JPMorgan Chase agreed to take on all of First Republic’s $92 billion in deposits and is additionally purchasing the vast majority of the failed bank’s assets, including roughly $173 billion in loans and $30 billion in securities, according to a JPMorgan Chase press release. The giant had $3.7 trillion in assets and $2.4 trillion in deposits as of March 31.
“The purchase of First Republic Bank by JPMorgan Chase increases concentration in the banking industry and further perpetuates the bank’s too-big-to-fail status,” Dr. Thomas Hogan, senior research faculty at the American Institute for Economic Research and former chief economist for the Senate Committee on Banking, Housing and Urban Affairs, told the DCNF.
The Office of the Comptroller of the Currency needed to give JPMorgan Chase special permission in order to take over First Republic as there are rules prohibiting banks that hold over 10% of U.S. deposits from purchasing competitors, according to Bloomberg. The giant beat bids by three or more smaller banks, according to people familiar with the matter who spoke to The Wall Street Journal.
The law contains an exception for the acquisition of a collapsing bank, according to The New York Times. The Federal Deposit Insurance Act mandates the regulator accept the deal that is the lowest cost and there was a competitive bidding process, according to a Federal Deposit Insurance Corporation press release.
“This action demonstrates regulators’ privileged treatment of large banks and the legal protections afforded to them against competitors,” Hogan added. “It is more of a risk to taxpayers than to the financial system since systemically risky banks are guaranteed to be bailed out when a crisis occurs.”
Additionally, this will likely damage regional banks further, which already experienced deposit outflows following the failures and rescues of Silicon Valley Bank and Signature Bank in March, according to The Wall Street Journal.
“If concentration continues, we could see more deposits siphoned out of local areas towards big national or international borrowers,” Peter St. Onge, research fellow in economics at the Heritage Foundation, told the DCNF.
“There are definitely concerns; regional banks tend to make much more local loans, especially in real estate,” he added. “This is partly because they know their region better, and partly because their loan relationships tend to be local.”
JPMorgan Chase’s acquisition of First Republic may immediately fix the issue of meeting the failed lender’s depositor demands, but broader issues remain, E.J. Antoni, research fellow for Regional Economics at the Heritage Foundation’s Center for Data Analysis, told the DCNF. “It doesn’t solve the systemic interest rate risk the Fed created, nor the excess spending in DC which set the stage for this whole disaster.”
JPMorgan Chase did not immediately respond to the DCNF’s request for comment.
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