Here’s the Great Deal JP Morgan Got on First Republic, according to JP Morgan’s Victory Lap in front of Investors

A one-time “bargain purchase gain” of $2.6 billion, “over $500 million” in net income accretion, lots of other goodies amounting to an IRR of “over 20%.”

By Wolf Richter for WOLF STREET.

So JP Morgan Chase won the “highly competitive bidding process” for the dismembered pieces of First Republic. It will cost the FDIC’s insurance fund about $13 billion, the FDIC said. Even the uninsured depositors were made whole, mainly the 11 banks, including JPM itself, that put in $30 billion on deposit at First Republic back in March to prop it up. Stockholders and preferred stockholders were bailed in and wiped out. We discussed all this here.

But JP Morgan came out this morning and in a presentation to its shareholders bragged about the great deal it got – another instance of a bank and its owners getting rich off yet another government bailout.

This is how JPM will benefit, according to JPM:

  • A one-time “bargain purchase gain” of $2.6 billion in 2023.
  • “Over $500 million” in annual net income accretion.
  • All producing an “IRR” (internal rate of return) of over 20%.
  • “Accelerates growth initiatives” in JPM’s U.S. wealth strategy.
  • “Increased penetration with U.S. high net worth clients.
  • “Adds prime locations in affluent markets” (including San Francisco Bay Area, Los Angeles, Portland, Seattle, New York City, Boston, Jackson (Wyoming)…
  • “Accretive to tangible book value per share.”

JPM bought assets it then wrote down to $184.7 billion:

  • $172.9 billion in loans at book value, which JPM wrote down 13% to $150.3 billion.
  • $29.6 billion in securities, which JPM continues to carry at par.
  • $5.0 billion in other assets, which JPM wrote down to $4.8 billion.

In addition, future credit losses on the loans (such as a result of foreclosure) are partially covered by a loss-share agreement. The FDIC will cover 80% of the losses from the single-family residential mortgages for seven years, and 80% of the losses of commercial loans, including commercial real estate (CRE) loans, for five years.

The loan portfolio, now written down to $150.3 billion, consists of single family mortgages, mostly to wealthy clients (60%), multifamily CRE mortgages (13%), business loans (12%), other CRE loans (6%), and other loans.

JPM paid $182.4 billion for it:

  • Will pay $10.6 billion to the FDIC.
  • Assumed $92.4 billion in deposits (liabilities, amounts owed depositors of First Republic). This includes $30 billion in deposits from 11 banks: $5 billion from JPM itself, which it will eliminate, and $25 billion from 10 other banks, which it will repay.
  • Assumed $28 billion in advances the First Republic got from Federal Home Loan Banks (FHLB).
  • Assumed other liabilities of $1.4 billion, which it wrote up to $2.3 billion.
  • Took out a $50 billion five-year fixed-rate loan from the FDIC.

JPM faces $63.6 billion in near-term cash outflow:

  • Pay $10.6 billion to the FDIC as part of the purchase price.
  • Repay $25 billion in deposits to the other 10 banks.
  • Pay off the $28 billion in FHLB advances.

JPM shares rose 2.2% this morning on the good news, an increase of about $9 billion in market cap, but are still down 17.5% from their peak in October 2021.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  183 comments for “Here’s the Great Deal JP Morgan Got on First Republic, according to JP Morgan’s Victory Lap in front of Investors

  1. SnotFroth says:

    Funny how in 2008 it was too big to fail banks that were the problem, and now they’re the solution.

    • Brooks says:

      Thanks to regulation that was weakened for mid and small-cap banks under the previous administration.

      • Gabriel says:

        Geez o flip!

        • joedidee says:

          and the 99% once again get
          more devaluation of fiat $dollar
          more TBTF banksters
          more concentration at top

          not to worry the pain is here to stay for the next 3-10 years
          then it’s lights out

      • Jackson Y says:

        The deregulation was bipartisan. It wasn’t just a Trump initiative. 50 Republicans & 17 Democrats voted for it in the Senate, a supermajority. Some of the senators who are still in office today have publicly said they do not regret their vote.

        • Winston says:

          “The deregulation was bipartisan.”

