In an attempt to avoid another major crisis in the banking sector in the United States, the regulators seized the First Republic Bank which had been under turmoil recently and sold the assets to the American financier and investment banker JPMorgan & Chase.
The deal that took place on Monday was an effort to avoid the most extensive banking failure since 2008 and also to put an end to the turmoil that has been going on in the banking sector of the country for so long.
The banking sector in the United States faced a lot of backlash after the sudden crash of two major banks in the country namely the Silicon Valley Bank and the Signature Bank.
The First Republican Bank was one of the regional bankers that were most affected by the collapse of the two banks back in March.
Almost all financial banking establishments, from smaller ones to large corporations like JPMorgan & Chase were affected by the collapse of the banks in March.
Ever since the collapse of the banks in March, the operations at the First Republic Bank have not been smooth. The bank faced different difficulties in its normal functioning. Even though there had been problems at the bank, what triggered the sudden turn of events was the disclosure made by the bank recently.
According to the statement made by the bank, there had been an outflow of more than $100 billion in the first quarter, and the bank was exploring and considering new measures to cope with the situation.
The news about the sudden massive outflow from the bank initiated a discussion regarding another potential bank failure in the country within two months of the failure of the Silicon Valley Bank and the Signature Bank.
Since the consequences of the collapse of the First Republic Bank would be much worse than the collapse of the other two banks, the regulators were keen on avoiding the event.
In order to put an end to further turmoil in the sector then regulators decided to seize the bank and put in an FDIC receivership alongside the sale of the bank’s assets.
The seizing of the First Republic Bank by authorities marks the third major failure of a US bank in two months. It is also the largest crash in the banking history of the country since the crash of Washington Mutual in 2008.
After the announcement of the deal, the values of the shares of JPMorgan & Chase went up around 2% while the shares of mid-tier banks marked a fall. According to a Wedbush analyst, the shares of the First Republic Bank will be wiped out in the transaction.
As for the deal between the United States Federal Deposit Insurance Corporation and JPMorgan & Chase, the financial services company will pay around $10.6 million to the FDIC in order to take control of the majority of the assets of the San Francisco-based bank and also the wealthy client base of the bank.
The Chairman and CEO of JPMorgan & Chase, Jamie Dimon gave a statement regarding the deal and said that the government invited them and others to step up to the situation, which was what the company did.
He was also a key player during the financial crisis in the country in 2008. Even though the numbers are not yet official, statistics and expert opinions on the deal put forward an assumption that the deal will cost the FDIOC’s Deposit Insurance Fund about $13 billion.
President Joe Biden also gave a statement regarding the deal and the situation in the banking sector of the country on Monday, after the deal was made.
In his statement, Biden praised the deal for protecting the investors from helping from big trouble and potential loss. He also made clear points and arguments which showed that the country was in need of better regulation and supervision in its banking sector to avoid such possible situations in the future anytime soon.
President Joe Biden made the statement regarding the deal in an event that took place at the White House on Monday. In his statement, Biden mentioned that these actions are going to make sure that the banking system in the country is safe and sound. He also added that critically it’s not the taxpayers that are on the hook.
The White House also praised the decisive and timely action taken by the regulators, which has kept the banking system in the country stable.
Along with the praises given to the deal and to the Regulators, White House press secretary Karin Jean-Perre stated that the First Republic Bank would be held responsible for the events that took place. She also said that the operations and other proceedings at the bank were severely mismanaged.
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After the reported turn of events at the First Republic Bank, the FDIC was very precise and effective in taking further steps forward in order to stop another crisis in the already disturbed banking sector of the country.
The deal between the FDIC and JPMorgan & Chase resulted from a deal that took place over the weekend. During the weekend, the FDIC ran an auction at which several other banks made their bid and eventually ended up with JPMorgan & Chase winning the deal.
According to analysts and executives, the deal made on Monday will calm the market but also comes with a few additional problems.
As a result of such huge accusations, which are only possible for banks that are already well established, they keep getting bigger and richer, thereby making it harder for other smaller banks to carry out their business.
The CEO of Wall Street reform group Better Markets, Dennis Kelleher said that the outcome of such deals and auctions would result in unhealthy consolidation, would give rise to a very unhealthy competition, and also a dangerous increase to too-big-to-fail banks.
He added that all these things took place simultaneously while harming small community banks, other small business landings, and overall economic growth.
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