JPMorgan Chase Bank will assume all the deposits of First Republic Bank, including all uninsured deposits and nearly all of First Republic’s assets, state regulators said Monday.
San Francisco-based First Republic Bank was closed Monday by the California Department of Financial Protection and Innovation.
Less than two months ago, Santa Clara-based Silicon Valley Bank collapsed. The United States Federal Reserve Board took some of the blame for SVB’s failure, the board said Friday. The board has not said whether it is partly to blame for First Republic’s collapse.
Like SVB, First Republic’s failure was due to a bank run, albeit a slow one, said Filippo Rebessi, professor and chair of the economics department at California State University East Bay.
A bank run occurs when depositors try to retrieve their money from their bank and it cannot accommodate all the demands. Banks hold only a fraction of the deposits customers make.
Not like other banks
Rebessi isn’t sure whether more bank failures are on the horizon.
“It’s hard to predict,” he said.
He said the clientele served by First Republic and Silicon Valley Bank were different from the average bank.
SVB served startup companies while First Republic served many wealthy clients who had deposits in excess of the limits insured by the Federal Deposit Insurance Corporation.
Depositors of average banks have deposits within the limits of the FDIC, which is $250,000 per account.
First Republic’s branches opened Monday as branches of Chase. First Republic had 84 offices in eight states, according to the FDIC.
The bank was holding a total of $103.9 billion in deposits and had about $229.1 billion in assets on April 13. Thirty billion of deposits came from a consortium of large banks on March 16 to ensure First Republic had the money it needed to serve its customers.
State regulators said that First Republic was “conducting its business in an unsafe or unsound manner” and was in an “unsafe or unsound” condition to do banking.
The bank borrowed from both the Federal Reserve and the Federal Home Loan Bank Board and was unable to borrow more. First Republic had securities and loans that could be turned into cash, but because of interest rate increases, those assets would be sold at a loss.
Depositors withdrew about $70 billion between Dec. 31 and March 31 and First Republic’s stock price plummeted to $3.51 on April 28 from $122.50 on March 1.
The commissioner of the California Department of Financial Protection and Innovation determined that it was unlikely that First Republic would be able to raise money to restore confidence in its business model.