The Fall of First Republic Bank & JP Morgan's Opportunistic Move

First Republic Bank collapse is now the second largest banking failure in American history, and a third bank failure since March 2023 after the failure of Silicon Valley Bank and Signature Bank. In this regard the question is, “Is the Banking Crisis Back?” Let’s understand this whole situation in a simpler way.

First Republic Bank Case Breakdown

First Republic Bank was founded back in 1985 with fewer than 10 employees and by 2020 it became the 14^th largest bank in the US with 93 offices in eleven states having more than 7200 employees. Headquartered in San Francisco, mostly serves the wealthy.

Fall of First Republic Bank

In January 2022 the share price of the bank stood at $204.06 while at the end of April 2023 the share price fell by around 95%, as of today (May 3/23) share price is $3.51. In March the bank lost over $100 billion in deposits. It all started after SVB collapse. When the interest rate is low bank collected a lot of deposits that made a lot of mortgages but when rates go up bank’s business model started to look more precarious especially after SVB and Signature Bank failure people were looking at First Republic because SVB and it has similar sought of client bases and risks.

Bank’s Steps to Avert Crisis

Initially, bank did cut cost and sold assets in few months. It also decided to shrink their HR by 25% to lower the amount of outstanding loans and encounter non-essential activities. Also, it got a rescue package from 11 different banks as they injected $30 billion in the form of deposits. But even this could not be enough to save them.

JP Morgan Take Overs First Republic

Last week Regulators took an action that they are going to take over the bank and, this weekend, they sold the operations of the business to JP Morgan who comes up as a buyer of a bank.

JP Morgan gets around $103.9 billion in the form of deposits and the overall assets (loans and securities) of around $229.1 billion.

Who is Accountable for this Crisis?

This crisis is avoidable for sure, Central Bank of America released a report and assessment of the FED’s response to the crisis and clearly highlights the short comings of US officials and the blame goes to America’s Central Bank and the US Federal Reserves as, “They failed to act” admission from Central Bank. We saw such kind of statements at the time SVB’s collapse.

In ABC NEWS Central Bank’s vice-president Michael Barr said “Federal Reserve supervisors failed to take forceful enough action. SVB failure demonstrates that there are weaknesses in regulations and supervision that must be addressed.”

Now, the bankers around the world paid a price for the negligence of America’s Central Bank.

If you want to understand what actually went wrong at SVB, click here.