It’s the 1920s, but the headlines resemble those of the 1920s, when many American bank failures contributed to the Great Depression. On Monday, the federal government took control of troubled First Republic Bank, marking the third US bank to lose this year.
While the headlines may be alarming, if you have an account with First Republic Bank, your funds are protected by up to $250,000. Federal Republic is insured by the Federal Deposit Insurance Corporation, which insures your funds up to $250,000 per account holder, per bank. As of December, the FDIC said more than 99% of FDIC-insured cross-bank deposit accounts were below the $250,000 insurance limit.
If you have more than $250,000 in a First Republic account or hold stock in the bank, it’s a bit more complicated. We’ll reveal what happened, what this news means for checking account holders and explain how to keep your money safe.
Learn more about bank accountscheck out CNET’s list of the best savings accounts (all of which are FDIC-insured) and find out what the latest federal interest rate hike means for you.
The First Republic: The Basics
First Republic was a San Francisco-based bank founded in 1985. As of 2022, it has 93 offices in 11 states, operating primarily in New York, California, Massachusetts, and Florida. After the collapse of the bank, it was closed and its assets seized by the Federal Deposit Insurance Corporation. JPMorgan Chase won the auction for the bank’s assets, paying $10.6 billion. You will not keep the name of the First Republic.
What led to the crash?
You probably heard about the Silicon Valley bank crash in March, and you probably also know about the signature bank failure soon after. In simpler terms, these banks were not well positioned for rising interest rates, which hurt the value of their investments. This, in turn, frightened customers into withdrawing their money from these banks.
FDIC insurance protects deposits of up to $250,000, and since most people don’t have that much at any one bank, your money is protected as long as it doesn’t exceed that limit. But because both banks had a list of wealthy clients, their account holders were at risk of losing deposits over the $250,000 threshold. So account holders were more afraid to leave the banks.
What happened to the First Republic?
First Republic also catered to wealthy Silicon Valley clients, and had a large number of uninsured deposits from clients with account balances over $250,000. Like Silicon Valley Bank and Signature Bank, First Republic was also not prepared for the rising interest rate environment. After its shares fell precipitously in March, fears of a possible collapse sent account holders scrambling to withdraw their funds.
During the last week of April, the bank gleefully announced that its deposits had fallen by more than $100 billion. Customer deposits fell 41%, bank shares fell, and then financial regulators took over the bank and arranged the JPMorgan Chase takeover.
First Republic is the second largest US bank ever to fail, overtaking Silicon Valley Bank for second place. (Heads the list for Seattle-based Washington Mutual, which collapsed during the 2008 financial crisis.)
Am I affected?
I don’t work as a banker for the First Republic
If you do not have a First Republic account or inventory, you will not be directly affected. The FDIC is paying about $13 billion to cover this failure. While this does not come directly from the pockets of taxpayers, banks will likely raise customer fees to cover it. So anyone using the bank will feel it in some way.
I had a First Republic account
If you have an account with First Republic, your branch will change to JPMorgan Chase. You should be able to bank as normal – even if you have more than $250,000. Fortune notes that while most people don’t have that much money in one financial institution, if you do have that much money, you might consider spreading it out to a few different banks.
I am a First Republic contributor
If you have First Republic stock, it doesn’t look good. The stock has ceased trading, and shareholders will not receive JPMorgan Chase shares. An FDIC spokesperson told CBS News that shareholders are “last row” to get anything.
What can I learn from this news?
Most people are not directly affected by the collapse of First Republic Bank, but the key takeaway is to make sure you put your money in an FDIC-insured bank account. And if you have more than $250,000 in any one bank account, we recommend hiring a financial advisor. Talk to them about the best way to spread your money so that it is in multiple secured accounts.