The article looks at the various situations and regulatory strategies related to the failures of First
Republic Bank, Silicon Valley Bank (SVB), and Signature Bank, three significant U.S. banks. In 2023–2024,
all three banks experienced failure; however, First Republic's case was handled differently because of
the lessons learnt from SVB's previous failure. The FDIC had to handle SVB's collapse in March 2023 with
prompt action, including government support for all depositors, in part to calm fears about uninsured
deposits exceeding $250,000. The demise of Signature Bank was one of the repercussions of this.
Regulators, on the other hand, handled First Republic's demise more amicably by negotiating in advance
with JPMorgan Chase to take over all deposits, preventing the need for yet another government-
sponsored systemic risk intervention. The acquisition of First Republic by JPMorgan was unusual since it
necessitated exceptions to the customary regulations governing big banks, but it also resulted in less
government support than in previous instances.
Reasons for the Bank Failures
High Concentration of Uninsured Deposits: SVB and First Republic held large amounts of
deposits exceeding the FDIC's insured limit, creating panic among customers and resulting in
significant bank runs when financial instability became apparent.
Interest Rate Increases: All three banks were heavily impacted by rapid interest rate hikes by
the Federal Reserve. This led to declines in asset values, particularly long-term investments like
Treasury securities, which devalued, affecting their capital positions.
Risky Business Models: SVB’s focus on tech startups and Signature’s ties to crypto firms made
them highly susceptible to market downturns in these sectors. First Republic, while more
diversified, similarly relied on high-net-worth clientele with uninsured deposits, creating
vulnerability.
A key lesson from the article is the importance of proactive regulatory oversight and consistent
policies for handling bank failures. The regulatory response to First Republic’s collapse was
improved compared to SVB and Signature’s, which suggests that a more measured, prepared
approach can better stabilize financial institutions while protecting depositors without
extensive government intervention. However, the crisis also highlighted weaknesses in bank
supervision, with bipartisan calls for stronger capital requirements and liquidity standards to
prevent excessive risk-taking. This underscores that ensuring stability in the banking sector
requires both sound oversight and adaptable, consistent policies, especially in a landscape of
rising interest rates and sector-specific vulnerabilities.
