BIGGEST U.S. BANK BUYS ANOTHER BANK

First Republic Bank, which has teetered on the edge of failure since Signature and Silicon Valley banks collapsed in mid-March, was seized by regulators on 1 May.

First Republic’s assets were then transferred to JPMorgan Chase, the biggest U.S. bank, in exchange for a $10.6-billion payment to the U.S. Federal Deposit Insurance Corp.

First Republic’s flop is the biggest U.S. bank failure since Washington Mutual imploded in 2008 during the Great Recession.

While First Republic’s assets and deposits were rescued, the deal sharpened another concern: big banks getting bigger, reviving the “too big to fail” theme that led the U.S. government to dole out hundreds of billions of dollars to American megabanks during the Great Recession.

Officials have been working to place limits on bank mergers to avoid that problem in the future, but those concerns were shelved as regulators raced to pull First Republic back from total ruin.

TRENDPOST: The game is rigged. The Bigs get Bigger is the name of the game. The banking industry’s turmoil since mid-March already has boosted the biggest banks. As we reported in “Banking System Crisis Still Possible, Wall Street Journal Warns” (4 Apr 2023), many depositors transferred their money from small and regional banks to megabanks on the assumption that the biggest banks are the safest.

A megabank holding 10 percent or more of all U.S. bank deposits is forbidden to buy another bank, under rules set by the Office of the Comptroller of the Currency.  

However, the rule does not pertain if the bank being bought is failing.

A 1 May letter from the comptroller’s office approving First Republic’s sale showed no concerns about the takeover.