US banking crisis: First Republic Bank seized and sold to JPMorgan Chase

First modification:

The largest bank in the United States will take over the failed lender that had to be seized by federal authorities. This is the third financial entity that sinks in the country in less than two months, after the bankruptcies of Silicon Valley Bank and Signature Bank earlier this year.

In the early hours of this Monday, May 1, the First Republic Bank was intervened by federal regulators to protect its depositors and with the aim of balancing an unstable scenario in the US banking sector.

It was the Federal Deposit Insurance Corporation (FDIC) that reported the embargo, as well as the purchase agreement that was entered into with JPMorgan Chase, for the latter to assume all deposits and most of the assets of the failed bank.

JPMorgan will then take $173 billion of loans, $30 billion of securities and $92 billion of deposits from the failed bank.
JPMorgan will then take $173 billion of loans, $30 billion of securities and $92 billion of deposits from the failed bank. © France 24 English

Big Banking Leader to Take on $92 Billion in First Republic Deposits and also bought most of the assets, including the $173 billion in loans and $30 billion in securities.

For the directors of JPMorgan, this purchase action is necessary to calm the banking sector and reassure the markets, and they also assured that they have the necessary capacity to mediate with the crisis.

Official statement from JPMorgan Chase bank
Official statement from JPMorgan Chase bank © France 24 English

For the United States Department of the Treasury, the news of the purchase is positive and allows us to give way to a better outlook. “ANDhe Treasury is encouraged by the fact that this institution was resolved at the lowest cost for the Deposit Insurance Fund, and in a way that protects all depositors,” the entity published in a statement.

How did the First Republic go bankrupt?

San Francisco-based First Republic Bank was one of the banks to suffer from stress in the banking sector, which began with the closure of Swiss lender Credit Suisse (later bought by rival UBS) and which appeared to have ended with the collapse of the American banks Silicon Valley Bank and Signature Bank.

In mid-March, the First Republic was already showing signs of its economic illness when Bank of America reported that around 70% of the bank’s deposits were uninsured, meaning they were larger than the guaranteed limit of the $250,000 from the FDIC.

For the sake of bailing out the lender, US financial regulators reached in and got 11 banks to inject $30 billion to bail him out; despite this, the First Republic was unable to stop the bleeding.

On Wednesday, April 26, the entity reported that in the first quarter of this year it had lost more than 100,000 million dollars in its deposits, something that led its shares to plummet until losing almost 50% that same day and until 97% for Friday, April 28 in the latest Wall Street operations.

The First Republic bled so badly that it surpassed the case of Silicon Valley Bank, since the latter had 209,000 million dollars in assets at the time of closing, while the first accumulated 229,100 million dollars. The shutdown established the First Republic as the second largest bankruptcy in the country’s history.

The outlook in this sector has been measured by bank runs in which its depositors, for fear of losing their money, withdraw large amounts of their deposits simultaneously, based on rumors that the bank could fall into a possible financial insolvency.

In most cases, this scenario is the product of panic and speculation, instead of a true insolvency of the entity.

With Reuters and local media

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Written by Editor TLN

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