LEILA FADEL, HOST:
The second-biggest bank to fail in American history has now been acquired by the nation's largest bank, JPMorgan Chase. The Federal Deposit Insurance Corporation, the FDIC, took possession of First Republic Bank overnight, and within hours, JPMorgan Chase announced it was acquiring First Republic's branches, deposits and most of its assets. To help us sort out the implications, we turn, as we often do, to David Wessel, director of the Hutchins Center at the Brookings Institution.
David, welcome.
DAVID WESSEL: Good morning.
FADEL: OK. So what does this mean for First Republic bank depositors?
WESSEL: Well, a lot of First Republic's deposits have already taken their money elsewhere, but there's $90 billion still there, and that money is safe. They're now deposits at JPMorgan Chase. JPMorgan Chase already had more deposits than any other U.S. bank, more than $2 trillion worth of deposits. In fact, it was so big that it had to get a special waiver from regulators to get even bigger. JPMorgan's also taking most of the mortgages and other loans that First Republic made. But the investors in First Republic, its shareholders, are going to be wiped out.
FADEL: Now, First Republic had been looking for a buyer for weeks without success. Why did the deal have to wait for the FDIC to seize the bank?
WESSEL: Because the hole in First Republic's balance sheet was so deep that no bank would buy it without some help from the government. Other banks bid over the weekend to acquire First Republic, but the law requires the Federal Deposit Insurance Corporation to take the best deal for the government. And apparently, that came from JPMorgan, which is paying $10.6 billion to buy the bank. The bank and the FDIC are going to share any losses on the loans that First Republic has made. And the FDIC is going to lend JPMorgan $50 billion for five years to help finance the purchase. Now, all in all, this is going to cost the deposit insurance fund about $13 billion. It's a lot of money, but it's less than the FDIC expects to lose on Silicon Valley Bank. That was $20 billion. And other banks are going to get assessed to cover those losses.
FADEL: Now, Silicon Valley Bank and Signature Bank failed in March when depositors lost confidence and pulled their money out, and that threatened to spark more bank runs. A mass exodus didn't happen, but depositors did leave First Republic. Why the exception there?
WESSEL: Well, like Silicon Valley Bank, First Republic had a lot of deposits that were not insured. A hundred billion dollars of them fled in the past few months. And it also had a lot of low-interest mortgage loans on his books. And the value of those fell as the Fed raised interest rates. Now, there was an effort to save the bank. Eleven of the nation's biggest banks deposited $30 billion in First Republic to kind of reassure depositors. But it simply wasn't enough, and time ran out for them.
FADEL: Now, this is the fourth time in the last two months that the government has taken control of an American lender. Is this over, David, or is this just going to keep happening?
WESSEL: Well, that's a good question. We'll have to see.
FADEL: Yeah.
WESSEL: In times like these, the failure of one bank often leads people to question the stability of other banks. It's known as contagion to financial market analysts. And there are some other banks that have some similar issues. Now, the fact that all the depositors at Silicon Valley Bank, Signature Bank and now at First Republic got all their money back, that may reassure depositors at other banks. There are some analysts who are saying this is the last domino to fall, but I think it's too early to sound the all clear. A lot of banks suffered when the Fed raised interest rates so much in the past year.
FADEL: Now, Fed policymakers meet this week to decide whether to raise interest rates again. How does all of this play into the Fed's decisions?
WESSEL: The Fed is still very likely to raise interest rates by another one-quarter percentage point this week, but it may signal that it may be about ready to stop raising interest rates. Fed Chair Jay Powell has pointed out that the banking crisis is making banks more reluctant to lend, and that means there'll be less borrowing and less spending in the economy, which is what the Fed wants. So the banking crisis may substitute for the further rate increases.
FADEL: David Wessel is director of the Hutchins Center at the Brookings Institution.
Thank you, David.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.