Regulators Seize First Republic Bank and Sell It to JPMorgan Chase
Plus: Twitter complies with a greater portion of government censorship requests, a judge allows an antitrust suit against Google to go forward, and more...
Another Silicon Valley bank fails. The California Department of Financial Protection and Innovation (DFPI) took possession of San Francisco–based First Republic Bank, accusing the institution of conducting business "in an unsafe or unsound manner." It appointed as receiver the Federal Deposit Insurance Corporation (FDIC), which then sold the bank to JPMorgan Chase Bank.
JPMorgan Chase will "assume all deposits, including all uninsured deposits, and substantially all assets of First Republic Bank," per a press release from the California DFPI. As part of the sale deal, the FDIC "will share losses with JPMorgan on First Republic's loans," reports The Wall Street Journal. "The agency estimated that its insurance fund would take a hit of $13 billion in the deal. JPMorgan also said it would receive $50 billion in financing from the FDIC."
As of mid-April, First Republic Bank held about $103.9 billion in deposits and $229.1 billion in total assets. Its failure marks the second-largest failed bank in U.S. history, following Washington Mutual, which collapsed in 2008.
The good news is that this isn't necessarily another 2008-style situation.
Yes, First Republic got caught in the Silicon Valley Bank (SVB) failure spiral. (In March, First Republic lost $100 billion in deposits after SVB collapsed.) And yes, the collapse of SVB and New York-based Signature Bank (which also failed in March) reverberated widely.
But Steven Kelly, a senior researcher with the Yale Program on Financial Stability, argues that "this is the last stages of that initial panic," according to the Journal. And "First Republic's failure seems unlikely to spur another crisis of confidence in the Main Street lenders that serve a large chunk of America's businesses and consumers," the newspaper suggests. "Regional lenders uniformly lost deposits during the first quarter, but the declines were modest compared with First Republic's $100 billion outflow."
While First Republic's immediate problems may stem from the failure of SVB and Signature, the roots of its problems go deeper than that. Like Silicon Valley Bank, First Republic's managers made poor decisions that failed to account for changing interest rates.
"Ultralow interest rates and a pandemic savings boom supercharged the bank's growth," comments the Journal:
When the Fed began raising interest rates last year to cool inflation, customers began demanding higher yields to keep their money at First Republic. Rising rates also dented the value of loans the bank made when rates were near zero.
First Republic's badly damaged balance sheet left it with few good options.
In a dismal quarterly-earnings report last week, the bank disclosed the extent of the deposit run and said it had filled the hole on its balance sheet with expensive loans from the Federal Reserve and Federal Home Loan Bank. An untenable future, in which it earned less on its loans than it paid on liabilities, appeared all but certain.
The earnings report sent the bank's stock down nearly 50% in one day.
Today, "First Republic Bank's 84 offices in eight states will reopen as branches of JPMorgan Chase Bank," according to the FDIC. "All depositors of First Republic Bank will become depositors of JPMorgan Chase Bank, National Association, and will have full access to all of their deposits….Customers of First Republic Bank should continue to use their existing branch until they receive notice from JPMorgan Chase Bank, National Association, that it has completed systems changes to allow other JPMorgan Chase Bank, National Association, branches to process their accounts as well."
FREE MINDS
Twitter complies with government censorship requests. Twitter CEO Elon Musk claims that he is bringing more free speech to the platform. But "Twitter's self-reported data shows that, under Musk, the company has complied with hundreds more government orders for censorship or surveillance—especially in countries such as Turkey and India," reports the tech news outlet Rest of World.
The data, drawn from Twitter's reports to the Lumen database, shows that between October 27, 2022 and April 26, 2023, Twitter received a total of 971 requests from governments and courts. These requests included orders to remove controversial posts, as well as demands that Twitter produce private data to identify anonymous accounts. Twitter reported that it fully complied in 808 of those requests, and partially complied in 154 other cases. (For nine requests, it did not report any specific response.)
Most alarmingly, Twitter's self-reports do not show a single request in which the company refused to comply, as it had done several times before the Musk takeover. Twitter rejected three such requests in the six months before Musk's takeover, and five in the six months prior to that.
More broadly, the figures show a steep increase in the portion of requests that Twitter complies with in full. In the year before Musk's acquisition, the figure had hovered around 50%, in line with the compliance rate reported in the company's final transparency report. After Musk's takeover, the number jumps to 83% (808 requests out of a total of 971).
These numbers are drawn from the Lumen database, which is maintained by Harvard's Berkman Klein Center for Internet & Society. The public database keeps track of "legal complaints and requests for removal of online materials."
FREE MARKETS
Judge allows antitrust suit against Google to go forward. A federal court nixed Google's motion to dismiss a lawsuit that claims it has an illegal monopoly in online ad sales. (Find more on that lawsuit, filed by the U.S. Department of Justice and eight states, here.)
Google contended that the case should be dismissed, in part because the government's complaint defined the relevant market too narrowly. "Google's lawyers contend the lawsuit does not account for advertisers' ability, for example, to advertise on huge social media platforms like Facebook and TikTok that run their own advertising platforms independent of Google," reports the Associated Press.
Judge Leonie Brinkema of the U.S. District Court for the Eastern District of Virginia doesn't agree. She said Friday that the suit against Google may move forward—the second ruling in the government's favor from Brinkema in this case. Last month, she ruled that the case could be heard in Virginia and rejected Google's request to consolidate the case with similar lawsuits being heard in New York.
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