First Republic Bank was under severe pressure after two banks with a similar profile – Silicon Valley Bank and Signature Bank – failed in quick succession. In mid-March, eleven major banks helped the Californian bank with a cash injection of 30 billion dollars (around 27 billion euros). But that was not enough.
First Republic Bank’s share price plummeted last week after the San Francisco-based financial institution said investors had withdrawn more than $100 billion in the first quarter of the year. The regulators then stepped in and asked other US banks to make takeover bids. Ultimately, JPMorgan Chase, the largest bank in the United States, was awarded the contract.
First Republic Bank’s 84 branches were scheduled to open Monday as branches of JPMorgan Chase. “Hopefully that will help stabilize everything,” said JPMorgan Chase CEO Jamie Dimon. JPMorgan Chase’s stock price rose Monday after the start of trading.
According to the Federal Deposit Insurance Fund (FDIC), the liquidation of the First Republic Bank will cost it $13 billion. Established in 1985, the bank was ranked number 14 in the country by deposits. Its failure is the second largest bank failure in US history, after the bankruptcy of Washington Mutual during the 2008 financial crisis, excluding investment banks such as Lehman Brothers.
In March, the bankruptcy of the Silicon Valley Bank (SVP), which is primarily active in the technology sector, caused considerable turbulence in the banking sector and on the stock exchanges. Numerous customers of regional banks withdrew their deposits in order to invest their money with larger banks.
Concerned investors looked for signs of weakness at other banks in the US and Europe. In Switzerland, the major bank UBS, under pressure from the state, took over the country’s number two, Credit Suisse, which had been plagued by scandals in recent years.
The question now is whether the bankruptcy of First Republic Bank will reignite the crisis – or whether the intervention of the authorities and the takeover by JPMorgan Chase are sufficient. The US Treasury Department said on Monday that the country’s banking system remains “healthy and resilient”. US citizens could have confidence in the safety of their deposits and the banking system’s ability to fulfill its role as lender to “businesses and families”.
Nicolas Veron of the Peterson Institute for International Economics recently stated that First Republic had already been identified as a “problem bank” in mid-March. An announcement of a takeover is therefore “no new cause for concern”. But if another bank turns out to be at risk, “that would be a different problem.”
The problems of the banks are due, among other things, to the sharp increase in key interest rates by the US Federal Reserve in the fight against high inflation. The Fed will discuss its monetary policy on Tuesday and Wednesday – and is likely to decide to raise interest rates again. The key interest rate is currently between 4.75 and 5.0 percent. This is the highest level since 2006.
