Deposits at First Republic will now simply become deposits at Chase Bank. This was a good outcome for the FDIC, which expects to take a $13 billion loss to its deposit insurance fund, financed by fees from banks. | Justin Sullivan/Getty ImagesThe agreement by JPMorgan Chase to buy struggling First Republic Bank was designed to put an end to the turbulence that has rocked the banking industry for over a month.
The three regional lenders — SVB, Signature and First Republic — suffered from similar issues. Each catered to companies and wealthy individuals whose balances far exceeded the $250,000 deposit insurance limit, which meant a huge majority of those funds weren’t backed by the FDIC. That made their customers unusually panicky when questions about the banks’ solvency cropped up.
Selling First Republic sidesteps that problem. This result is especially welcome for the government politically because by the time it failed, a large number of the uninsured deposits at First Republic were simply money that had been poured in by big banks. Backing those deposits would have been a bad look to the public.
Financial regulators are keeping an eye out for other risks that accompany higher borrowing costs, such as the potential for losses on commercial real estate, which has been in a period of sustained uncertainty in the wake of the pandemic as large numbers of workers no longer use office space.
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