Chase's takeover of First Republic does not end worries over U.S. banks - experts

Record ID: 1722685

  • Title: Chase's takeover of First Republic does not end worries over U.S. banks - experts
  • Date: 1st May 2023
  • Summary: BOSTON, MASSACHUSETTS, UNITED STATES (MAY 1, 2023) (REUTERS) (SOUNDBITE) (English) BOSTON COLLEGE LAW SCHOOL PROFESSOR, PATRICIA MCCOY, SAYING: "The really positive thing about this is that all of the depositors, whether they were insured or uninsured, were protected for every cent of their deposits. So I don't think we're going to see a reaction of bank runs at other plac
  • Embargoed: 15th May 2023 23:15
  • Keywords: Bank Rescue Bank run Depositors FDIC First Republic Bank J.P. Morgan Chase Silicon Valley Bank
  • Location: VARIOUS
  • City: VARIOUS
  • Country: US
  • Topics: Economic Events,North America
  • Reuters ID: LVA004914601052023RP1
  • Aspect Ratio: 16:9
  • Story Text: The seizure of First Republic Bank by bank regulators and the selling of its assets to JPMorgan Chase on Monday (May 1), may have resolved the largest U.S. bank failure since the 2008 financial crisis, but experts say it did not completely eliminate lingering concerns about U.S. banks.
    "The really positive thing about this is that all of the depositors, whether they were insured or uninsured, were protected for every cent of their deposits," said financial regulation expert and Boston College Law School professor Patricia McCoy, adding "I am concerned in the longer term about certain problems in the banking system."
    First Republic was among regional U.S. lenders most battered by a crisis in confidence in the banking sector in March when depositors fled en masse from smaller banks amid the collapse of two other mid-sized U.S. banks hurt by rapid interest rate hikes orchestrated by the Federal Reserve.
    First Republic had limped along since then, but investors fled again last week when it disclosed more than $100 billion in outflows in the first quarter.
    "It was really the living dead," McCoy said. "And so the question was, how would it be closed down?"
    Barely a week later, California regulators seized the First Republic and put it into FDIC receivership alongside the sale of its assets, marking the third major U.S. bank failure in two months and the largest since Washington Mutual in 2008.
    JPMorgan agreed to pay $10.6 billion to the U.S. Federal Deposit Insurance Corp (FDIC) as part of the deal to take control of most of the San Francisco-based bank's assets and get access to First Republic's coveted wealthy client base.
    The deal will cost FDIC's Deposit Insurance Fund about $13 billion, according to the regulator's initial estimate.
    U.S. President Joe Biden on Monday hailed the deal for protecting depositors without making taxpayers foot the bill. He repeated his call for stronger bank regulation and supervision. "These actions are going to make sure that the banking system is safe and sound," Biden told an event at the White House.
    Analysts and industry executives said the deal -- struck after the FDIC ran an auction process that saw several other banks bid -- should calm markets. But they added that it came at a cost: the biggest banks were getting stronger while it was getting harder for smaller banks to do business.
    "By winning the bidding auction," said Dennis Kelleher, CEO of Wall Street reform group Better Markets, "Chase not only got for itself a couple of hundred billion dollars more in assets and deposits and other investments and access to a terrific new high-quality customer base. It also prevented a competitor from getting those assets in deposits and customer base. So it turns out to be doubly good for JPMorgan Chase, not so good for the other banks."
    Bidders losing out to JPMorgan included PNC Financial Services and Citizens Financial Group, sources familiar with the matter said.
    Kelleher said he doesn't expect other mid-sized banks to fail in the near future, but he worries about the impact of the Fed's interest rate hikes on other, less regulated parts of the U.S. financial system. "We have not seen how that stress is going to play out in a lot of other interest rate sensitive areas, for example, private equity, leveraged loans, commercial real estate, as well as numerous other embedded leveraged bets that are peppered throughout the financial system now."
    The failed bank's 84 offices in eight states reopened on Monday as branches of JPMorgan Chase.
    (Production: Tom Rowe)
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