How the First Republic Became a Hot Mess

New York (CNN) First Republic, a midsize bank that catered to wealthy clients in coastal states, became so dangerous to the American banking system that the government had to corner the industry to stage an intervention.

The reason has a lot to do with the high net worth individuals who bank there.

“This is the biggest example of a bank that can go down and not go down – a first-rate bank,” said a source close to the 48-hour deal. First Republic with $30 billion in cash.

San Francisco-based First Republic, the nation’s 14th largest bank, received an infusion of cash from 11 rivals, including some of America’s largest lenders.

When JPMorgan Chase CEO Jamie Dimon approached Treasury Secretary Janet Yellen and Federal Reserve Board Chairman Jerome Powell on Thursday, “very quickly the conversation turned to the first Republican,” the source told CNN.

A government-organized bailout isn’t a bailout—it’s about providing the bank with enough money for a customer withdrawal and reassuring investors that it will last. The upheaval that rocked the industry For the past week.

So far, it has not had the desired effect.

First Republic shares fell 25% on Friday. Soldiers are also struggling to recover it JP Morgan Chase (JPM) 3% below and Bank of America (BAC) 4% drop.

“The market is saying this is not enough. We need more,” Ed Mills, a Washington policy analyst at Raymond James, told CNN on Friday.

Why did the First Republic have a target on its back?

Investors saw similarities between First Republic and failed Silicon Valley Bank — another mid-sized Bay Area-based lender with a deep-pocketed customer base.

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“These depositors are particularly vulnerable,” said Patricia McCoy, a law professor at Boston College. “They’re sophisticated, they know they have other options, and they have the means to move money quickly.”

A “particularly volatile” base of depositors presents risk to investors, said McCoy, who helped found the Consumer Financial Protection Bureau.

Big banks like JPMorgan Chase have diversified their deposit bases to include more of what McCoy calls “sticky deposits.” In other words, regular people with less than the FDIC-insured limit of $250,000 in the bank.

Two-thirds of the First Republic’s deposits were uninsured. That’s far less than Silicon Valley Bank’s 94% uninsured rate, but First Republic had an unusually large 111% loan-to-deposit ratio at the end of last year, according to S&P Global — meaning it was lending out a lot of money. in deposits.

—CNN’s Matt Egan and Christine Romans contributed reporting.

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