New York Daily News
2023/05/03
The First Republic Bank logo mark is seen outside the bank branch in Manhattan on Monday, May 1, 2023. - Luiz C. Ribeiro/New York Daily News/TNS
First Republic Bank is no more, as the wobbling 14th largest U.S. bank was seized by the Federal Deposit Insurance Corp. and mostly resold at auction.
Depositors will all retain their funds, with the big losers being the shareholders. Tough luck; investing always carries some level of risk. Yet it’s good that those who were simply parking their personal or business funds in the bank won’t face a catastrophic loss that can reverberate further through the economy. The big winner is JPMorgan Chase, which purchased First Republic’s assets, expanding the footprint of the world’s largest bank (which has its own externalities, but that’s a topic for another day).
While the reality of three large banks collapsing spectacularly in the span of two months — Silicon Valley Bank followed closely by Signature Bank in March, and First Republic now — may set off alarm bells for consumers and investors worried about the health of the banking system, it seems like this could have been the end of the collateral damage. SVB’s flameout was precipitated by its own unsustainable structure and absolute reliance on low interest rates, and the other two mainly represent fallout that is to some extent contained.
First Republic had been teetering on the edge for a while, to the point that the Treasury engineered a $30 billion cash infusion from a consortium of large banks in order to backstop it, though that ended up not being enough as larger, uninsured depositors pulled out their funds.
The bank is of a type uniquely vulnerable to this type of bank run: boutique financial institutions in high-income communities catering to wealthy individuals and businesses where the bulk of deposits are in accounts exceeding the $250,000 FDIC insurance cap. There’s no reason the contagion will now spread uncontrollably, though of course there have been whispers of a broader recession for over a year now. The thing about a recession is that it is to some extent a self-reinforcing prophecy, which means the best thing for everyone to do now is not panic.
First Republic Bank is no more, as the wobbling 14th largest U.S. bank was seized by the Federal Deposit Insurance Corp. and mostly resold at auction.
Depositors will all retain their funds, with the big losers being the shareholders. Tough luck; investing always carries some level of risk. Yet it’s good that those who were simply parking their personal or business funds in the bank won’t face a catastrophic loss that can reverberate further through the economy. The big winner is JPMorgan Chase, which purchased First Republic’s assets, expanding the footprint of the world’s largest bank (which has its own externalities, but that’s a topic for another day).
While the reality of three large banks collapsing spectacularly in the span of two months — Silicon Valley Bank followed closely by Signature Bank in March, and First Republic now — may set off alarm bells for consumers and investors worried about the health of the banking system, it seems like this could have been the end of the collateral damage. SVB’s flameout was precipitated by its own unsustainable structure and absolute reliance on low interest rates, and the other two mainly represent fallout that is to some extent contained.
First Republic had been teetering on the edge for a while, to the point that the Treasury engineered a $30 billion cash infusion from a consortium of large banks in order to backstop it, though that ended up not being enough as larger, uninsured depositors pulled out their funds.
The bank is of a type uniquely vulnerable to this type of bank run: boutique financial institutions in high-income communities catering to wealthy individuals and businesses where the bulk of deposits are in accounts exceeding the $250,000 FDIC insurance cap. There’s no reason the contagion will now spread uncontrollably, though of course there have been whispers of a broader recession for over a year now. The thing about a recession is that it is to some extent a self-reinforcing prophecy, which means the best thing for everyone to do now is not panic.
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