On May 1, JPMorgan Chase officially acquired all deposits and most of the assets of First Republic Bank (FRB) after the US government seized all of the bank's assets.
Specifically, the US Federal Deposit Insurance Corporation (FDIC) and California authorities said they had closed First Republic Bank and sold all $93.5 billion in deposits and most of its assets to JPMorgan.
Thus, this is the second largest bank collapse in US history, after Washington Mutual in 2008. The size of this bank is slightly larger than Silicon Valley Bank (SVB) - another bank that also collapsed in March 2023.
This is the fourth US bank to go bankrupt since March 2023 after Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank.
As of the end of 2022, First Republic was the 14th largest bank in the United States and had more than $220 billion in assets.
With this deal, JPMorgan Chase, already one of the largest banks in the US, will become even bigger.
First Republic Bank is the latest victim of the recent wave of withdrawals from small banks in the US. According to First Republic's report, the bank's deposits fell more than 40% in the first quarter of 2023. This caused First Republic's stock to evaporate 97% since the beginning of this year and has been suspended from trading since May 1.
Previously, First Republic Bank was famous in the US banking system for owning a chain of franchised banks and having a customer base that was mainly rich and powerful (reportedly including Facebook's Mark Zuckerberg). First Republic Bank had a huge source of deposits at very low costs.
Even with the collapse of SVB and Signature Bank, First Republic Bank still has no loans more than 90 days past due thanks to its very high-quality customer base.
More pressure on the Fed
With First Republic's collapse, pressure is mounting on the Fed as the US central bank prepares for its policy meeting on May 3.
The collapse of First Republic Bank and the three previous US banks all stemmed from the difficulties and losses of US banks due to rapidly rising interest rates and falling stock and bond prices... after the Fed continuously raised interest rates 9 times in a row since 2022.
Bad news about banks has led to a run on small banks, especially when most deposits exceed the $250,000 limit set by the FDIC, pushing many banks to the brink of bankruptcy.
According to JPMorgan Chase CEO Jamie Dimon, the deal to buy First Republic could solve much of the consequences in the banking sector.
However, many experts remain quite cautious in the context of high inflation.
In the minutes of the March 2023 meeting, the Fed still wanted to raise interest rates despite the risk of a mild recession in the US. Accordingly, officials lowered expectations for peak interest rates after many bank failures.
Still, officials raised rates by 25 basis points to 4.75%-5% at their March meeting in an effort to balance the risk of a credit crunch and inflation data that remains too high.
In its March meeting minutes, the Fed acknowledged that a banking meltdown could lead to tighter credit conditions for households and businesses, and put pressure on economic activity, hiring, and inflation. However, the Fed did not mention the extent of the impact.
Most recent forecasts suggest that US interest rates will edge higher this year, with the Fed likely to raise rates by another 25 basis points in May 2023.
In March, the US recorded a 0.1% increase in the consumer price index (CPI) compared to the previous month and an increase of 5% compared to the same period last year, much lower than the peak of 9.1% in June 2022.
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