First Republic Bank (FRB) became the second-largest bank failure in U.S. history on May 1, 2023, with most of its business sold to JPMorgan Chase after federal regulators seized it. The bank suffered from a run on deposits just weeks after the collapse of two other large regional banks, Silicon Valley Bank and Signature Bank. All of them had large amounts of uninsured deposits, and .
- First Republic Bank customers included businesses and individuals with deposits of more than the $250,000 FDIC insurance limit. Nearly two-thirds of its deposits were uninsured.
- First Republic’s failure was due to a run on deposits following the collapse of Silicon Valley Bank and Signature Bank.
- JPMorgan Chase acquired First Republic Bank on May 1, 2023.
- If you had insured or uninsured money in First Republic accounts, your funds are safe and now managed by JPMorgan Chase.
What Was First Republic Bank?
First Republic Bank was a San Francisco-based regional bank focused on high-net-worth clients that closed in 2023 and was acquired by JPMorgan Chase. Part of the reason it failed was because a large proportion of its deposits exceeded the limit for coverage by the Federal Deposit Insurance Corp. (FDIC).
The FDIC covers up to $250,000 per account holder, per account type. So, if a bank fails, depositors’ funds are protected for up to that amount. But anything over that is generally not considered covered.
As of December 2022, 67.4% of First Republic’s deposits were uninsured, according to S&P Global Market Intelligence data analysis. Following the collapse of Silicon Valley Bank and Signature Bank, many First Republic customers with uninsured funds became concerned about holding their money at a regional bank, which led to a run on deposits.
Just before its collapse, First Republic had $103.9 billion in deposits and $229.1 billion in assets. JPMorgan Chase acquired the majority of its assets and rebranded 84 branches in eight states, opening them on May 1, 2023. As a result, First Republic’s customers had uninterrupted service and their funds, even their uninsured deposits, were safe.
First Republic’s demise marked the third bank failure in 2023, along with Silicon Valley Bank and Signature Bank, according to the Federal Reserve’s failed bank list. In total, the three banks had a combined $548.5 billion in assets, which was more than the total assets for all the failed banks in 2008, the height of the financial crisis.
SIlvergate Capital Corp., a crypto-focused bank, voluntarily closed in early 2023 after an $8.1 billion run on its deposits. Its failure was not included on the FDIC’s failed bank list as of May 2023.
Each First Republic client had a “First Republic Relationship Manager” who served as a point of contact for personalized service. Services focused on private banking and private wealth management as well as private business banking.
- Private banking and private wealth management: Services included mortgage and personal lending and accounts for checking, savings, and CDs. Private wealth management provided investment management, financial planning, foreign exchange, trust administration and custody, and brokerage and insurance services.
- Private business banking: Personalized business banking and lending services focused on industries like: venture capital, private equity funds, hedge funds and firms, investment management firms. Other target industries included property management and real estate investors, private clubs, independent schools, medical practices, and wineries.
History of First Republic Bank
First Republic Bank was founded in 1985 by James H. Herbert II to focus on jumbo mortgages, CDs, and savings accounts. The bank operated in San Francisco, specializing in lending for luxury homes, second homes, condos and co-ops, and investment properties.
In the late 1990s, First Republic expanded into a full-service bank and added new services and markets on the West Coast and East Coast. Over the following decades, First Republic built its reputation on having fewer customer accounts with more individualized service and continued to focus on high-net-wealth clients.
In 2007, First Republic merged with Merrill Lynch, which in turn was acquired by Bank of America in 2008. In 2010, Herbert raised private equity capital and secured regulatory approval to buy back First Republic.
Between 2018 and 2021, First Republic more than doubled deposits to $156 billion.
Why Did First Republic Bank Fail?
First Republic Bank failed for many of the same reasons that Silicon Valley Bank and Signature Bank failed, including the fact that it carried a significant amount of uninsured deposits and struggled with liquidity. Like SVB, it focused part of its business on startups in Silicon Valley who held balances much higher than $250,000, according to news reports. Compounding this was the broader fear among investors over regional banks.
- Uninsured deposits: A high number of uninsured deposits can contribute to a bank run when investors start to panic. First Republic’s wealthy customer base had a high proportion of uninsured deposits, with more than 67% of the bank’s deposits being uninsured as of December 2022.
- Lack of liquidity: First Republic’s primary income source was net interest income from loans and investment securities. Many of its investments were in real estate loans and municipal securities, which were less liquid and not earning competitive interest rates. Among mid-size banks, First Republic had the highest ratio of loans and securities to uninsured deposits in December 2022.
- Credit ratings downgrades: First Republic Bank faced repeated credit agency downgrades due to concerns that infusions wouldn’t resolve its challenges with liquidity, funding, and profitability.
- Mistrust in regional banks: Due to the collapses of Silicon Valley Bank and Signature Bank earlier in the year, along with credit ratings downgrades, investors were increasingly concerned about keeping uninsured deposits with a regional bank.