          Gosh, no kidding… That’s why the false dichotomy on any topic involving vast sums of your cash or new debt accrued on your tab has resulted in the term UniParty. Two sides of the same coin using hot-button issues to inspire you to bother to vote.

        • joedidee says:

          were is glass-steagul when you need it most

    • phleep says:

      JPM ran a good ship going into 2008. That’s why they are where they are now. They’re the last one standing, and in a position to bargain and cherry-pick assets. Also they can pose as “the good citizen,” being a team player, taking over a troubled firm, managing the way out of this bank’s crater. I think it is preferable to straight-up gov printing bailouts. But I think the last shoe in banking has not dropped yet.

      • Leo says:

        So taxpayers eat $13 billion of losses, and funded JPM with $50 billion credit, and bailed out JPM’s $30 billion deposit exceeding its $250K limit, and then JPM is the hero of the day!

        God bless America.

        • ru82 says:

          @Leo – The whole thing smells bad. Unlike 2008 when banks where being reckless and leveraging with subprime MBS, this time they were buying the best of the best assets back by their bosses the FED. Then the FED reverses interest faster than almost anytime in history and does not give some of these banks time to unwind their investments.

          The government should fire the current executives, put these banks into receivership, maybe merge some together, help them with their cash flow until the bank run is over, then when the banks are healthy again, let JPM buy them at mark to market….not pennies on the dollar.

          Other countries have done this and it work.

        • Raging Texan says:

          ru82 no we should fire the government

        • John says:

          Our government is run by baboons. They have zero business sense.

      • ru82 says:

        @pheep – This is why nobody should bank at JPM or BAC. Bank at your local bank and support them.

        I grew up in a mid-sized town. Most of the town supported the local bank. The local bank executives and owners lived locally. They sponsored many of the local community activates like youth sports, 4H, the local high school, the local hospital.

        Do you think Dimon and his execs cares about you local youth sports team, food panty, or community activities.

        Nope. They are busy with illegal trading in the commodities market. You would think a CEO would be fired for a 1 billion dollar fine? Not in the banking world. Poor Sam Bankman-Fried. He is just in the wrong business. He would not be in jail if he was a division of a big bank. He would just have to pay a fine. LOL

        SEPTEMBER 29, 2020
        JPMorgan to pay $920 million for manipulating precious metals, treasury market.

        • StatisticsJason says:

          I support my local bank. They manage to keep the highest banking market share in my small-medium city despite competition from all the big banks.

        • Escierto says:

          JP Morgan is as corrupt an institution as exists in this country. I would love to see the day when they are bankrupt and destroyed and their branches are pillaged and on fire all over the country. That would truly be a blow struck in the name of liberty from tyranny.

        • Ed Koller says:

          After paying that fine, they walked away with over 800 billion in their pocket. By the way that manipulation lasted nine years of ( Manipulation of Silver) before that fine was put into place. info gleaned from Bix Weir, Road to Roota his web site.

        • Raging Texan says:

          excuse me this idea of voluntarily supporting any bank is ridiculous.

          It is repugnant to the concept of freedom and justice that the govt steals from people to support an unconstitutional fractional reserve banking system.

      • Desert Dweller says:

        Seriously, they ran a good ship? Please take a minute to read about PM Morgan’s regulatory history, JPM is the most fined bank in the US.

      • SomethingStinks says:

        Chase sucks… They did nothing when a online scammer study site stole $500 in my Chase visa card. When they started going after gun shops/manufacturers, I closed down all credit cards, closed my accounts of 2 decade and moved.

    • Nacho Bigly Libre says:

      It’s also funny how the banks were the victims in low interest rate environment (spread between deposit and loan rates too narrow).
      Now they are the victims of high interest rates. Tsk tsk.

      Have we at this point normalized the dirty phrase “too big to fail”? Any bank should be allowed to fail to keep the system strong and not zombified.

      • billytrip says:

        I find the idea that normalizing interest rates killed these bank to be laughable. The Fed signaled its intentions months in advance of acting. Banks that didn’t respond appropriately include those who couldn’t stomach losing a bit of profit required to hedge these instruments properly, and those who were essentially pivot-monkeys.

