With $229.1 billion in total assets at the time of closure, First Republic Bank (NYSE:FRC) has become the second-largest bank failure in American history.
On Monday, the Federal Deposit Insurance Corporation (FDIC) announced that regulators had seized First Republic Bank, which JPMorgan (NYSE:JPM) is set to acquire now. The development comes as three other US banks, including Silvergate Bank, Signature Bank, and Silicon Valley Bank, have collapsed over the past few months.
First Republic Seized After Bank Loses 40% of Deposits in Q1
In a Monday press release, the FDIC announced that First Republic Bank had been seized. The federal agency added that JPMorgan, the largest bank in the US and the world’s largest bank by market capitalization, has agreed to purchase most of the bank’s assets and deposits.
With $229.1 billion in total assets at the time of closure, First Republic Bank has become the second-largest bank failure in American history. The bank also becomes the fourth major US lender to fail in the past four months.
The takeover comes days after the bank reported a loss of about 40% of its deposits, or around $100 billion, in the first quarter of this year. The scale of the lender’s deposit losses was an outlier compared to other regional banks, which saw a roughly 5% decline in deposits on average in the first quarter of the year.
Notably, even after a $30 billion rescue injection from multiple major American banks, First Republic could not stop the bleeding. The situation created anxiety across the industry, and the bank said last week that it was seeking help to reshape its balance sheet after its massive deposit flight.
First Republic sought to sell up to $100 billion of loans and securities to restructure its balance sheet. However, the lender had ruled out a sale to another bank. JPMorgan Chase CEO Jamie Dimon said in a statement:
“Our government invited us and others to step up, and we did. Our financial strength, capabilities, and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund.”
As of Monday, First Republic’s 84 branches in eight states will reopen as branches of JPMorgan Chase. The FDIC estimates that the cost of First Republic’s receivership will be around $13 billion, less than the $20 billion estimated to be the cost of Silicon Valley Bank’s failure.
First Republic Becomes 4th US Lender to Collapse in 2023
The recent collapse of First Republic comes as the first weeks of March saw the downfall of three US banks. After struggling for several months in the wake of the collapse of FTX, Silvergate Bank, a crypto-friendly bank, announced its liquidation on March 8.
Just two days after the collapse of Silvergate, SVB Financial Group, one of the most popular lenders to Silicon Valley tech and growth startups, suffered from a bank run. Subsequently, the FDIC took control of the bank and started exploring the sale of the lender’s assets.
And on March 12, federal regulators shut Signature Bank (OTC:SBNY) down over fears of continued contagion. Regulators hoped that the closure of Signature Bank would help contain the panic.
US regulators announced emergency measures after the March collapses to avert a banking crisis and restore confidence in the banking system. The Federal Reserve also revealed that it is considering introducing stricter capital and liquidity requirements for midsize banks.
Bank Collapses Come in Waves
Since the creation of the FDIC during the Great Depression, the US has gone through two major banking crises, both of which caused hundreds of banks to fail. However, outside of those two periods, American banking failures have generally been uncommon, according to a report by Pew Research.
Between 1941 and 1979, an average of 5.3 banks failed a year. There was an average of 4.3 bank failures per year between 1996 and 2006 and 3.6 between 2015 and 2022. Before the recent collapses of Silvergate Bank, Signature Bank, and First Republic Bank, it had been over two years since the last bank failure.
A century ago, the picture was very different. FDIC figures show an average of 635 banks failed each year from 1921 to 1929. These were mostly small, rural banks, which were common because many states limited banks to a single office.
The Great Depression ravaged the nation’s banking industry. Between 1930 and 1933, more than 9,000 banks failed across the country, and this time many were large, urban, seemingly stable institutions.
The recent wave of banking collapses in the US has led some to compare the current situation to bank crises of the past. This has also raised concerns about whether the nation may be headed for a new widespread banking crisis, particularly given that US bank failures usually come in waves.
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Neither the author, Ruholamin Haqshanas, nor this website, The Tokenist, provide financial advice.
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