What an end to the month. Regulators seized control of First Republic Bank and sold it to JPMorgan Chase on Monday, a dramatic move aimed at curbing a two-month banking crisis that has rattled the financial system.
First Republic is the second largest U.S. bank by assets to collapse after Washington Mutual, which failed during the financial crisis of 2008 and was also acquired by JPMorgan. Add its assets to the previous two that failed earlier this year, and as the New York Times points out, it isn't pretty.
Regional banks play an important role in our economy. Small businesses, real estate developers, and consumers purchasing homes and cars typically deal with their local bank.
The recent bank failures and rising interest rates have forced banks to rein in lending, making it harder for businesses to expand and individuals to buy homes and cars. That is one of the reasons that the economy has been slowing in recent months.
These three institutions got caught in the trap of borrowing short-term to lend or invest long-term and then had interest rates spike. Let's hope First Republic’s travails were a delayed reaction to the turmoil in March rather than the opening of a new phase in the crisis.