In a move to avoid further banking turmoil in the US, regulators seized First Republic Bank early on Monday, marking the second-biggest bank failure in US history. JPMorgan Chase acquired all of its deposits and most of its assets, with its 84 branches in eight states set to reopen as JPMorgan Chase Bank branches. The FDIC estimated that its deposit insurance fund would take a $13 billion hit from taking First Republic into receivership, marking the third midsize bank to fail in two months.
First Republic Bank had been struggling since the collapses of Silicon Valley Bank and Signature Bank in March. Investors and depositors had grown increasingly worried it might not survive due to its high amount of uninsured deposits and exposure to low-interest rate loans. The bank planned to sell off unprofitable assets and lay off up to a quarter of its workforce, which totaled about 7,200 employees in late 2022. However, depositors pulled out over $100bn during April’s crisis, leaving the bank in a precarious position.
The bank had made much of its money making low-cost loans to wealthy clients, with its clients rarely defaulting on their loans. However, the vast majority of its deposits, like those in Silicon Valley and Signature Bank, were uninsured, which worried analysts and investors. If First Republic were to fail, its depositors might not get all their money back. Since the crisis, the bank had been looking for a way to quickly turn itself around but had struggled to find a solution.
JPMorgan’s acquisition of First Republic will provide stability in the banking sector, with regulators working through the weekend to find a way forward before US stock markets opened. Although markets in many parts of the world were closed for May 1 holidays, the two markets in Asia that were open, in Tokyo and Sydney, rose. However, it remains to be seen how long it will take for the bank to return to profitability, as restructuring a balance sheet and selling off assets quickly can be a difficult and lengthy process.