First Republic Bank bankruptcy and sale to JP Morgan –

First Republic Bank bankruptcy and sale to JP Morgan –

The US authorities took control of the troubled bank, transferring its debts and assets to one of the largest banks in the country. It happened this morning, a few hours before the opening of the American stock exchange.
First Republic Bank, among the country’s largest and facing massive economic hardship after the failure of the Silicon Valley bank, is ‘under exceptional management’ with most of its assets sold to JP Morgan Chase, one of the largest banks in the country.

Federal Deposit Insurance and No Trust

Perhaps trust is good, but not trusting too much is wiser. The Federal Deposit Insurance Corporation, the US federal body that provides guarantees on current accounts, closed the activities of the bank, which has been in crisis for more than a month, and has already been the subject of rescue attempts for weeks, but it did not stop the collapse of the bank. its shares on the stock exchange and the withdrawal of funds deposited by its account holders.

According to regulators, JP Morgan will take all of First Republic’s $103.9 billion in deposits and purchase the majority of its $229.1 billion in assets.

Bank credibility is a stumbling block

The First Republic was ranked fourteenth in the United States at the beginning of 2023, but in recent months its shares have lost almost all of their value after a series of problems related to the crisis of American banking institutions in recent weeks. The Biden administration has tried in vain to downplay it at home and abroad. But it was the American citizens who did not believe it.

The bankruptcy of First Republic Bank is the second largest in US history, after that of Washington Mutual, an institution that failed during the 2008 financial crisis, and which continues to cause tremors today.

Eleven banks in support

In mid-March, a plan piloted by Treasury Secretary Janet Yellen led to eleven major US banks stepping in to support the First Republic. Among others, JPMorgan, Citigroup, Wells Fargo, Bank of America, Morgan Stanley and Goldman Sachs have deposited $30 billion into the troubled institution, trying to convince investors the bank is solid. patch but clearly the hole remained and eventually he prevailed.

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Such as Silicon Valley and Signature Bank

The same reasons for failure Silicon Valley Bank And signature bank, with similar characteristics. Medium sized with mainly corporate clients, with full-bodied checking accounts that do not fall under the protection of the Guaranteed Payment Act in bankruptcy. Someone loses pays. And at one point, the investing companies, one catching up to the other, moved much of the money on deposit with them elsewhere.

Since the beginning of the crisis, up to $100 billion in capital has been withdrawn from First Republic Bank.

Easy money and generous status

Much simplified, First Republic Bank in recent years has revealed itself by giving large long-term loans at a low interest rate, in keeping with the cost of money. But last year, the Federal Reserve raised “interest rates” eight times, effectively costing money. The classic tool for fighting inflation is to reduce price increases. clearly. Loans previously granted at low rates became a net loss for the banks, and divestment by large account holders made the situation unmanageable.

Fears of “infection” of the United States and the planets

The immediate sale to JP Morgan is intended to avoid possible new “contagions”, spillovers to other financial institutions, and to reassure investors. According to analysts, there are currently no other banks in a situation similar to that of First Republic, and therefore they are at risk of bankruptcy.

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