Conservatively Speaking : Third Medium-Sized Bank Collapses in Two Months: FDIC to Take Over First Republic Bank

The Federal Deposit Insurance Corporation (FDIC) is preparing to place First Republic Bank under receivership, making it the third medium-sized American bank to collapse in under two months.

San Francisco-based First Republic Bank primarily serves affluent clients with account balances above the $250,000 deposit threshold supported by the FDIC.

In recent weeks, a considerable number of customers have withdrawn their funds due to shaken trust in the financial system after the collapses of Silicon Valley Bank and Signature Bank.

To reduce the risk of bank runs, FDIC officials secured both insured and uninsured deposits at the two failed institutions.

An unnamed source told Reuters that regulators have deemed First Republic Bank’s unstable position as necessitating an imminent takeover by the FDIC, leaving no time for bank executives to pursue a private bailout.

First Republic Bank’s shares plummeted over 43% on Friday, closing at $3.51, a stark contrast to its $121.54 price at the beginning of the year, resulting in a 97% loss for investors over the past four months.

This news follows First Republic Bank’s first-quarter earnings report, which revealed a decrease in deposits from $176 billion on December 31 to $104 billion on March 31.

The deposit amount at the end of last month included a $30 billion loan facilitated by the federal government and provided by major financial institutions such as Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup to maintain the bank’s solvency.

First Republic Bank’s executives claimed in the earnings report that they were taking actions to strengthen the business and restructure its balance sheet.

The bank planned to increase insured deposits, reduce borrowed funds from the Federal Reserve, decrease loan balances, cut employee headcount by 20-25% in the second quarter, lower executive compensation, and consolidate corporate office space.

Chairman Jim Herbert and CEO Mike Roffler assured in the report that they remain committed to serving their communities and are grateful for the continued support of their clients and colleagues.

Last month, First Citizens Bank acquired Silicon Valley Bank, purchasing $72 billion of its assets at a $16.5 billion discount, with the remaining $90 billion staying with the FDIC.

In another deal, New York Community Bancorp acquired Signature Bank for over $38 billion.

Federal Reserve officials concluded on Friday that Silicon Valley Bank’s failure resulted from a “textbook case of mismanagement,” with executives failing to properly assess macroeconomic risk and volatility within the technology sector, upon which the bank heavily relied.

Last month, monetary policymakers forecasted a recession by year’s end due to the financial system turmoil initiated by Silicon Valley Bank, according to minutes released by the Federal Open Market Committee and the Federal Reserve Board of Governors.