Even so, the US financial system has many problems. Recent bank failures and rising interest rates have restricted banks from lending, making it harder for businesses to expand and individuals to buy homes and cars. This is one of the reasons why the economy has been sluggish for the past few months.
First Republic’s decision came weeks later, in which the bank and its advisers tried to find a buyer to save the bank or avoid a government takeover. But the efforts failed: other banks were reluctant to buy or slice it without guarantees that they wouldn’t lose billions of dollars. Last week, after the bank’s alarming earnings report revealed that customers had withdrawn more than half of its deposits, it became clear that there was no other option but a government takeover.
Late last week, the FDIC approached other financial institutions, including JPMorgan Chase, PNC Financial Services and Bank of America, to solicit bids for First Republic. Bidders were given till noon on Sunday to submit their offers. As part of the bidding process, banks have also been asked what accommodations they expect from the government to move forward, people familiar with the process said.
The sale process was expected to be completed by Sunday evening, but the announcement took place at midnight. JP Morgan’s Mr. Dimon said 800 employees at the bank have been working under contract for the past several days.
The banking crisis has also put federal regulators on the defensive by exposing problems that analysts say should have forced banks to identify and fix them months ago. Last week the Fed and the FDIC issued statements criticizing Silicon Valley Bank and Signature for failing to adequately regulate them. The reports also blamed the banks for poor management and excessive risk-taking.
First Republic had many clients in the financial industry, including senior bankers and hedge fund managers — like Silicon Valley Bank. Many of its accounts held more than $250,000, the limit for federal deposit insurance.
The latest bank shutdown could keep the central bank on track to raise interest rates by a quarter point at Wednesday’s meeting, said Krishna Guha, head of Evercore ISI’s global policy and central bank strategy group. In fact, he said, taking on a lingering source of risk and uncertainty could “clear the decks” for such a move.
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