FDIC Gives JP Morgan and PNC Until Sunday to Submit Takeover Bids on Troubled First Republic Bank
The FDIC has given JP Morgan and PNC Financial Services until Sunday to submit takeover bids on troubled bank First Republic, but questions remain over the handling of the $30 billion in uninsured deposits and the lack of transparency and independence of the FDIC.
The Federal Deposits Insurance Corporation (FDIC) has reportedly given JP Morgan and PNC Financial Services until Sunday to submit takeover bids on First Republic, a troubled bank that has recently experienced a run on deposits resulting in a withdrawal of $100 billion. Deposits at First Republic peaked at around $212 billion last year but declined since, and more than halved during the recent two-week bank run. To manage the situation, the bank borrowed $100 billion from the Fed, the Federal Home Loan Bank, and JP Morgan, raising questions about what happens to this borrowed money if they go into receivership.
Media reports suggest that JP Morgan, the largest bank in the US, has a direct interest in buying First Republic as they were the biggest contributor to a $30 billion deposit in the bank by large banks last month to reassure the market. However, JP Morgan would need an exemption to buy the troubled bank. Meanwhile, PNC Financial Services, a somewhat new entrant to this collapsing banks saga, has about $325 billion in assets under management, making it just slightly bigger than First Republic in better times.
The $30 billion deposited by large banks in First Republic last month is uninsured, and just how FDIC will address it remains to be seen, with the big banks expecting to recover some but not all of the $30 billion. Furthermore, a default by First Republic on the borrowed loans from the Fed would basically amount to the taxpayer picking up the tab. The FDIC has been criticized for its lack of transparency, starting with its chair Martin J. Gruenberg, who has been on the FDIC board since 2005, 18 years, and its chair since 2012. Gruenberg's unusually long tenure makes it difficult to access his financial disclosure, which by law is meant to be public.
Jamie Dimon, CEO of JP Morgan since 2005, has shown disdain for crypto, and it is unclear just how independent FDIC is and how much it is influenced by Dimon and other banks. The banks refused a private market purchase of First Republic, preferring instead to buy bits and pieces, without the obligations, from FDIC. They called that "cleaner," but that only means the public will bear the brunt of the consequences. Shareholders of First Republic will have no say in anything, despite losing more than $100 billion in just six weeks from the banking sector. The trustee's actions regarding the interests of shareholders are up for questioning, as evidenced by the recent sale of assets belonging to the Silicon Valley Bank or Signature, which were sold for cheap, on generous terms, and without impugning any obligations, in addition to politicizing the process.