        I have no sympathy for any of them and every exec who played into these failures should deservedly seek an alternate career.

    • Cas127 says:


      JPM ain’t really fixin’ nuttin’…between the 80 pct allocation of loan losses to the FDIC and the $50 bil “loan” from the FDIC to JPM (JPM for chrissakes!) JPM is really acting more as a front/administrator for the FDIC than anything else.

      It buys time/facade for the FDIC, but if things go south, 80 pct of the potentially huge losses hit the FDIC and the likely terms of that $50 bil “loan” will result in JPM never actually having to repay it.

      The FDIC will then take a massive hit (spread out) and *then* go crying to the Fed for more unbacked, printed fiat (version #46864 of same damn DC story).

      The JPM “purchase” has a high probably of turning into kabuki as the FR loans go bad (although the FDIC likely does have “special insight” into Fed interest rate moves, ahem…allowing them to size/time/hedge the burn off of the FR rot).

      If things go south enough (pretty high probability) the *FDIC* will be the one to take the hit – this just buys them time and cover for a little while.

      If not, why the huge loss share and $50 bil “loan” for the biggest bank in the US?

      This is just the FDIC acting through the person of JPM…an extend-and-pretend $50 bil “loan” from birth.

    • phillip jeffreys says:

      Good luck down the road to anyone holding equity in banks!

    • Ashley says:

      So now all the bankrupts are regional banks

  2. SoCalBeachDude says:

    Now you can see why JPMC is the world’s greatest and most profitable bank on the face of the planet!!!

  3. Ted T. says:

    Read the book “Last man standing”. It details how the Obama administration forced the banks to take over failing institutions like Countrywide and Merrill Lynch and then stood by while congress raked them over the coals in hearings. This is Jamie Dimon getting even.

    • Apple says:

      Damn his magic Time Machine!

      He wasn’t even sworn in as President yet on January 11th when Bank America said it would take over Countrywide.

      • Digger Dave says:

        Don’t you know that the Bush-induced recession was Obama’s fault? And surely all the spending and even Covid was caused by Biden. It’s really easy on the internet to make sh&t up. Even easier now with AI. Just for the record, I’m not part of either party. They’re both in hoc to the extremely wealthy. But only one party pretends to be fiscally disciplined when they’re out of office but does the opposite on steroids when they have control. I love the “somebody has to fix this mess” approach that gets dropped on us every few years with the debt ceiling.

        • phillip jeffreys says:

          Your post is not a causal analysis either – though I agree with the larger Uniparty finger wag.

  4. Einhal says:

    If the FDIC is going to “cover” all losses with respect to CMBS (whether multifamily or not) through this backdoor way, how is real estate ever going to correct? No one will have any incentive to foreclose if the government guarantees all payments.

    • SOL says:

      The real question is how much debt can the USA have before others decide we’re full of $&@$.
      The game will get a lot tougher when we can only exploit ourselves from within cause nobody wants to do business with us.

    • 2banana says:

      I dunno.

      Folks that don’t want to:

      Not pay insane property taxes
      Want their children to be able to afford a house
      Move, upsize, etc.

    • Joe says:

      Great comment :)

    • Wolf Richter says:

      1. The FDIC will cover 80% of the losses. JPM eats the other 20%.

      2. You misunderstood: The FDIC is NOT guaranteeing the loan payments. It’s covering part of the LOSS. If a CRE loan defaults, JPM will foreclose on the building and sell it for, say, $30 million. The loan may be for $50 million. So JPM will have a loss of $20 million on the loan. Of that loss, the FDIC will reimburse JPM 80% or $16 milllion, and JPM eats the remaining $4 million loss.

      • JimW says:

        The big banks learned their lesson in the GFC when they did mergers with failing banks under government pressure and then got stuck assuming all sorts of hidden liabilities while the government flogged them for it. This time around the big banks are taking their sweet time negotiating asset deals, excluding liabilities and making the government wait, and pay.

        • Wolf Richter says:

          Yes, Jamie said as much maybe a year ago. They all got burned.

