New Delhi: In another blow to the US banking sector, US regulators have taken over First Republic Bank and accepted JPMorgan Chase Bank’s bid to take over the deposits and assets of the ailing bank. It marks the second major US bank failure within two months.
The US Department of Financial Protection and Innovation (DFPI) announced its decision on Monday to liquidate First Republic Bank, established in 1985.
“DFPI has appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of First Republic Bank,” DFPI said in a statement. “The FDIC has accepted a bid from JPMorgan Chase Bank, National Association, Columbus, Ohio, to take over all deposits, including all uninsured deposits and all assets of First Republic Bank.”
First Republic Bank collapses right after collapse of silicon valley bank (SVB) in March 2023, and largely for the same reasons. The root of the problems with these banks was the interest rate hikes implemented over the past year by the US central bank, the Federal Reserve (US Fed).
Since the beginning of 2022, the US Fed has implemented a cumulative 475 basis points of interest rate hikes to combat spiraling inflation. Several US banks, including SVB and First Republic Bank, invested heavily in bonds when interest rates were low.
However, the rapid rise in interest rates meant that the value of these bond holdings declined greatly, leaving banks at a loss to sell them during the recent crisis. Depositors also pulled their money out of other banks, including First Republic Bank, due to the crisis of confidence that followed the collapse of SVB and some other banks in the US in March.
Major US banks rallied at the time to rekindle confidence in the banking industry. A group of financial institutions including Bank of America, Wells Fargo, Citigroup, and JPMorgan Chase agreed in March to deposit $30 billion in First Republic to increase its deposit base.
“This action by America’s largest banks reflects the confidence they place in First Republic and banks of all sizes, and it demonstrates the banks’ overall commitment to serving their customers and communities,” the consortium said in a statement at the time. Is.”
This was not enough. With investor and depositor confidence in First Republic declining, the bank’s stock closed Friday down 43 percent to a record low of $2.99.
Ultimately, US regulators had to step in and take control of First Republic Bank in order to protect depositors.
Indian Bank fully prepared
Reserve Bank of India (RBI) Governor Shaktikanta Das made several reassuring statements on April 27 about the health and resilience of the Indian banking sector. However, he was speaking before the latest developments at First Republic Bank.
“The Reserve Bank has also put in place various prudential regulatory frameworks,” Das said while speaking at the Global Conference on Financial Resilience organized by the College of Supervisors in Mumbai. “These include capital adequacy requirements, asset classification and provisioning requirements, dividend distribution framework and liquidity management framework.”
“In addition, the Reserve Bank also deploys macroprudential measures from time to time to address system level risks,” he added. “As a result of the measures taken by both the Reserve Bank and the banks themselves, the Indian banking system has remained resilient and has not been adversely affected by recent sparks of financial instability seen in some advanced economies.”
The governor further said that the resilience of the Indian banking sector can also be seen in the stress tests conducted recently.
(Editing by Zinnia Ray Chowdhury)