The FDIC seized the assets of First Republic Bank this past week, selling them to JPMorgan Chase.
Details: First Republic Bank is the second-largest bank to collapse in United States history. This follows the collapse of Silicon Valley Bank (SVB) and Signature Bank in March, which sparked fears of contagion in the banking sector. A statement from the California Department of Financial Protection and Innovation accused First Republic Bank of "conducting its business in an unsafe or unsound manner," leading regulators to step in.
What Caused It? Analysts across the spectrum are making connections between the collapse of First Republic Bank and the collapse of SVB in March. The collapse of First Republic bears similarities to SVB, with sources across the spectrum blaming the collapse on an unbalanced loan/deposit portfolio that grew during the pandemic when interest rates were low and came under strain over the past year as the Federal Reserve incrementally raised interest rates.
Following the collapse of SVB, which drew attention to the strain on regional banks, First Republic Bank share prices cratered, falling from $147 to $3.50 per share. Despite a cumulative $30 billion investment from a group of banks attempting to save First Republic, confidence in the bank could not be mended, and a bank run led California regulators to step in.
Over the weekend, the FDIC held a auction for the assets of First Republic, with JPMorgan Chase eventually agreeing to buy the assets and split the losses with the FDIC.
How The Media Covered It: Outlets across the spectrum covered the collapse mildly, less so than the collapse of SVB earlier this year. Coverage featured more analysis than opinion, with the consensus being that regional banks are most at risk of contagion and further strain. Calls for increased scrutiny on banking practices were more common from left-rated sources, while right-rated sources were more likely to highlight the impact of the Federal Reserve's interest rate increases as a cause of the collapse.
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Snippets from the Right
"The FDIC also said it estimates it will cost the Deposit Insurance Fund roughly $13 billion. This cost comes months after the failures of Silicon Valley and Signature banks cost the Deposit Insurance Fund $20 billion and $2.5 billion, respectively. The fund is filled by assessments on banks insured by the FDIC, meaning that the bill for the bank failures will be footed by depositors throughout the banking system."
"It’s risky to have uninsured deposits, and two-thirds of First Republic’s depositors were uninsured. The limit for the Federal Deposit Insurance Corporation (FDIC) is $250,000. And although Silicon Valley Bank had more, with 94 percent of their depositors uninsured, at the end of 2022, First Republic had a hefty 111 percent loan-to-deposit ratio. In other words, they loaned out more money than they had in deposits."
Snippets from the Center
"Raising the FDIC guarantee to a higher and healthier level would strengthen regional banks and spark more competition with the giants. But guaranteeing all accounts for all amounts would invite banks to take much wilder risks, knowing the government would bail out their customers even if the banks failed them."
"The Fed's pivot to suddenly higher interest from a lengthy period of low or near-zero rates has forced banks to increase the interest they pay customers in order to avoid a loss of deposits. That dynamic means banks must compete with each other for deposits, cutting into profits."
Snippets from the Left
"This was a somewhat predictable endpoint for First Republic after a weekslong slog of pulled deposits, lowered investor confidence, and gargantuan stock plunges. The closely watched regional bank, held aloft for a bit by rescue funds from larger financial institutions and the Federal Reserve, now joins several other regional banks that have taken hits from a changing, riskier macroeconomic climate."
"This is a regional banking crisis, resulting from a combination of terrible managers, lax regulations and even laxer supervision of midsize financial institutions. Yes, the rapid rise in interest rates caused the banking equivalent of a hailstorm, but it’s the kind of weather bankers and regulators should have been prepared to withstand."