        • ru82 says:

          I think people have sort of forgotten, those big banks were basically insolvent too. They were all about to go under because of their derivative exposure. They also were bailed out. They were flogged because their exposure was bigger and their bailouts were bigger but they were TBTF. Watch the movie “The Big Short” to get a feeling. That was just for mortgages. Anyway, those big banks probably had 30 trillion in derivative exposure. AIG failed because their 500 billion derivatives had dropped to 300 billion. Up to 400 billion of Lehman’s debt was insured by AIG. AIG did not have the funds to pay that debt. Just think if JMP or BAC was sitting on a several trillion in losses they would not be able to pay. They needed the government to bailout many of the companies they wrote CDS against.

          CDS (basically insrurance against an asset) sort of work like this. Lets say John owns a car so he takes out insurance (CDS) on his 10k car. Well 10 of his friends know John is a bad driver and also take out insurance. A sure bet they will get paid because he will wreck his car. When John wrecks his car, the insurance company has to pay $110k to John and all of the CDS owners. The CDS sellers never want a default to happen so they just collect the premiums. ie. GM had something like 28 billion in outstanding debt in 2009 but if I recall, there was a 10 to 1 ratio of CDS sold on 10 billion of GM bonds that wre soon to expire. People were betting GM would default just like John’s friend knew he would wreck his car eventually. So if GM defaulted, the banks would have to pay out 100 billion on a 10 billion asset. That is why the government could not let GM and others to go bankrupt because the CDS issuers would not be able to pay out.

          JANUARY 16, 2009, Bank of America Corp was rescued by the U.S. government on Friday through a $20 billion bailout and a guarantee for almost $100 billion of potential losses on toxic assets to cushion the blow from a deteriorating balance sheet at Merrill Lynch & Co, its recently acquired brokerage. The capital is on top of $25 billion that Bank of America previously got from the Treasury Department’s Troubled Asset Relief Program (TARP) in October

        • ru82 says:

          The numbers I thew out are just guesses from memory over 10 years ago and may not be exactly accurate.

      • Prairie Rider says:

        “I can’t give it away on 7th Avenue.”

      • Ed Koller says:

        Edward Koller – Mon 01 May 2023 08:35:13 PM
        As these banks continue to fail and JP Morgan keeps getting all the meat and no fat or gristle increasing their market share making tons of money in the process. i’d like to know who and how many of there derivatives are being dealt out or absorbed or held by the Federal reserve bank. The greatest scam on the American people towards a complete takeover by powers to be to control the whole damn economic system. All I can say is I hope GOD’S money Silver and Gold is brought back into play as our Constitution dictates. Our fore fathers weren’t just smart they were brilliant. AMEN!!! Ed K
        Second listing, Ed

        • ru82 says:

          I bet JPM bought derivates against the CRM loans before they bought First Republic. That way if the CRM loans go bad, they do not take a loss. I bet they have something in place to protect against 20% loss before they made their offer.

          Who knows what kind of fancy financial engineering they are doing behind the scenes.

          One wrong step and look out below. Some people will argue that all these derivatives would cancel out in a stock market crash. But is anybody doing the math.


        • Wolf Richter says:


          People need to stop getting fooled by all the BS about derivatives out there in the financial blogosphere.

          Every time you trade stock options, you trade derivatives. Banks use derivatives to hedge interest rate risk — which these banks that collapsed did NOT do at all or not enough of, or else they would not have collapsed!!!

          Now a word about these scary amounts of “notional value” of derivatives – read this carefully:

          For example an equity index swap: If the index is at 100 today, and the bank does a $10 million one-year swap with you, and then the index is at 108 in a year, then you pay the bank $800,000 (the index’s 8% return on the $10 million notional amount). If the index is at 93 in a year, the bank pays you $700,000.

          The notional value of this swap = $10 million. It’s $10 million notional for you, and it’s $10 million notional for the bank. And when notional values are totaled, as they usually are, that trade turns into $20 million notional.

          Yet the actual financial risk for both is just a small fraction of the notional value – as every stock options trader knows.

          And the actual financial risks of this derivative cancel each other out – even though the notional valued is totaled to $20 million.

