On Monday, JPMorgan Chase took over First Republic Bank, which had failed because of problems in the banking sector.
First Republic Bank is based in San Francisco, California, and most of its clients are wealthy people with account amounts above the $250,000 Federal Deposit Insurance Corporation-backed deposit barrier. Customers withdrew their money from the company in recent weeks because the recent failures of Silicon Valley Bank and Signature Bank scared their account holders. This made the FDIC secure insured and uninsured deposits at the two failed companies to reduce the chance of bank runs at other institutions.
JPMorgan Chase, which is already the largest bank in the United States and the largest bank in the world by market capitalization, will buy all of First Republic Bank’s $103.9 billion in deposits and “substantially all” of its $229.1 billion in assets, according to a statement from the FDIC. The statement said that the resolution of First Republic Bank involved a “highly competitive bidding process.” On Monday, the offices that were run by First Republic Bank will reopen as branches of JPMorgan Chase, where customers can still do business.
In a statement, JPMorgan Chase CEO Jamie Dimon said, “Our government asked us and others to step up, and we did.” “Because of our financial power, skills, and business plan, we were able to put together a bid to do the deal in a way that would cost the Deposit Insurance Fund the least. This deal isn’t a huge win for our company as a whole, but it is good for our shareholders, helps us move forward with our wealth plan, and fits well with our existing business.
FDIC officials agreed to a loss-sharing plan for mortgages on single-family homes and business loans, but JPMorgan Chase will not take over the company debt or preferred stock of First Republic Bank.
The FDIC’s Deposit Insurance Fund, which is paid for by bank fees and used to cover insured deposits when banks fail, will lose $13 billion because First Republic Bank failed. This is on top of the nearly $20 billion loss caused by Silicon Valley Bank and Signature Bank’s failures.
The takeover by the FDIC and the purchase by JPMorgan Chase happened just days after First Republic Bank’s first quarter earnings report showed that the company’s savings had dropped from $176 billion on December 31 to $104 billion on March 31. In the second group of accounts, there was a $30 billion loan from big banks like Wells Fargo, Bank of America, Citigroup, and JPMorgan Chase. The federal government made this deal possible so that First Republic Bank could stay solvent.
At the end of last month, First Citizens Bank bought Silicon Valley Bank. The company bought $72 billion in assets from Silicon Valley Bank at a price of $16.5 billion, while the FDIC kept $90 billion. In the meantime, New York Community Bancorp paid more than $38 billion to buy Signature Bank. According to minutes released by the Federal Open Market Committee and the Federal Reserve Board of Governors, Federal Reserve officials said at a meeting last month that the turmoil in the financial system, which started with Silicon Valley Bank, is reason enough to predict a recession by the end of the year.