Early on Monday, regulators took control of the struggling First Republic Bank (FRC), marking the second-largest bank failure in the United States. Deposits and the majority of its assets flowed to JPMorgan Chase in an effort to alleviate the concerns surrounding the U.S. banking system’s stability. This event represents the third failure of a midsize bank within a two-month period, with Washington Mutual’s 2008 collapse being the only larger instance in U.S. history. JPMorgan also acquired Washington Mutual in a comparable government-assisted transaction.
Despite the recent troubles faced by First Republic Bank, most other midsize banks reported stable deposits and relatively healthy profits last week. FRC, once a prominent figure in the banking sector, has faced difficulties since Silicon Valley Bank’s and Signature Bank’s failures in March 2023. Concerns grew over its significant number of uninsured deposits and its vulnerability to low-interest-rate loans.
Last month, twelve banks assembled a $30 billion funding package for FRC, which initially appeared to stop the bank’s decline. However, it became evident that the bank was running out of time and needed to secure a buyer or find alternative funding sources to replace lost deposits.
First Republic intended to divest unprofitable assets, such as low-interest mortgages provided to affluent clients and announced plans to lay off up to a quarter of its workforce of roughly 7,200 employees as of late 2022. Analysts from Wall Street viewed these actions as insufficient and overdue.
JPMorgan’s CFO, Jeremy Barnum, acknowledged that the $30 billion package provided First Republic with the necessary time to examine everything; however, it was not enough to stave off the failure. JPMorgan will now work in tandem with the Federal Reserve to stabilize the multi-billion dollar asset sheet of FRC.