December 2, 2023


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The FDIC says supervisors could have been more aggressive before First Republic’s failure

The FDIC says supervisors could have been more aggressive before First Republic’s failure

A person walks past a First Republic Bank branch in midtown Manhattan in New York City, New York, US, March 13, 2023. REUTERS/Mike Segar/File Photo Obtaining licensing rights

WASHINGTON (Reuters) – U.S. banking regulator said its supervisors could have been more robust in monitoring risk management at First Republic Bank before its failure in May, but it was not clear whether that would have saved the bank from what was not. is expected. The speed at which depositors withdraw their funds.

The loss of market and depositor confidence ultimately led to the bank’s dumping, the Federal Deposit Insurance Corporation (FDIC) said in a new report published Friday.

But she added that bank supervisors had been very “generous” in gauging some of its risks, particularly with regard to interest rates and the high level of uninsured deposits. The regulator found that its supervisors actually spent less time at the bank from 2018 to 2023, a period when the company doubled in size.

The First Republic’s failure at the start of May was the bank’s third collapse in a matter of weeks, after a turbulent period that began with the sudden failure of the Silicon Valley bank in March. The collapse of the First Republic, which saw regulators take over the bank and sell most of its assets to JPMorgan Chase, was the second largest bank failure in American history.

The 63-page review of the FDIC’s oversight of the bank ultimately does not conclude whether the bank could survive under tighter oversight, noting the “unexpected” speed with which depositors fled the banks.

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However, the bank said it would probably have been more resilient to widespread panic had supervisors criticized the bank’s management practices sooner.

“It is much easier to suggest what the examiners should have done, once one has a full understanding of the events that actually took place and how they deviated from historical norms,” ​​the agency said in its report.

The FDIC ultimately found that its oversight team was in time to examine First Republic and present its findings.

Yet she conceded that field supervisors might have benefited from a more “holistic” approach, including more input from senior bank experts and leaders in Washington who could have challenged running the banks more effectively.

The FDIC said in its report that supervisors could have challenged the bank’s plan to mitigate interest rate risk through sustained growth starting in the second half of 2021.

But he admitted that such criticism would have been met with “resistance” from the bank, given its strong growth and low interest rates at the time.

Schroeder House Report. Edited by Emilia Sithole-Matarese

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Covers financial regulation and policy outside the Reuters bureau in Washington, with a particular focus on banking regulators. He has covered economic and financial policy in DC for 15 years. Previous experience includes roles at The Hill and The Wall Street Journal. He holds a master’s degree in journalism from Georgetown University, and a bachelor’s degree from the University of Notre Dame.