Breaking news: Federal regulators have seized First Republic Bank and sold it to JPMorgan Chase Bank in a deal aimed at quelling renewed weakness in the nation’s banking industry.
“Normally, regulators don’t react to stock prices. But this one fell so precipitously. It raised public concern and encouraged regulators to act to preserve public confidence,” said John Popeo, a partner at the Gallatin Group, a financial consultancy, and a former FDIC attorney.Like SVB, First Republic blundered into trouble as the Fed began raising interest rates almost 14 months ago. It invested in long-term assets, such as home mortgages and government securities, when rates were low.
Like the failure of SVB and Signature Bank of New York, First Republic’s collapse is likely to raise questions about the performance of federal regulators. On Friday, reports from the Fed and the FDICin both cases for mismanaging their operations and said federal supervisors had been lax. “A lot depends on what happens with interest rate policy,” Ely said. “The Fed is facing a real conflict in this because inflation pressures are still there. And knocking down inflation is more important to the Fed.”from the Fed’s discount window and a new loan program it established as part of the SVB shutdown rose last week to $155 billion from $144 billion the week before, an indicator that some banks remain under stress.
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