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First Republic Is Sold: What to Know

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The federal government seized First Republic Bank and sold it JPMorgan Chase on Monday, ending the lender’s six-week-long free fall and reassuring depositors that their money is safe.

Widely viewed as the most at-risk bank since Silicon Valley Bank and Signature Bank failed in March, First Republic lost $102 billion in deposits last quarter (more than half the $176 billion it held at the end of last year). Over that period, the bank also borrowed some $92 billion, mostly from government-backed lending groups and the Federal Reserve.

First Republic Bank’s failure had much the same roots as the collapses of Silicon Valley Bank and Signature Bank — spooked depositors and investors pulling their money and selling their shares in droves.

JPMorgan will “assume all of the deposits and substantially all of the assets of First Republic Bank,” the Federal Deposit Insurance Corporation said it an statement, adding that its insurance fund would have to pay out an estimated $13 billion to cover First Republic’s losses.

Here are some answers to questions you may have about what comes next for the bank and for your money.

In the turmoil set off by Silicon Valley Bank’s collapse, First Republic was initially bailed out by the private sector. In March, it received $30 billion in deposits from 11 of the country’s largest banks, including JPMorgan, Morgan Stanley and Wells Fargo.

But First Republic struggled nonetheless, and its condition had been deteriorating for weeks. It had seen a large outflow of funds as depositors rushed to pull their money and park it in institutions they viewed as safer.

Its shares had been pummeled — they dropped 75 percent just last week — as investors feared that it would fail. That drop came after the company released earnings results saying that it had borrowed heavily from the Federal Reserve and government-backed lending groups, the financial industry’s lenders of last resort.

Ultimately the F.D.I.C. decided it was no longer viable on its own.

The First Republic bank failure is the second-largest in U.S. history, after the collapse of Washington Mutual in 2008, and certainly a dramatic turn. But what happened to the bank this weekend follows a playbook that’s been used before. The government usually arranges a sale of a failed bank over the weekend, so it can open for business as usual on Monday, said Amanda Heitz, an assistant professor of finance at Tulane University.

“Most failed banks,” she said, “are resolved by a purchase and assumption agreement,” in which another institution takes over the bank with the support of the F.D.I.C. In this case that agreement is with JPMorgan.

Though the collapse of Silicon Valley Bank was in many ways not a typical bank failure, depositors did have access to their money the Monday after it was seized. And the Bank of England was quick to announced that HSBC had bought SVBUK, the bank’s British subsidiary.

But in the United States, the sale took a little longer. It wasn’t until late March that the F.D.I.C. said Silicon Valley Bank had been sold to a North Carolina bank, and until it could arrange that sale the government created what’s called a bridge bank to operate it until a sale.

In the event of a bank failure, another bank may have an incentive to take over the embattled lender because it’s looking to expand its footprint in a region or build relationships with new customers.

On Monday, 84 First Republic branches in eight states will reopen as JPMorgan branches.

But the acquisition makes JPMorgan, already the nation’s largest bank, even bigger and could draw political scrutiny.

Over the weekend, federal regulators were racing to find a buyer for First Republic before the markets opened on Monday. JPMorgan, PNC Financial Services and Bank of America were all at some point in talks with the F.D.I.C. about a potential deal.

“The F.D.I.C. wants banks to take over other banks,” Ms. Heitz said.

One way it incentivizes buyers is by sharing in any potential losses that a buyer might take, in what’s called a shared-loss agreement. JPMorgan said the F.D.I.C. would provide loss share agreements in the First Republic deal including for some home mortgages and business loans.

Most depositors are not likely to be affected by trouble at First Republic: The F.D.I.C.’s rules guarantee that deposits up to $250,000 will be covered, per depositor, per bank. The insurance coverage categories include checking and savings accounts and certificates of deposit. People who have a joint account with someone else, like a spouse, each get $250,000 in coverage, for a potential total of $500,000 in a single joint account.

People with different types of holdings can add them up. If the total does not exceed $250,000, multiple holdings — say a $50,000 savings account and a $20,000 certificate of deposit — will be covered. And the insurance is automatic.

Customers of Silicon Valley Bank and Signature Bank did not lose any of their deposits. Regulators opted to pay all depositors back in full after invoking the “systemic risk exception,” which is intended to protect against systemwide destabilization.

In First Republic’s case, JPMorgan will assume the lender’s deposits, which would eliminate the need for the government to grant a systemic risk exception.

The short answer is: Nothing meaningful. With a purchase and assumption agreement, the acquiring bank would take over any loans on the balance sheet, including mortgages, Ms. Heitz said.

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