” Warren tweeted after the announcement.[10]
The failure of First Republic Bank also highlights the need for stronger guardrails in place to make large banks more resilient against failure, said Senate Banking Committee Chairman Sherrod Brown.[10] “We must protect financial stability and ensure competition in the long run,” he added.
The acquisition is part of a busy week on Wall Street, with the next Federal Reserve meeting top of mind for investors. The probability of the central bank increasing interest rates by 0.25% on Wednesday is currently estimated at 92% by Fed funds futures.[11] The two-day Federal Reserve meeting, which will wrap up with a policy decision on Wednesday afternoon, is also expected to provide insight into the larger impact of the First Republic resolution on regional bank health.
0. “Dow Jones Rises As First Republic Bank Crashes 45%” Investor's Business Daily, 1 May. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-fall-jpmorgan-buys-failed-first-republic-bank-frc-stock-plunges-45/
1. “First Republic Becomes the Latest Bank to Fool Around and Find Out” The New Republic, 1 May. 2023, https://newrepublic.com/post/172311/first-republic-bank-failure-fdic
2. “First Republic, Silicon Valley Bank and Signature: How Banking Failures Compare” The New York Times, 1 May. 2023, https://www.nytimes.com/interactive/2023/business/bank-failures-svb-first-republic-signature.html
3. “Deregulating Banks Is Dangerous” The New Yorker, 1 May. 2023, https://www.newyorker.com/news/our-columnists/deregulating-banks-is-dangerous
4. “First Republic: JP Morgan snaps up major US bank” BBC, 1 May. 2023, https://www.bbc.com/news/business-65445427
5. “First Republic: What happens to deposits and shareholders now?” CBS News, 1 May. 2023, https://www.cbsnews.com/news/first-republic-bank-stock-deposits-shareholders-cbs-explains/
6. “The fall of First Republic Bank and how it impacts depositors” ABC 10 News San Diego KGTV, 2 May. 2023, https://www.10news.com/news/local-news/the-fall-of-first-republic-bank-and-how-it-impacts-depositors
7. “JPMorgan's Dimon sparks new clash over `too-big-to-fail' banks” POLITICO, 1 May. 2023, https://www.politico.com/news/2023/05/01/jpmorgans-dimon-sparks-new-clash-over-too-big-to-fail-banks-00094735
8. “First Republic Bank fails: Was it a bailout?” ABC News, 1 May. 2023, https://abcnews.go.com/Business/republic-bank-fails-bailout/story?id=98983413
9. “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/
10. “Lawmakers praise First Republic sale, but efforts to pass new bank rules are fizzling” CNBC, 1 May. 2023, https://www.cnbc.com/2023/05/01/first-republic-congress-reacts-to-bank-failure.html
11. “Stock Market Today: Stocks Struggle After JPMorgan Buys First Republic” Kiplinger's Personal Finance, 1 May. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-stocks-struggle-after-jpmorgan-buys-first-republic