          There are folks out there in the financial blogosphere that have been making hay for years with this “notional value” of derivatives, when in fact they’re spreading clueless BS. I call them “purveyors of financial fiction.” I understand that it’s a lot of fun to click on this BS, like watching a horror movie, but enjoy in the privacy of your own home, don’t drag it into here.

        • phusg says:

          Wolf, please please make a financial fiction mythbusting FAQ type thing with nuggets of wisdom like this one on derivatives, all in one searchable place for the sake of humanity!

  5. Laura says:

    Must be great to be JP Morgan huh
    What a joke
    Casino it is and JP Morgan’s the house among other individuals that we call our financial system

  6. MaxProtein says:

    Are they (chase, bofa) now nearing utility status? If so will expected profits drop? Or will they eventually be broken up? Or simply continue to grow and swallow others opportunistically (like vultures)?

    • p says:

      I’m only a tiny serf. But in terms of my home loan, Chase has treated me right. They sent me the best contract/document relating to it I’ve ever seen, a masterpiece of straightforward consumer-friendly dealing. Next to all the train-wrecks we’ve seen, I’m glad to not be so worried about them.

  7. Ist cousin Bubba says:

    Whew,, Thank goodness for Banksters. Next?

  8. Gbc1 says:

    Sounds like a fair deal to me. All banks had a shot at it, the JPM offer was the best. A solution like this restores faith in the banking system. The right people were protected, the losses fell where they should fall, lessons were learned. It’s all good.

    • 2banana says:

      Fair deal?

      The LAW says so insurance over $250,000.

      The LAW says no bank bigger than 10% of the market

    • rojogrande says:

      I don’t think a solution like this restores faith in the banking system. This solution tells me the banking system is so weak and unstable officials believe they must change the rules for resolving insolvent institutions on the fly in order to prevent contagion. I have less faith in the system with each collapse handled in this manner. Accordingly, I don’t believe the correct lessons have been learned.

      • Wolf Richter says:

        A banking system is by nature unstable: borrowing short and lending long to live off the interest-rate spread is a very risky activity.

        But it is an economically very useful activity because it allows individuals to make some money on their savings, and it allows those savings to be invested in construction loans, buildings, home purchases, consumption items, etc.

        It is very risky because these depositors can yank their money out any time, but the bank cannot get the money out of its investments — these are long-term loans. That’s why we have regulations, lenders of last resort, and deposit insurance, to keep a lid on the risks.

        • GBC1 says:

          Right on Wolf. And when the lid on the risks fails, there must be the discretion to fix it when it is in the best interests of the public to do that, which in this case it surely was.

        • Flashman says:

          Your article is the first I have seen that mentioned credit unions. Many of we mortals keep our money and safety deposit boxes at credit unions. I assume they are much safer than banks, but no one in finance actually says this.

        • Wolf Richter says:


          Credit unions are banks that don’t pay income taxes. Credit unions operate on the same structurally risky principle as banks: borrowing short and lending long to live off the interest rate spread.

          They all have the same issues now: a lot of their assets are long-term loans and securities that were issued when rates where much lower, and that have now lost market value, same as banks.

          Credit unions have the same issues as banks with “unrealized losses.”

          There are well-managed banks and there are well-managed credit unions. Both will be OK in this environment. But structurally, they’re not different: borrowing short to lend long.

        • rojogrande says:

          You’re certainly correct, but you really haven’t addressed my point. The instability at the core of banking has existed as long as there have been banks. Bank failures are inevitable. Supposedly the US has a robust regulatory and resolution system. The question I have, based on my previous comment, is why the systemic-risk exception has been applied in the most recent collapses to protect uninsured depositors? (I realize the JPM deal for FRC didn’t technically invoke the exception as JPM assumed all deposits, but the hit to the FDIC insurance fund suggests the uninsured depositors should have taken a loss.)

          Protecting cronies may be the least bad reason. Thus my growing lack of faith in the system. One thought that’s crossed my mind is that QE has generated lots of uninsured deposits, so these types of runs are a much bigger risk now. I really don’t know why they’re bending the rules now.

    • DawnsEarlyLight says:

      Restores faith? OMG!

    • dang says:

      Exactly. The right people were protected meaning the loss is born by the wrong people which probably included my family except my Dad was a decorated veteran.

