Regulators seized First Republic Bank early Monday and struck a deal to sell most of its operations to JPMorgan Chase, averting a wider banking crisis even as some Republicans say the Biden administration’s economic policies create the risk of more trouble.
JPMorgan agreed to assume all of First Republic’s $92 billion in deposits and to buy assets of about $173 billion in loans and $30 billion in securities. The Federal Deposit Insurance Corp. will cover about $13 billion in losses on the loans and provide about $50 billion to JPMorgan.
Three of the four largest bank failures in U.S. history now have occurred in less than two months. San Francisco-based First Republic, which had $233 billion in assets in the first quarter, was the second-largest after Washington Mutual in 2008 and follows the collapses of California-based Silicon Valley Bank and Signature Bank in New York in March.
First Republic’s 84 branches reopened Monday as part of JPMorgan and customers had full access to their deposits, the FDIC said.
Most of the banks’ troubles have been brought on by the Federal Reserve’s rapid series of interest-rate increases to fight inflation in the past year, which prompted depositors to withdraw their money in search of better returns. The banks were stuck with lower-level returns on their mortgage portfolios.
President Biden, at a White House event celebrating small businesses, said regulators’ action ensured that First Republic’s depositors are protected from losing any money. The president also said taxpayers “are not on the hook.”
“These actions are going to make sure that the banking system is safe and sound and that includes protecting small businesses across the country who need to make payroll for workers,” Mr. Biden said.
The president called on Congress to pass legislation to hold bank executives accountable and for regulators to tighten rules and supervision of large and regional banks.
“We have to make sure that we’re not back in this position again, and I think we’re well on our way to be able to make that assurance,” Mr. Biden said.
But the Republican National Committee said Monday there is a “direct link … between Biden’s inflationary agenda, rising interest rates and the banking crisis.”
“First Republic bank has crashed in one of the biggest bank failures in the nation’s history due to Biden’s bad policies,” said Alfredo Ortiz, founder of the conservative Job Creators Network. “As a result, small businesses will see a further contraction of credit access. Yet Biden and Democrats don’t seem to care and want the American banking system to resemble Japan or Canada’s, with just a handful of government-controlled big banks.”
Stocks were flat in trading Monday. The Dow Jones Industrial Average dipped 47.25 points, or 0.1%, to close at 34,050.
Nearly all U.S. bank accounts are fully insured under the FDIC’s limit of $250,000 per person per bank. But the FDIC issued a report Monday that encouraged increasing the backstop for bank accounts used for business purposes.
The report also said backstopping all bank accounts regardless of the amount would do the most to prevent runs on banks, but it also could disrupt markets and increase risk-taking by bank executives.
The FDIC said keeping the coverage limit of $250,000 “fails to address the financial stability challenges” of uninsured deposits.
Treasury acting Assistant Secretary Eric Van Nostrand said Monday that “financial instability — including general financial sector contagion — remains an important risk to monitor.”
But he said the most serious challenge facing the U.S. economy would be “the failure to raise the debt ceiling on time.”
“A default by the U.S. government — including the failure to pay any of the United States’ obligations — would be an economic catastrophe, sparking a global downturn of unknown but substantial severity,” Mr. Nostrand said. “Even if Congress ultimately raises the debt limit before a default occurs, the ensuing uncertainty could raise borrowing costs and induce other financial stress that would weaken our labor market and our standing in the world.”
Congressional Republicans and Mr. Biden are at an impasse over raising the nation’s borrowing limit, with the president refusing to agree to Republicans’ demands for concessions on spending. Treasury has been taking extraordinary accounting measures since January to avoid default, which officials said could come as early as the beginning of June.
Treasury officials said Monday that they anticipate the federal government borrowing more than $1.4 trillion to meet spending obligations from April through September.
Jamie Dimon, chairman and CEO of JPMorgan Chase, told reporters Monday that he believed “this part of this [banking] crisis is over.”
The Federal Reserve will announce on Wednesday whether it is imposing the 10th interest rate increase since March 2022.
If the central bank does raise its benchmark rate by a quarter percentage point, the cumulative rate increases would cost people with credit card debt at least $33.4 billion over the next 12 months, according to a new WalletHub report. The personal finance website said its most recent survey on consumer sentiment showed 46% of respondents say the Fed’s rate hikes will affect their summer plans.
• Dave Boyer can be reached at dboyer@washingtontimes.com.
• Jeff Mordock can be reached at jmordock@washingtontimes.com.
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