Why First Republic Bank Was Seized and Sold to JPMorgan?

Patrick Boyle On Finance

Patrick Boyle

Investing, Business

4.9 • 320 Ratings

🗓️ 6 May 2023

⏱️ 14 minutes

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Summary

Send us a textThe FDIC took possession of First Republic Bank on Monday, resulting in the third failure of an American bank since March.JPMorgan Chase, already the largest U.S. bank by several measures, emerged as the buyer in a weekend auction for First Republic. It will get all of the ailing bank’s deposits and a “substantial majority of assets.”Patrick's Books:Statistics For The Trading Floor: https://amzn.to/3eerLA0Derivatives For The Trading Floor: https://amzn.to/3cjsyPFCorp...

Transcript

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0:00.0	Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.
0:27.1	The US government seized First Republic Bank on Monday morning this week,
0:32.9	wiping out equity holders entirely and struck a deal to sell the bulk of the firm's operations
0:38.6	to J.P. Morgan Chase. The FDIC and California regulators announced this deal early on Monday,
0:47.3	announcing that they were simultaneously closing First Republic and selling off all $93. billion dollars of its deposits and most of its assets
0:57.8	to J.P. Morgan Chase, who are paying the FDIC $10.6 billion as part of the deal. The deal
1:06.5	wipes out First Republic's investors and is estimated to cost the FDIC's insurance fund around
1:13.8	$13 billion.
1:16.2	The US Treasury Department said that it was encouraged that First Republic depositers had
1:22.1	been protected and that costs to the FDIC's deposit insurance fund had been minimised by the deal with J.P. Morgan.
1:31.5	These actions are going to make sure that the banking system is safe and sound, US President
1:37.5	Joe Biden said on Monday as he stepped up calls for greater regulation of the sector. Critically taxpayers are not the ones that are on the hook, Biden said.
1:49.8	This is now the fourth US bank to fail in the last few months and the second biggest bank
1:56.0	failure in US history.
1:58.3	In today's video, let's look at some of the nuance of this deal and discuss
2:03.0	the general situation with US regional banks. So after Silicon Valley Bank and Signature
2:10.6	Bank failed in March, people started looking to First Republic as the next risky bank in the system. Silicon Valley Bank
2:19.8	and First Republic had a somewhat similar client base and somewhat similar risks and problems,
2:27.6	such that investors and customers started to lump the two together. First Republic Bank had just under $120 billion in uninsured
2:38.2	deposits as of year end 2022, and after the failure of Silicon Valley Bank, customers were
2:45.9	obviously not comfortable with having more than the insured sum on deposit at a regional bank.
2:53.6	Some of the biggest banks collected $30 billion of their own money and deposited it
	...

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