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FDIC’s Autopsy of the Agency’s Supervision of First Republic Bank

By September 26, 2023No Comments

FDIC Releases Report Detailing Supervision of the Former First Republic Bank, San Francisco, California

On September 8, 2023, the Federal Deposit Insurance Corporation (FDIC) Chief Risk Officer Marshall Gentry released FDIC’s Supervision of First Republic Bank, “an internal review evaluating the agency’s supervision of First Republic Bank… from 2018 until its failure in May 2023”. The report provides information on the causes of First Republic Bank’s failure and evaluates the FDIC’s supervision of the bank.

The report cites “a loss of market and depositor confidence, resulting in a bank run” following the March 2023 failures of Silicon Valley Bank and Signature Bank as the primary cause of failure. The report notes there were attributes of First Republic’s business model and management strategies that made it more vulnerable to interest rate changes and the contagion that ensued following the failure of Silicon Valley Bank. These attributes included, “rapid growth and loan and funding concentrations, overreliance on uninsured deposits and depositor loyalty, and failure to sufficiently mitigate interest rate risk.” The report notes that “[f]or an institution of its size, sophistication, and risk profile, the bank should have taken additional proactive measures to mitigate interest rate risk.”

For info, on May 1, 2023, the California Department of Financial Protection and Innovation (CADFPI) closed First Republic Bank (First Republic), San Francisco, California, and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. As of March 31, 2023, First Republic had total assets of $232.9 billion and total deposits of $104.5 billion. First Republic was the fourteenth largest bank in the country, and the second largest bank supervised by the FDIC, and its failure constituted the second largest bank failure in United States history. As of May 1, 2023, the FDIC estimated the cost of First Republic’s failure to the Deposit Insurance Fund (DIF) to be approximately $13 billion.1 The exact cost will be determined when the FDIC terminates the receivership. The FDIC was First Republic’s primary federal regulator.

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