First Republic Bank, on its way to collapse just weeks after Silicon Valley Bank Crisis has now fallen, with an incredibly quick conclusion. The FDIC will also sell the assets of the bank to JPMorgan.
The FDIC said that, in order to protect its depositors "it has entered into an agreement with JPMorgan Chase Bank National Association of Columbus, Ohio" under which it would assume the entire First Republic Bank's deposits and a substantial portion of assets.
FDIC confirms that deposits will be covered by FDIC for an estimated cost to the insurance fund of approximately $13 billion. This deal covers assets worth $229.1 Billion and deposits totaling $103.9 Billion. JPMorgan Chase is buying all deposits and assets, as well as 84 branches in eight states. All depositors at FRB are now JPMorgan Chase customers.
After days of speculation, the news came after the FRB stock was in a downward spiral. JPMorgan and PNC were two banks that submitted bids at the weekend. The FDIC described the bid process as "highly-competitive."
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The First Republic, like Silicon Valley Bank, has played a key role in the growth of the technology industry. It provides current accounts, banking services, and financial advice, to startups and investment companies through its technology division.
It would then fall within the SVB blast zone as it collapse.
The First Republic, in order to avoid any contagion effects following the failure of SVB, was fast to communicate its own stability. First Republic boosted its reserve to 70 billion dollars when SVB began selling assets. The FDIC was one of the big investors. What was the other one? JPMorgan.
First Republic appeared to have pulled off the feat, as share prices rose following the resolution of SVB's crisis.
It seems that this is not enough. The First Republic lost customers as well as investors due to a lack of confidence.
FDIC had to deal with its own criticism and drama -- many blamed the collapse of SVB on U.S. Regulators not taking action quickly and decisively before it was too late. This was therefore a fairly quick decision on their part. The estimated cost of its Deposit Insurance Fund was $13 billion. However, the actual figure will only be known when the receivership ends.
The FDIC and JPMorgan Chase Bank, National Association "are entering into a loss-share transaction in conjunction with this deal," the statement added. FDIC will be the recipient, and JPMorgan Chase Bank & National Association will share the potential losses and recoveries of loans that are covered under the loss-share arrangement.
JPMorgan, by taking insured and non-insured deposits, is positioning itself, as it should be, to become the standard bearer and guarantor of financial stability in times of turmoil. It doesn't matter that the big banks had some very bad stories in the past few years.
In, it said that JPMorgan Chase supported the U.S. Financial System by carrying out this deal.
In a statement, Jamie Dimon said, "Our government asked us to do more, as did others, and that's what we did." Our financial strength, business model, and capabilities allowed us to create a bid that would minimize the costs for the Deposit Insurance Fund.
It remains to be seen whether these stabilizing measures will help U.S. tech companies and economies in general, including the global economy, avoid further contraction.
Further Updated with comment from First Republic Bank and JPMorgan