FIRST REPUBLIC BANK: FAILED?

FIRST REPUBLIC BANK : FAILED ?

First Republic Bank: Failed?


First Republic Bank might be breathing its last breaths.  Financial regulators are preparing to take control of operations the same as they did with two banks that failed last month, a report by Reuters highlighted. Further, according to the sources, a few lenders are on the lookout to purchase the bank after the public authority locks in a deal that could materialize soon.


As no private banks are willing to help the beleaguered financial institution raise more cash, officials are finding it difficult to devise an appropriate plan to prevent First Republic Bank from facing a meltdown.


What caused this situation to crop up?

After the collapse of Silicon Valley Bank and Signature Bank, depositors of First Republic Bank were worried about the survival of First Republic Bank as their deposits that were invested in assets were devalued over time due to rising interest rates during the last year. The situation was exacerbated especially after the collapse of Silicon Valley Bank and Signature Bank.

Due to its focus on attracting affluent customers to expand its business, First Republic was significantly affected by the financial crisis. This approach backfired as the majority of the bank's accounts, about two-thirds, belonged to clients with balances exceeding $250k. As a result, these depositors were aware that they would not receive full compensation from the Federal Deposit Insurance Corporation if First Republic encountered financial difficulties, turning the bank's once prestigious client list into a potential liability.

First Republic Bank was left with a 40 % reduction in deposits as more than $100 Billion was pulled out by clients in the first quarter of 2023.

Things started to settle down for some time after JP Morgan and Bank of America, deposited $30 Billion in the bank last month. This move did reassure the customers although temporarily. Stress resurfaced as First Republic Bank's stock plummeted more than 75% since Monday, incurring a loss to its treasury of a whooping 97% compared to the start of the year.

Eventually, if First Republic Bank eventually fails, regulators will have a very hard time convincing depositors that the banking sector isn't in trouble.

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