When alarm bells went off in response to the bank run at Silicon Valley Bank in mid-March, many feared it would lead to a domino effect of regional bank failures. Yet on the heels of JPMorgan Chase’s takeover of troubled lender First Republic on Monday morning, Jamie Dimon has declared that this phase of the banking crisis is behind us. “I think the banking system is very stable,” he told investors and analysts on a Monday morning call. “This part of the crisis is over," he added.
Since March, SVB, Signature, and First Republic have all failed, following huge losses incurred by exposure to interest rate risk, which in turn caused a run on deposits. While these financial institutions had similar profiles that made them vulnerable, Dimon no longer sees the liquidity issues hitting other regional banks. He told reporters Monday morning that the extent to which First Republic relied on uninsured deposits was unique among regional banks and—similar to SVB—it was vulnerable to rising interest rates because of its loan portfolio. Dimon added on the investor call that he has seen reports that many regional banks have been faring well despite the turmoil. Some regional banks have “actually had good results, very modest outflow, and the deposit outflows were because of quantitative tightening, not because these people are having runs,” he said.
JPMorgan Chase bought the bulk of First Republic’s $228 billion of assets Monday morning after the bank was taken into receivership by the FDIC. According to the FDIC, JPMorgan won what was a competitive auction for First Republic, which served a wealthy client base mostly concentrated on the coasts. JPMorgan Chase, which was already the largest bank in the U.S. prior to the deal, will grow into an even bigger financial behemoth as it takes over all of First Republic’s deposits—both insured and uninsured. The bank is taking on $92 billion of First Republic’s deposits and $173 billion in loans in addition to $30 billion in securities. While JPMorgan was previously blocked from acquiring banks that would cause the institution to have over 10% of U.S. bank deposits, it was able to circumvent those rules because of the nature of the crisis. In response to criticism that JPMorgan was creating a Big Bank monopoly, Dimon acknowledged the bank will be under scrutiny, and said anyone who didn’t think the U.S. needed a strong leading banker “should call me directly.”
Dimon noted that while First Republic was the last bank to fall in this particular crisis, that doesn’t mean it will be all smooth sailing for the banking industry. He noted that the real estate market, rising rates, and a potential recession could cause problems “down the road,” but that would be a separate crisis independent of the turmoil of the past few weeks.
