First Republic Bank Is Sold to JPMorgan: What to Know

The federal government seized First Republic Bank on Monday and sold it to JP Morgan Chase.

First Republic, widely regarded as the most at-risk bank since the failures of Silicon Valley Bank and Signature Bank in March, lost $102 billion in deposits last quarter (from its holdings at the end of last year). more than half of the $176 billion During that time, banks borrowed about $92 billion, mostly from government-backed lending groups and the Federal Reserve.

The First Republic Bank failure had much the same roots as the Silicon Valley Bank and Signature Bank failures.

The Federal Deposit Insurance Corporation said in a statement that J.P. Morgan “will underwrite all deposits and substantially all assets of First Republic Bank,” and that the insurance fund will cover First Republic Bank’s losses. It added that an estimated $13 billion would have to be paid to cover the

Here are some answers to questions you may have about what happens next with banks and your money.

The First Republic was initially bailed out by the private sector in the turmoil caused by the failure of the Silicon Valley Bank. In March, he received $30 billion in deposits from 11 of the nation’s largest banks, including JP Morgan, Morgan Stanley and Wells Fargo.

But the First Republic still struggled, and its condition worsened over the weeks. There was a massive outflow of funds as depositors rushed to withdraw their money and put it in institutions they deemed safer.

The stock has been devastated, dropping 75% in the last week alone, as investors fear it will fail. The drop came after the company’s earnings release, which said it had borrowed heavily from the Federal Reserve and government-backed lending groups, lenders of last resort in the financial industry.

Ultimately, the FDIC decided it was no longer viable on its own.

The failure of First Republic Bank, the second largest in US history after Washington Mutual’s failure in 2008, is certainly a dramatic change. But what happened to banks this weekend follows the scenario used earlier. Amanda Heitz, an assistant professor of finance at Tulane University, said the government usually arranges for the sale of failed banks over the weekend, so they will be open for business as usual on Monday.

“Most failed banks are resolved through takeover and succession agreements,” she said. Under the agreement, another agency will take over the bank with the help of her FDIC.

The failure of Silicon Valley Bank was in many ways not a typical bank failure, but depositors did. i can access my money on monday after it was confiscated. And the Bank of England soon announced that HSBC had acquired the bank’s UK subsidiary, his SVBUK.

In the US, however, sales took a little longer. It wasn’t until the end of March, he said, that the FDIC announced that Silicon Valley Bank had been sold to a North Carolina bank, and until the FDIC could arrange the sale, the government set up a so-called bank. bottom. bridge bank Operate until sales.

If a bank fails, another bank may have an incentive to take over the distressed lender as it seeks to expand its footprint in the region or build new customer relationships. I have.

On Monday, 84 First Republic branches in eight states will reopen as JP Morgan branches.

But the acquisition could make JP Morgan, already the country’s largest bank, even bigger and subject to political scrutiny.

Over the weekend, federal regulators scrambled to find a buyer for First Republic before the market opened on Monday. JP Morgan, PNC Financial Services and Bank of America were all in talks with the FDIC about potential deals.

“The FDIC wants banks to buy other banks,” Heitz said.

One way to incentivize buyers is to share the potential loss they may incur. This is called a shared loss contract. JPMorgan said the FDIC would provide loss-sharing agreements in the deal with First Republic, including some mortgages and business loans.

Most depositors are unlikely to be affected by First Republic troubles. FDIC rules guarantee that deposits of up to $250,000 per bank per depositor are covered. Insurance coverage includes checking accounts, savings accounts and certificates of deposit. Anyone who has a joint account with someone else, such as a spouse, will each receive an insurance benefit of $250,000. Single joint account.

Different types of holders can sum them up. Multiple holdings—for example, a $50,000 savings account and his $20,000 certificate of deposit—are covered if the total does not exceed his $250,000. And insurance is automatic.

Silicon Valley Bank and Signature Bank customers never lost their deposits. The regulator chose to pay back all depositors in full after invoking a “systemic risk exception” intended to protect against system-wide destabilization.

For First Republic, JP Morgan accepts the lender’s deposit. This eliminates the need for governments to grant systemic risk exceptions.

When a bank is seized by the government, its common shareholders are wiped out. In this case, First Republic’s shareholders, together with their creditors, will receive nothing. JPMorgan Chase said it would not take over First Republic’s bonds or preferred stock.

Here’s the short answer: There is no meaning. Heitz said the acquiring bank would take over all loans on its balance sheet, including mortgages, under a purchase-and-succession agreement.

Maureen Farrell contributed to the report.

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