First Republic Bank was successfully acquired by JP Morgan Chase after US regulators engineered an overnight deal to close the troubled California lender. According to reports, the aforementioned action caused the second-largest bank failure in American history, wiping out the lender’s shareholders.
The Federal Deposit Insurance Corporation and California authorities made the aforementioned announcement when they shuttered the First Republic Bank and sold the majority of its assets, including $93.5 billion in deposits, to JPMorgan on the last Monday of this week. Wall Street Bank will contribute $10.6 billion to the FDIC as part of the aforementioned agreement.
Defense From JP Morgan’s Executive
The CEO of JPMorgan, Jamie Dimon, defended how the administration handled the procedure. He said that nobody had eventually sought to buy the First Republic Bank as a going concern. He claimed, “The whole world knew it was available, and no one bought it.”
It’s important to note that the 2008 collapse of Washington Mutual was the only larger bank failure in US history. However, First Republic had a market value of $25 billion in February, and as was already mentioned, all of its prior shareholders have since been eliminated.
Shares in US regional banks were seen to have fallen shortly after the transaction was announced. Citizens and PNC, whose offers to purchase First Republic’s assets both failed, were seen to have decreased by about 5% by early afternoon trade, while PacWest was almost 5% lower, erasing earlier losses.
US Treasury Department Promotes Protection for First Republic Bank Depositors
According to reports, the US Treasury Department “encouraged” that First Republic Bank depositors must be safeguarded. The expected cost to the FDIC’s deposit insurance fund would be roughly $13 billion, but thanks to the agreement with JPMorgan, that cost has been reduced.
US President Joe Biden discussed the requests for further regulation of the industry earlier this week, saying that such measures are intended to ensure that the banking system is secure. Critically, taxpayers are not the ones who are responsible, he continued.
This action by the relevant regulators was made public following several weeks of unrest in the US banking industry, which is said to have its origins in Silicon Valley Bank’s collapse in March. Notably, First Republic, which is only slightly larger than Silicon Valley Bank, is the third bank that the FDIC has taken over in less than two months as a result of rising interest rates weakening institutions that depended on low-cost deposits.
In addition, other midsized banks have seen early deposit runs as well as share price crashes as a result of the failure of Silicon Valley Bank. First Republic disclosed last Monday that it has seen more than $100 billion in withdrawals. When it was taken over, it had $229.1 billion in assets, and by the end of 2022, it was the 14th-largest lender in the country.