The Collapse of First Republic Bank: What You Need to Know

Key Highlights :

1. The FDIC has taken over San Francisco-based First Republic and appointed the FDIC as receiver.

2. JPMorgan Chase will make a "modest" one-time $2.6 billion gain by acquiring First Republic but will also spend another $2 billion restructuring the regional bank.

3. The move by regulators to assume control of First Republic came one week after First Republic revealed that customers had withdrawn more than $100 billion during a panic last month.

4. First Republic follows the March collapses of $210 billion Silicon Valley Bank and, only days later, of Signature Bank, both of which were seized by government regulators after experiencing bank runs.

5. As with Silicon Valley, a significant share of First Republic's deposits were uninsured, which made it more prone to withdrawals from skittish customers.

6. The FDIC estimated the cost to the Deposit Insurance Fund at about $13 billion.

7. Dimon said Monday that the $30 billion gave First Republic and others in the finance world enough time to figure out a long-term solution for the struggling lender.

8. On the CBS News broadcast "Face the Nation" Sunday, Gary Cohn, a former Goldman Sachs president who served as former President Donald Trump's top economic adviser, was on-target, predicting that, "The FDIC would prefer to sell the bank in its entirety than the pieces. What will most likely happen is the FDIC will seize control and then simultaneously resell the asset to the successful bidder."

9. Cohn is now IBM vice chairman.

     The regional lender First Republic Bank was taken over by regulators on Monday, making it the third financial institution to be seized by the government since March. The California Department of Financial Protection and Innovation (DFPI) appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, and the FDIC accepted a bid from JPMorgan Chase Bank, National Association, Columbus, Ohio, to assume all deposits, including all uninsured deposits, and substantially all assets of First Republic Bank.

     The takeover of First Republic marks the second-biggest bank failure in U.S. history, with $229 billion in assets. It follows the collapse of Silicon Valley Bank and Signature Bank earlier this year, both of which were seized by government regulators after experiencing bank runs.

     JPMorgan CEO Jamie Dimon said that First Republic locations will be converted into JPMorgan wealth management centers over the next 18 months. JPMorgan will make a "modest" one-time $2.6 billion gain by acquiring First Republic but will also spend another $2 billion restructuring the regional bank. JPMorgan will gain $92 billion in customer deposits and also absorb $173 billion in outstanding First Republic loans.

     Before entering receivership, First Republic shares had lost 97% of their value since January, taking more than $21 billion off First Republic's market value. The FDIC estimated the cost to the Deposit Insurance Fund at about $13 billion.

     To help stabilize the U.S. banking system, 11 of the nation's largest financial institutions provided First Republic with $30 billion in deposits last month. However, customers had withdrawn more than $100 billion during a panic last month, which further fueled concerns the company couldn't survive on its own. Under Monday's deal with JPMorgan, the funds will be returned to the firms.

     The collapse of First Republic Bank could cause other lenders to tighten credit and raise the cost of interbank loans, which could be a potential problem for smaller institutions.

     It is important for consumers to understand the implications of such a large bank failure and to be aware of the steps they can take to protect their money and financial interests. Consumers should also be aware of the role of the FDIC, which is responsible for insuring deposits and protecting financial customers from losses due to bank failures.

Continue Reading at Source : cbsnews