First Republic Bank Is Seized by US Regulators

Good morning, and happy May Day. As part of its deal, 84 First Republic branches in eight states will reopen as JPMorgan branches on Monday.

On Monday, regulatory authorities took over First Republic Bank and transferred its ownership to JPMorgan Chase in a decisive action aimed at mitigating a two-month banking crisis that has shaken the financial system.

First Republic Bank, which suffered due to the increase in interest rates, had been struggling to survive after the collapse of two other lending institutions last month, causing concern among depositors and investors.

The Federal Deposit Insurance Corporation (FDIC) assumed control of First Republic and promptly sold it to JPMorgan Chase. The announcement came just hours before the U.S. markets were scheduled to open, following an urgent effort by officials over the weekend.

On Monday, 84 First Republic branches across eight states will resume operations as JPMorgan branches.

In a statement, the FDIC announced that JPMorgan will “take on all deposits and the vast majority of First Republic Bank’s assets.” The regulator estimates that its insurance fund will need to disburse approximately $13 billion to compensate for First Republic’s losses.

JPMorgan’s CEO, Jamie Dimon, stated that the government had called upon them and others to take action, and they had responded accordingly. He mentioned that the transaction aimed to “reduce expenses for the Deposit Insurance Fund.”

The acquisition further expands JPMorgan, already the nation’s largest bank, potentially attracting attention from progressive Democrats in Washington.

Despite receiving a $30 billion aid package from 11 of the country’s largest banks in March, First Republic still failed. It will be remembered as the second-largest U.S. bank by assets to collapse, following Washington Mutual’s failure during the 2008 financial crisis.

The government’s intervention and sale of First Republic occurred seven weeks after taking control of Silicon Valley Bank and Signature Bank. The collapse of these banks sent shockwaves through the industry, raising concerns that other regional banks might face similar deposit runs.

Many banking experts believe that First Republic’s difficulties were a delayed response to the March turmoil rather than the beginning of a new phase in the crisis. Investors and industry executives remain hopeful that no other midsize or large lenders are on the brink of failure. As First Republic’s stock plummeted last week, other bank stocks remained relatively stable.

First Republic served many clients in the start-up sector, similar to Silicon Valley Bank, as well as in the financial industry, including senior bankers and hedge fund managers. A significant number of its accounts held over $250,000, exceeding the federal deposit insurance limit.

The collapse of the First Republic might heighten concerns about an economic downturn. According to industry experts and economists, the turmoil initiated by Silicon Valley Bank’s failure has made banks and investors more cautious. This wariness could lead to more challenging and expensive lending, potentially hindering business growth and employment. The First Republic takeover and its consequences may prompt the Fed to reconsider or halt its interest rate hikes if it anticipates further lending restrictions by banks.

First Republic’s executives often highlighted the safety of its business model and growth due to the types of clients it served—many of them being multimillionaires. The bank’s customer base had a limited history of defaults. However, the bank provided mortgages during low-interest periods and retained them instead of selling them to investors. Over the past year, First Republic’s extensive collection of home loans lost value each time new mortgage rates increased.

Other regional banks, such as Utah’s Zions Bank and Los Angeles-based PacWest, have stabilized more quickly than the First Republic. Bank analysts do not foresee another imminent collapse. On Friday, the stocks of every other bank in the S&P 500 index rose, while First Republic’s shares fell by over 40% in anticipation of the government takeover.

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