First Republic: The Bank That Lost Everything (Including Its Clients)

GM and BRRR.

In recent news, the American banking industry has faced several setbacks, with a series of banks failing since March. Among the recent victims is First Republic Bank, which experienced significant financial instability and was unable to maintain operations. JPMorgan swooped in over the weekend and acquired all of First Republic's deposits and a "substantial majority of assets" following regulators taking possession of the bank.

Of note, the transaction will cost the FDIC's Deposit Insurance Fund an estimated $13 billion (compared to $20B for SVB). Meanwhile, we saw a review of Silicon Valley Bank, which led to the failure of Signature Bank and ultimately intervention by financial regulators to protect uninsured depositors at both banks. This amidst rising concern among industry leaders and lawmakers, resulting in calls for tougher rules and re-evaluating how regulators treat deposits above a $250,000 FDIC limit.

Switching gears, lawmakers reintroduced the SAFE Banking Act, a bipartisan bill that aims to provide banking and financial services to legal cannabis businesses. An effort to protect banks that provide services to legal cannabis businesses from federal prosecution and penalties, creating a safe harbor from liability and asset forfeiture. On this news released Friday, stocks of major cannabis companies, including Curaleaf Holdings, Trulieve Cannabis Corp, and Terrascend Corp, rose by double-digit percentages.

For now, we await tomorrow’s FOMC meeting and its ramifications, or unexpected results (i.e. today’s meme)

Here’s what we brrr’d today:

• Federal Regulators Put First Republic Out of its Misery, JPMorgan Buys the Remains

• SVB Collapse: When Risk Management Is Just A Compliance Exercise

• Potentially High Profits through SAFE Banking Act

Prediction Contest Update

FOMC meeting tomorrow, so look out for our next questions ASAP.

First Republic's Money Problems Come to a Head, JPMorgan Cleans Up the Mess

• JPMorgan acquires First Republic Bank: JPMorgan has acquired all of First Republic's deposits and a "substantial majority of assets" following regulators taking possession of the bank, resulting in the third failure of an American bank since March.

• FRC’S business model collapses: First Republic Bank, a California-based specialty lender that focused on serving wealthy coastal Americans, found itself vulnerable following the collapse of Silicon Valley Bank in March. This resulted in clients withdrawing more than $100 billion in deposits, which forced First Republic to borrow heavily from Federal Reserve facilities to maintain operations.

• Transaction costs the FDIC $13 billion: The transaction will cost the FDIC's Deposit Insurance Fund an estimated $13 billion, which is significantly lower than the $20 billion it cost the fund to handle the Silicon Valley Bank process. JPM said it would make a payment of $10.6 billion to the FDIC as part of the acquisition.

• Treasury Department reassures Americans: In the wake of the takeover, the Treasury Department sought to reassure Americans about the country's financial system, stating that the banking system remains sound and resilient, and that Americans should feel confident in the safety of their deposits.

• First Republic Bank ends 38-year run: The California Department of Financial Protection and Innovation took possession of First Republic and appointed the FDIC as a receiver, resulting in the end of the bank's 38-year run. First Republic's 84 offices in eight states will reopen as branches of JPMorgan Chase Bank.
  CNBC

Silicon Valley Bank Collapse: When Risk Management is Just A Compliance Exercise

• Silicon Valley Bank Triggers Chaos in US Banking: SVB’s collapse led to the failure of New York-based Signature Bank and an intervention by financial regulators to protect uninsured depositors at both banks.

• Federal Reserve Calls for Tougher Rules: The Fed's top regulator, Michael Barr, called for revamping the rules that apply to banks with over $100 billion in assets, as well as re-evaluating how regulators treat deposits above a $250,000 federal insurance limit.

• US Congress & Fed Clash on Regulations: Some congressional Republicans criticized Mr. Barr's calls for more regulation, while Fed Chair Jerome Powell said he would back steps outlined by Mr. Barr to toughen industry oversight over the coming years.

• Fed's Structure and “Trump-era” Changes Contributed: Mistakes by Fed regulators were driven, in part, by the “Trump-era” changes that generally eased rules on midsize banks, as well as the Fed's own bureaucratic structure, which parceled out authority for overseeing banks to its regional branches.

• SVB's Board Prioritized Profit Over Risk: The board put short-run profits above effective risk management and often treated resolution of supervisory issues as a compliance exercise rather than a critical risk-management issue. The bank had not tested its capacity to borrow at length and didn't have a comprehensive view of its liquidity.
  Wall Street Journal
  

Potentially High Returns: SAFE Banking Act Set to Pass?

• Lawmakers reintroduce SAFE Banking Act: Bipartisan bill aims to provide banking and financial services to legal cannabis businesses, and is expected to go before the Senate Banking Committee for the first time.

• Cannabis stocks rise after SAFE Act reintroduced: Stocks of Curaleaf Holdings, Trulieve Cannabis Corp, and Terrascend Corp all rose by double-digit percentages Friday after the bipartisan nature of the SAFE Banking Act’s reintroduction boosted hopes of more relief for the industry.

• SAFE Act to protect banks: The act would bar federal regulators from penalizing banks that provide financial services to legal cannabis businesses, protect them from criminal prosecution, and create a safe harbor from liability and asset forfeiture.

• Current law prohibits services: Banks and credit unions face federal prosecution and penalties if they provide services to legal cannabis businesses because cannabis is still a Schedule I substance, the same classification as heroin and LSD.

• Lack of financial services: Without access to financial services, state legal cannabis businesses are forced to operate their businesses solely using cash, which can result in robbery, money laundering, and organized crime.
  CNBC

AI ART OF THE DAY

Jerome Powell breaking a sweat before Tuesday’s meeting…

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