US President Joe Biden has sought to reassure Americans that the United States banking system is “safe and sound”, after regulators seized California’s troubled First Republic Bank and sold it to JPMorgan Chase in hopes of ending a two-month crisis.
Speaking to reporters on Monday afternoon, Biden welcomed regulators’ decision to facilitate the sale of the bank, saying the move would “ensure that all depositors are protected and that taxpayers are not on the hook”.
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“These actions are going to make sure that the banking system is safe and sound, and that includes protecting small business across the country,” Biden said during a news conference at the White House to mark National Small Business Week.
First Republic is the third major financial institution in the US to fail in two months, with its sale to JPMorgan – the largest bank in the country – aiming to draw a line under recent concerns over a wider banking system crisis.
The deal, announced early on Monday, will see JPMorgan make a payment of $10.6bn to the US Federal Deposit Insurance Corp (FDIC) to take control of most of the assets of the San Francisco-based bank and get access to First Republic’s coveted and wealthy client base.
It will cost FDIC’s Deposit Insurance Fund (DIF) about $13bn, according to the regulator’s initial estimate.
“Our government invited us and others to step up, and we did,” JPMorgan’s CEO Jamie Dimon said in a statement on the agreement.
Banking sector stress
First Republic came under intense pressure after disclosing last week that it had suffered more than $100bn in outflows in the first quarter and was exploring options.
That also renewed stress on the banking sector, which was reeling from the closure of Silicon Valley Bank and Signature Bank in March, while Swiss lender Credit Suisse was bought by rival UBS in a state-engineered takeover.
JPMorgan was one of several interested buyers in First Republic, including PNC Financial Services Group, and Citizens Financial Group, which submitted final bids on Sunday in an auction being run by US regulators, sources familiar with the matter said over the weekend.
The California Department of Financial Protection and Innovation said it had taken possession of First Republic, and the FDIC would act as its receiver.
The FDIC said early on Monday that First Republic’s 84 branches in eight states will reopen as branches of JPMorgan Chase Bank and depositors will have full access to all of their deposits.
Al Jazeera’s Heidi Zhou-Castro, reporting from Washington, DC on Monday morning, said most of the accounts at First Republic were above $250,000, which meant they were not insured by US federal regulators.
“It would have been disastrous if that money had just evaporated, but as part of this deal – to our understanding – now that money will be assured, and as far as those customers go, business should be continuing as usual as of this morning,” Zhou-Castro said.
‘Better game plan’
The rescue comes less than two months after a deposit flight from US lenders forced the Federal Reserve to step in with emergency measures to stabilise markets. Those failures came after crypto-focused Silvergate voluntarily liquidated.
Analysts and industry executives said the agreement 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.
Dennis Kelleher, president and CEO of Wall Street reform group Better Markets, said the auction’s outcome showed “unhealthy consolidation, unfair competition, a dangerous increase in too-big-to-fail banks – all while harming community banks, small business lending, and economic growth”.
“Regulators need a much better game plan for resolving those dangerous banks when they get into trouble,” Kelleher said.
Shares of JPMorgan and some of the other largest US banks rose on Monday, while several of those from the next tier fell. First Republic’s shares tumbled 43.3 percent in premarket trading on Monday before they were halted.
JPMorgan said it expected to achieve a one-time, post-tax gain of approximately $2.6bn after Monday’s deal, which did not reflect an estimated $2bn of post-tax restructuring costs likely over the next 18 months.
The bank has been on an acquisition spree, acquiring more than 30 companies since 2021.
During the White House news conference on Monday afternoon, Biden said that going forward, the US Congress must act “to give regulators the tools to hold bank executives accountable”.
“And I’ve called on regulators to strengthen regulations and supervision of large and regional banks,” the president said. “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.”