On Monday, another major financial institution bit the dust as the Federal Deposit Insurance Corporation (FDIC) seized control of First Republic Bank and sold all of its $103.9 billion in deposits and “substantially all” of the $229.1 billion in assets to JPMorgan Chase.
The collapse of First Republic Bank, one of the largest U.S. banks catering to wealthy clients, has sent shockwaves through the financial sector and has further compounded the economic turmoil caused by the implosions of Silicon Valley Bank and Signature Bank.
“The resolution of First Republic Bank involved a highly competitive bidding process,” the FDIC said in a statement, noting that JPMorgan Chase was the winning bidder. JPMorgan Chase CEO Jamie Dimon said in a statement that the acquisition “modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise.”
The FDIC agreed to a loss share agreement with respect to single-family residential mortgages and commercial loans, and JPMorgan Chase will not assume First Republic Bank corporate debt or preferred stock.
The FDIC takeover and JPMorgan Chase acquisition come days after the first quarter earnings report for First Republic Bank showed that deposits had decreased from $176 billion on December 31 to $104 billion on March 31. The latter amount of deposits included a $30 billion loan provided by large financial institutions such as Wells Fargo, Bank of America, and Citigroup, as well as JPMorgan Chase, a deal the federal government enabled to maintain the solvency of First Republic Bank.
The implosion of First Republic Bank is indicative of the economic troubles facing the country. The FDIC’s Deposit Insurance Fund, which is financed with bank fees and used to cover insured deposits after the collapse of financial institutions, will take a $13 billion hit, adding to the nearly $20 billion decrease incurred amid the failures of Silicon Valley Bank and Signature Bank.
The Federal Reserve said during a meeting last month that the turmoil in the financial system, which started with Silicon Valley Bank, warrants a recession forecast for the end of the year. This could mean further economic hardship for the country, and has experts warning that the U.S. could be headed for a prolonged recession.
The collapse of First Republic Bank is yet another reminder of the fragility of the U.S. financial system and the danger that large-scale bank failures pose to the economy. With more financial institutions on the brink of collapse, the country must take decisive steps to protect the stability of the banking system and avoid further economic damage.