First Republic Bank, a San Francisco-based regional bank, has been hit hard by the recent banking crisis, with its stock plunging by nearly 50% after a massive drop in deposits in the first quarter of 2023. The bank suffered an outflow of about $100 billion in deposits during the March bank panic, leaving it hobbled. As wealthy clients rushed to withdraw their money, the bank’s unrealized losses were revealed to be twice as large as its capital cushion.[0] The bank’s stock plummeted 49% to close at a record low on Tuesday, after it announced plans to cut as much as 25% of its workforce.
First Republic is among the small and regional US banks caught in the blast radius of the collapse of Silicon Valley Bank and Signature Bank, and the crisis sparked global panic.[1] As a result, Credit Suisse, which lost $69 billion in assets in the first three months of 2023, was acquired by rival UBS in a hasty deal.[1]
The bank’s high percentage of uninsured deposits has been seen as a potential weakness by investors and customers, making it especially susceptible to deposit flight. Last month, a group of 11 bigger financial firms agreed to park a combined $30 billion in deposits with the lender to stave off a potential collapse. However, those purchases would result in losses for the other banks, and First Republic’s advisors are trying to sell the banks on the idea that letting First Republic fail would be even more expensive if it led to still higher regulatory costs and fees.[2]
The bank announced plans to cut costs by laying off 20-to-25% of its workforce in the coming months and reducing its real estate holdings.[3] To reduce expenses, First Republic plans to significantly reduce executive officer compensation, condense corporate office space, and lay off as much as 25% of its workforce in the second quarter.[4]
The bank’s troubles have raised concerns among investors about the U.S. banking sector, with cryptocurrencies jumping higher in a move that appears to be linked to ongoing struggles in the banking system, more specifically at First Republic.[5] The bank’s woes could indicate more trouble to come in the sector, and there’s now a significant risk that briefly restored confidence could unravel, should the bank fail.[6]
From a public-policy perspective, the preferable outcome is therefore that First Republic doesn’t fail.[7] If it does, the FDIC will likely want to avoid systemic risk and offer insurance to all depositors, even those without insurance, costing large banks tens of billions of dollars on top of $30 billion in bailouts led by JPMorgan Chase last month.[8]
0. “Opinion | The Easy-Money Lesson of First Republic Bank” The Wall Street Journal, 25 Apr. 2023, https://www.wsj.com/articles/first-republic-bank-business-model-easy-money-federal-reserve-interest-rates-c7f7c1a3
1. “First Republic’s shares plummet amid reports of talks with regulators” The Washington Post, 26 Apr. 2023, https://www.washingtonpost.com/business/2023/04/25/first-republic-fdic/
2. “First Republic’s dramatic slide continues, stock falls 30% as bank looks for rescue deal” CNBC, 26 Apr. 2023, https://www.cnbc.com/2023/04/26/first-republic-continues-dramatic-slide-as-it-searches-for-rescue-deal.html
3. “How First Republic Bank’s strategy of low-rate mortgages backfired” Business Insider, 25 Apr. 2023, https://www.businessinsider.com/why-first-republic-bank-in-trouble-mortgages-backfired-rising-rates-2023-4
4. “First Republic says deposits tumbled 40% to $104.5 billion in 1Q, but have stabilized since” CNBC, 24 Apr. 2023, https://www.cnbc.com/2023/04/24/first-republic-says-deposits-tumbled-40percent-to-104point5-billion-in-1q-but-have-stabilized-since.html
5. “Why Bitcoin, Ethereum, and Dogecoin Are Rising This Morning” The Motley Fool, 26 Apr. 2023, https://www.fool.com/investing/2023/04/26/why-bitcoin-ethereum-and-dogecoin-are-rising-this/
6. “The dangers a First Republic meltdown poses to the economy” Axios, 26 Apr. 2023, https://www.axios.com/2023/04/26/first-republic-dangers
7. “First Republic Bank needs the government’s help after $100 billion in deposit flight” Axios, 25 Apr. 2023, https://www.axios.com/2023/04/25/first-republic-share-price-us-government
8. “First Republic may not survive, even after two multibillion-dollar bailouts” CNN, 26 Apr. 2023, https://www.cnn.com/2023/04/26/investing/first-republic-bank-survival-options/index.html