  9. Wisoot says:

    Month of May is looking like such a quite nonchalant month where nothing is gong to happen at all.

    • dang says:

      I agree nothing of financial significance is likely to happen in May or any other of the months leading up to the election, Just up and down trading which will drive a person mad if they were to try to calibrate it. A bit more menacing than “nonchalant” but basically the same expectation.

  10. Flea says:

    Another bank bites the dust ,all brought about by Fed stupidity,and stock market keeps going up.This going to destroy a lot of lives .Prepare .

    • phleep says:

      Let’s see — the managers of this bank made low-interest loans to rich clients on the faith it would attract some goodwill. They learned who their friends were, when those well-heeled depositors pulled their money in a microsecond, at the first inkling of trouble. The managers of the bank failed to hedge their interest rate risk, a rookie mistake straight out of Banking 101. I think they were also aligned with those who wanted to lower the banking supervision of them, which was “successful.” I think some of the fault is shared here, aside from the admitted “Fed-messed-up” narrative.

      • Apple says:

        Technology has gotten to the point where any bank can have a run given the speed of social media and the ease of moving money.

        • phleep says:

          We the Depositors have been getting a cheap (gov-subsidized) option to have insured funds but pull them at will. This was to attract money to the risky long-term task of business lending (maturity transformation) banks do, to fund the economy: to put our savings to work. All of it assumed a certain background stability. But the variables behind that have changed under our feet. Now the true price discovery is happening for that option. The bankers who were complacent and are wrong-footed by the shift from low-interest easy-money regime are the first wave to buckle. But all across the economy are more candidates, IMO. Unfortunate the stone-throwers are already complaining at the moment of debt default shenanigans. An interesting spring is to come.

        • Raging Texan says:

          phleep learn to deposit nothing. It’s not hard.

          There is no need to support this system.

  11. Michael Engel says:

    1) Yelen will run out of money on June 1st. She sent the 10Y down to help the banks.
    2) FRC bank financed purchases of $1M-$5M houses when rates were between 2.5% and 4% using high tech stocks options as collateral.
    3) JPM will bail in itself and other 10 banks. JPM will pay all uninsured
    4) “Other” people money will bail in up to 80% of the losses, if materialized, in the next 5 or 7 years.
    5) JPM jumped over Feb 2020 high early in the morning, almost lost it’s grip at the close.

    • MM says:

      Yield curve is nuts right now… bills with mid-June maturities are yielding >5.4% today

  12. Brant Lee says:

    “Took out a $50 billion five-year fixed-rate loan from the FDIC.”

    Was the rate disclosed?

    What B.S. Whatever the situation it seems to always work out in favor of the too-big-to-fail banks. Everyone might as well get an account now at one of the top 5 or wait til later when your smaller bank fails.

    • Wolf Richter says:

      Yes. JPM reported it in its presentation. In writing. “FDIC will provide a new $50B five-year fixed-rate term financing.” Exact words.

      • Pea Sea says:

        Brant Lee was asking whether the *rate* was disclosed…

        • Wolf Richter says:

          Oops. No. This question came up in the press conference, and JPM refused to give an answer. So I venture to guess that it’s not a punitive rate like the 5% Discount Window rate.

  13. Evan says:

    Socialism for the rich. Privatize profits and socialize loses. Rinse and repeat.

    It makes me sick, and I’m rich by most people’s standards.

    • Fed Up says:

      Me too. How long are we going to put up with it. It’s not my country anymore, don’t care what happens to it. The system is not worth saving.

      • Escierto says:

        Exactly right. When I became a US citizen back in 1980, I was proud to be an American. Now, meh! At least I still have one passport that I am proud to carry.

    • Brooks says:

      I make 300k a year, and I am poor compared to my 1% friends. Watching them drop a 100k for yacht week puts things into perspective.

      • Jon says:

        Although I make good money but I love living a minimalist lifestyle.
        I sleep on floor and eat simple meals

        I did the full circle when it comes to living so called high life but then realize these material things don’t give me any content and lasting happy.

        I am now very content living a very simple life although economy is still my favorites subject.

