We've just witnessed the second biggest bank failure in US history.
US regional bank First Republic had a little more than $US200 billion ($301 billion) worth of assets and around 7,000 employees, so it was a large, San Francisco-based bank.
For context, Lehman Brothers — before it collapsed in 2008, which sparked the global financial crisis — had roughly $US600 billion worth of assets.
Shares in First Republic Bank crashed on Wall Street on Friday, due to fears the financial health of the bank was in doubt.
Its stock price fell 75 per cent early last week on news that customers had withdrawn $US100 billion in deposits amid the onset of the banking crisis.
The stock price crashed again on Friday.
It was all too much for the bank to survive.
The California Department of Financial Protection and Innovation (DFPI) said early Monday evening that regulators had seized First Republic Bank.
DFPI appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of First Republic and said it accepted a bid from JPMorgan Chase Bank.
In short, the bank was officially wound up by the authorities and then immediately "sold" to JPMorgan to prevent a global financial contagion.
"The First Republic acquisition by JP Morgan does not come as a surprise to the market, but we do not expect this to be the end of the banking crisis we have seen since SVB in March," professional bond investor James Wilson told The Drum.
"The FDIC deposit insurance only goes so far in preventing the deposit run that eminate from the aggressive Fed hiking cycle."
JPMorgan is one of a small number of banks that already holds more than 10 per cent of nationwide deposits, making it ineligible under US regulations to acquire another deposit-taking institution.
It appears US authorities will now have to make an exception to this rule and wave JPMorgan through.
First Republic is the third US bank to fail in two months.
Silicon Valley Bank collapsed on March 10.
Two days later, on March 12, Signature Bank collapsed.
A consortium of 11 banks — led by JPMorgan Chase — injected $US30 billion into First Republic on March 16 in an attempt to stabilise it, but that investment also now appears to have been made redundant.
So far, all of the US bank failures relate to the fallout from rapidly rising US interest rates.
Regional banks fall under the US regulatory radar, in terms of how much good-quality capital they need to hold.
They have made poor returns on their bond investments and have, in turn, failed to hold sufficient "liquid" capital (assets easily converted to cash) to meet customers' deposit demands.
As customer demand has increased for their deposits, the banks have had to crystalise heavily losses on their investments to meet these demands.
Professional bond investor James Wilson says the bank failures are a feature of the US Federal Reserve's monetary policy.
"The Fed [sic] is still in hike-til-something-breaks-mode and First Republic is another piece of the collateral damage," he said.
BetaShares chief economist David Bassanese said the fallout poses no significant threat to the stability of the global financial system.
"First Republic is symptomatic of a slow-burn tightening in US credit conditions as part of the transmission of higher rates through the economy," Mr Bassanese said.
"Smaller-medium-sized banks are being forced to jack up their deposit rates to stem outflows and either raise lending rates and/or cut back on lending.
"Some banks will be found wanting on this process, though it should not lead to a system-wide problem."
