- Federal Regulators made a deal with JPMorgan Chase to acquire First Republic Bank, allowing the biggest bank in the United States to grow and leading to worries about concentration in the sector, economists told the DCNF.
- JPMorgan Chase acquired all of First Republic’s $92 billion in deposits and the substantial majority of its hundreds of billions in assets after already having $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.
Federal regulators sold recently failed regional lender First Republic Bank to JPMorgan Chase on Monday, enabling America’s largest bank to expand even more and spurring concerns about consolidation in the industry, economists told the Daily Caller News Foundation.
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.
SAN FRANCISCO, CALIFORNIA – MAY 01: A passerby stops to read a posted announcement from the FDIC about the seizure of First Republic Bank and sale to JPMorgan Chase on May 01, 2023 in San Francisco, California. Federal Regulators seized troubled lender First Republic Bank on Monday and sold all of its deposits and most of its assets to JPMorgan Chase. First Republic becomes the second largest bank in U.S. history to fail since Washington Mutual failed in 2008. (Photo by Justin Sullivan/Getty Images)
“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. (RELATED: Here’s How Much The Latest Bank Failure Will Cost The Feds — And How Americans Could Foot The Bill)
“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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