Bank of the First Republic (FRB), at the edge of collapse in the weeks after the Silicon Valley bank crisisit has finally collapsed, but with a relatively quick resolution in its next chapter: today the Federal Deposit Insurance Corporation (FDIC) Announced that it was being shut down by the California Department of Financial Protection and Innovation, that the FDIC was appointed as receiver, and that the FDIC would sell the assets to JPMorgan.
Its assets and deposits total just over $330 billion combined.
Specifically, “to protect depositors, the FDIC is entering into a purchase and assumption agreement with JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all deposits and substantially all assets of First Republic Bank,” it said.
The FDIC also confirmed that the deposits will continue to be insured by the FDIC at an estimated cost of about $13 billion to its insurance fund. The deal will cover assets of $229.1 billion and $103.9 billion in total deposits. JPMorgan is buying all of the assets and deposits, along with 84 offices in eight states, with all of the FRB depositors now JPMorgan Chase clients.
The news comes after several days of speculation that the FRB would collapse, sending the stock into a death spiral. JPMorgan, along with PNC, were among the banks that submitted offers over the weekend. The FDIC called the process “highly competitive.”
banking partner
Like Silicon Valley Bank, First Republic has been an important banking partner to the world of technology as it has grown into a huge and highly valuable industry. That meant it would almost certainly fall into SVB’s blast radius when it collapsed.
To avoid a contagion effect, the First Republic was quick to send messages about its own state of stability in the wake of the SVB failure. So just as SVB started to sell off its assets, at the same time as SVB announced the sale of its UK business to HSBC, First Republic was bolstering its position with massive injections of funds to bring its reserves to $70bn. One of those big funders was the FDIC. The other? JPMorgan.
Still, it seems that this was not enough. Faltering confidence in companies that were too reliant on the same industry as SVB caused people to flee First Republic both as customers and investors.
The FDIC has had to deal with its own drama and criticism: some blame the SVB collapse on US regulators not acting quickly or decisively enough before it was too late, so this was a move relatively quick on your part. While the estimated cost to its Deposit Insurance Fund is approximately $13 billion, the final figure will be determined when it is no longer in receivership.
Along with this settlement, the FDIC, JPMorgan Chase Bank, and the National Association “are also entering into a shared loss transaction on single-family, residential and commercial loans it purchased from the former First Republic Bank,” he added. The FDIC is the receiver, while JPMorgan Chase Bank and the National Association “will share in losses and potential recoveries on loans covered by the loss-sharing agreement.” It’s unclear what the value of that aspect of the deal is.
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