The First Republic Bank failed on May 1. This is the third bank that has failed in the 2023 year along with Silicon Valley and Signature. When First Republic failed, the United States government, specifically the Federal Deposit Insurance Corporation, gained control and sold it to JPMorgan Chase on the same day it failed. Any deposits in the First Republic Bank are now owned by JPMorgan Chase, and the bank returned to regular action.

     The First Republic Bank failed because of a large amount of uninsured deposits which would’ve led to a bank run on those deposits. The situation was made worse by other bank crashes in 2023. The bank started to lose money from the decreasing value of their loans and investments which was caused by the Federal Reserve’s high interest rate. 

     An uninsured deposit is a deposit that exceeds the $250,000 insurance limit from the FDIC. If a bank fails, the FDIC will insure up to $250,000, but the rest will be lost. The total amount of uninsured deposits losses at the end of April in the First Republic Bank is around 100 billion dollars . Uninsured deposits make up about 68 percent of the total deposits. This doesn’t include the 30 billion dollars of deposits from other banks which tried to keep First Republic afloat.

    The total amount of deposits losses at the end of April reached 102 billion dollars. The previous bank crashes makes depositors paranoid in the current status of banks which is made worse by their uninsured deposits, and The First Republic Bank had a reliance on large deposits. Massive withdrawals only put the bank in a worse situation. The FDIC took over the First Republic Bank in order to prevent a bank run and protect depositors. 

     The First Republic Bank started to lose money from their investments which started to decrease in value when the Federal Reserve raised their interest rates. The Federal Reserve raised the interest rates in order to combat the high inflation. These high rates, however, decrease the value of market bonds and increase loan interest rates to consumers. 

    The Silicon Valley bank experienced the same thing. The banks lost money from the decreased value of market bonds that they likely invested in. The higher loan rates means that bank’s large amounts of loans are less valuable. This makes the return on these loans a loss. Without a large amount of returns on the bank’s investments, it will have trouble paying interest on deposits which is a clear sign of a failed bank.  

     A bank failing is a terrible signal for economic stability. This is the third bank failure of 2023 which lowers depositor’s faith in the financial market and increases the risk of recession. Fortunately, it’s predicted that no more large banks, like Silicon Valley or First Republic, will crash. However, the damage is already done.

    Depositors are tempted to withdraw their deposits from any size bank. According to the Social Science Research Network, 186 banks are at risk of failure even if only half of their uninsured deposits are withdrawn. The Federal Reserve’s attempt to solve one economic problem seems to cause another one.