First Republic began borrowing from the Federal Home Loan Bank Board (FHLB) and Federal Reserve and accepted a $30 billion cash infusion from a consortium of 11 banks as its deposits started rapidly declining after the failure of Silicon Valley Bank and Signature Bank. Meanwhile, its share price plunged from $122.50 on March 1, 2023, to $3.51 on April 28.
|Total Deposits||Uninsured Deposits|
|December 2022||$176.4 billion||$119 billion|
|March 2023||$104.1 billion||$19.8 billion|
|April 2023||$92.6 billion||$8.4 billion|
Timeline of the 2023 Collapse
- December 31, 2022: First Republic met all capital ratio requirements to be “well-capitalized.” However, the bank had already borrowed $14 billion from the Federal Home Loan Bank Board (FHLB).
- February 28, 2023: First Republic’s annual report outlined its challenges, including the fact that most of its loan portfolio was secured by real estate and concentrated in California and the San Francisco Bay Area. The report noted that the bank “experienced rapid migration of deposits to higher yielding products and asset classes” due to rising interest rates.
- March 6: FRB’s stock fell more than 75% within days and never recovered.
- March 10: Silicon Valley Bank was closed by the FDIC, and First Republic began experiencing what it called “unprecedented deposit outflows."
- March 12: The FDIC closed Signature Bank.
- March 15 - March 19: Numerous credit rating agencies downgraded First Republic’s credit rating, signaling a lack of confidence in the bank.
- March 16: To boost First Republic’s liquidity, 11 banks contributed $30 billion in uninsured deposits.
- March 31: First Republic Bank had borrowed $105.4 billion from Federal Reserve and Federal Home Loan Bank Board (FHLB) funding.
- April 24: The bank indicated it was headed toward collapse as deposits declined almost 41% from December 2022. It announced plans to reduce its workforce by up to 25%, among other cost-cutting steps.
- April 28: First Republic could not access more funding after $121.3 billion in outstanding borrowings from the Federal Reserve and FHLB funds. New outlets reported that the FDIC planned to find buyers for First Republic.
- May 1: JPMorgan Chase acquired a substantial majority of First Republic Bank’s assets.
Impact on Depositors and Investors
First Republic customers had uninterrupted service and their money was ultimately safe after the acquisition by JPMorgan Chase.
As of May 5, 2023, the plan was to transition First Republic’s platforms and operations to JPMorgan Chase’s technology over time. Some existing First Republic branches were expected to be converted into J.P. Morgan wealth centers, and the bank’s private wealth management platform was slated to be merged with J.P. Morgan Advisors.
JPMorgan Chase did not assume First Republic Bank’s preferred stock. The New York Stock Exchange delisted FRB’s common stock on May 2, 2023.
Why Do Banks Keep Failing?
Several common contributing factors led to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank (as well as Silvergate Capital) in early 2023. These include the banks’ high proportion of uninsured deposits and a focus on overly niche markets such as venture capitalists in the case of SVB and commercial real estate in the case of Signature Bank.
Following the collapse of SVB, investors were more motivated to move their uninsured deposits out of regional banks to protect their funds.
The banks were also struggling with asset issues. During the pandemic, historically low interest rates led to banks amassing larger commercial and real estate lending portfolios. As interest rates rose in 2022, lending slowed, and banks were stuck with low-rate loans while paying higher interest rates to customers.
Technology may have had a role in this spate of bank failures, as ACH and online banking has made transferring funds out of a bank account much easier.
Who Paid for the Rescue of First Republic Bank?
The FDIC and JPMorgan Chase paid for the rescue of First Republic Bank. JPMorgan paid $10.6 billion to the FDIC for the acquisition of First Republic. The FDIC was expected to provide $50 billion in fixed-rate financing for balance sheet restructuring as well as some loss coverage for mortgages and commercial loans. The FDIC’s portion comes from the Deposit Insurance Fund (DIF), which is funded by quarterly fees that banks pay the FDIC to assess their risk.
Is My Money Safe at a Regional Bank?
Clients who held their money at First Republic Bank found their money was safe after the bank failed and JPMorgan Chase assumed control of its assets. Your money is generally considered safe in an FDIC-insured bank account up to the $250,000 FDIC-insured limit. After that, you cannot be sure you will recoup your funds in the event of a bank failure.
What Does “Too Big to Fail” Mean?
This phrase “too big to fail” refers to a large financial firm so large it creates a risk to the broader economy. When an institution is deemed "too big to fail,” the U.S. government may take any action to rescue it and prevent more widespread economic losses. Eight banks, including JPMorgan Chase, were considered “globally systemically important” and subject to heightened standards as of April 2022.
The Bottom Line
First Republic Bank was among a few regional banks that failed in early 2023 due to bank runs driven in part to the high volume of uninsured deposits they carried, along with financial struggles caused by the broader interest rate environment.
To ensure your funds are safe, consider keeping an amount under the minimum FDIC insurance limit of $250,000 in your bank account. If you need to deposit more than that, you could open another account at a different bank. A financial advisor can provide you with more guidance on how to handle distributing your money according to your own personal circumstances.
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