First Republic is sold: What you should know

The federal government seized First Republic Bank and sold it to JPMorgan Chase on Monday, ending the lender’s six-week free fall and reassuring depositors their money is safe.

First Republic, widely regarded as the most vulnerable bank since the failures of Silicon Valley Bank and Signature Bank in March, lost $102 billion in deposits last quarter (more than half of the $176 billion dollars she held late last year). During this period, the bank also borrowed about $92 billion, mostly from government-backed lending institutions and the Federal Reserve.

The failure of First Republic Bank had the same roots as the failures of Silicon Valley Bank and Signature Bank—spooked depositors and investors who withdrew their money and sold their shares in droves.

JPMorgan will “assume all of the deposits and substantially all of the assets of First Republic Bank,” the Federal Deposit Insurance Corporation said in a statement, adding that its insurance fund would have to pay out an estimated $13 billion to cover First Republic’s losses .

Here are some answers to questions you may have about what’s next for the bank and your money.

In the turmoil triggered by the collapse of Silicon Valley Bank, First Republic was initially bailed out by the private sector. In March, it received $30 billion in deposits from 11 of the country’s largest banks, including JPMorgan, Morgan Stanley and Wells Fargo.

But the First Republic fought anyway, and their condition had been deteriorating for weeks. There had been a major outflow of funds as depositors rushed out their money and parked it in institutions they considered safer.

Its shares had come under pressure — falling 75 percent just last week — as investors feared it would fail. That decline came after the company released earnings results showing it had borrowed heavily from the Federal Reserve and federally-backed lending groups, the financial industry’s lenders of last resort.

Ultimately, the FDIC decided that it was no longer viable on its own.

The First Republic bankruptcy is the second largest in US history after the collapse of Washington Mutual in 2008, and certainly a dramatic turn of events. But what happened to the bench this weekend follows a playbook used before. The government typically arranges the sale of a failed bank over the weekend so it can resume business as usual on Monday, said Amanda Heitz, an assistant professor of finance at Tulane University.

“Most failed banks,” she said, “are resolved through a purchase and acquisition agreement,” in which another entity takes over the bank with the support of the FDIC. In this case, this agreement is concluded with JPMorgan.

Although the Silicon Valley Bank collapse was in many ways not a typical bank collapse, depositors had access to their money Monday after the seizure. And the Bank of England was quick to announce that HSBC had bought SVBUK, the bank’s UK subsidiary.

But in the United States, sales took a little longer. As recently as late March, the FDIC said Silicon Valley Bank had been sold to a North Carolina bank, and until it could arrange that sale, the government created what it called a bridge bank to operate it pending a sale.

In the event of a bank failure, another bank might have an incentive to take over the ailing lender because it wants to expand its presence in a region or establish relationships with new customers.

On Monday, 84 First Republic stores in eight states will reopen as JPMorgan stores.

But the takeover makes JPMorgan, already the country’s largest bank, even bigger and could draw political scrutiny.

Over the weekend, federal agencies scramble to find a buyer for First Republic before markets open Monday. JPMorgan, PNC Financial Services, and Bank of America have all been in talks with the FDIC at some point about a potential deal.

“The FDIC wants banks to take over other banks,” Ms. Heitz said.

One way to motivate buyers is to share potential losses that a buyer might suffer in what is known as a loss-sharing agreement. JPMorgan said the FDIC will make loss sharing agreements, including some home mortgages and business loans, as part of the accord with the First Republic.

Most depositors are unlikely to be affected by problems at First Republic: FDIC rules guarantee deposits are covered up to $250,000 per depositor, per bank. Categories of coverage include checking and savings accounts and certificates of deposit. People who have a joint account with someone else, such as A spouse, such as a spouse, will each receive $250,000 in coverage, for a potential total of $500,000 in a single joint account.

Individuals with different types of holdings can add them together. If the total does not exceed $250,000, multiple holdings—such as a $50,000 savings account and a $20,000 certificate of deposit—are covered. And the insurance is automatic.

Silicon Valley Bank and Signature Bank customers have not lost any of their deposits. Regulators opted to repay all depositors in full after invoking the “systemic risk exemption” designed to guard against system-wide destabilization.

In First Republic’s case, JPMorgan will assume the lender’s deposits, which would remove the need for the government to grant a systemic risk exemption.

The short answer is: Nothing useful. In the case of a purchase and takeover agreement, the acquiring bank would take over all balance sheet loans including mortgages, Ms. Heitz said.

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