        • old school says:

          I bought a nice roll up 3″ foam mat and sleep on the floor as well. Wanted to try it out to see if I want to moto camp. I have a friend that has been trying to get me to camp for three years. Still haven’t gone.

        • jon says:

          @old school:

          Yes, I’d love to live a more frugal and minimalist lifestyle.
          Just waiting on 2 more years for my second kid to graduate from school.

          Although I make good money $400K or so, but I’d like to donate all to worthy cause which I still do on annual basis,

          I have come to realization the happiness of earning degrees of freedom by having no material possessions but people here who knows me think I am crazy :-)

        • Raging Texan says:

          I provide a frugal lifestyle for myself and my kids.

          It’s important to get them accustomed to poverty as that is where the USA is headed. Except for officials and employees of the FED, and officers of the top 5 banks.

        • Cas127 says:

          Saving equals safety. It also buys time to think.

          Thoughtless spending equals exposure, mostly for empty, ego-driven reasons.

      • Nacho Bigly Libre says:

        Life driven by envy will always be a poor one.

        • WaterDog says:

          “Life driven by envy will always be a poor one.”

          -Rich Person

          Notice the rich people who say things like this don’t get rid of their money tho… Hahahahaha

          Like that MillerKnoll CEO recently who told her workers not to worry about their bonus… As she receives a 4 million dollar bonus for 2022

          Leave Pity City people ;P

        • Nacho Bigly Libre says:

          One can feel rich at 100k per year or feel poor at 300k per year; depending on whether s/he counts their blessings or looks at others with envy.

          Thanks for calling me rich though 😊

        • Cas127 says:


          I think you have it completely wrong.

          These aren’t rich people providing empty lectures…they are people pointing out the value of self-possession (and the counter-productive nature of empty, ego driven spending – which has somehow become a religious sacrament to much of modern America).

          Nobody is saying “the best things in life are free” to the starving…we are questioning the 4 car family in the $500k house (non CA/NYC insanity) surviving/straitjacketed by doomed gvt subsidized debt.

    • phleep says:

      First Republic bails out complacent bankers and customers, unfortunately. JPM gains a lot of those well-heeled customers. They are being kept well-heeled, but insured by the backstop of we, the peasants. I am not usually the pitchforks and torches type, but this is troubling. Whose fault is it that the banks failing, and people being helped (ostensibly to prevent contagion and stabilize the system), are not (so far) the commoners? There are some reasonable questions here, but I don’t have all the answers. That depends on how the next acts of this play unfold. Again, the masses’ behavior is a factor here. The masses’ behavior in terms of inflation has not been encouraging/ they (we) cannot be counted on to do the collectively responsible thing. The system is too complex for the institutions we have to process these changes. Deposit insurance was over- (meaning too cheaply-) extended, and the retroactive “insurance” ((bailouts) may extend this further. It might be another 2008 moment. MIGHT.

      • John H. says:

        What ever happened to capital calls of bank stockholders/partners when capital or reserve ratios threatened solvency. Do bank shareholders deserve limited liability, and if so, could the limit be set at higher than 100%….. say at maybe 200%

        Capital calls protected the system by threatening bank decision-makers with job loss, and punishing the bank owners by wealth diminution.


        The big loser is the bank regulator, who becomes marginally less necessary…. A boon to society!

        (If my understanding of how capital calls used to work, please correct me.)

        Thanks for the articles on bank work-outs, Wolf.

      • Raging Texan says:

        I like how the FDIC bailed out the uninsured depositors too. Why not, they can make others pay for it.

    • Nacho Bigly Libre says:

      Plenty of Socialism for the irresponsible in every segment and level.

      Guises in different names – equity, liquidity support, testing optional college admissions, etc.

      You all must have heard of the recent FHFA rule that takes from the more financially responsible and gives to the irresponsible.

    • Maxo0907 says:

      This is a $50B bailout for JPM. If the rate on the loan is less than 5% then we are all subsidizing JPM, because rates should be at least 6-7% on mortgages for “rich” people. The potential 20% risk is no risk at all if the loan is subsidized. Simple math: 20% loss on $150B of deposits = $30b potential loss. 2% discount on the loan = $1b per year. 30 year loan, the loss is $0. Also loan may be non-recourse backed by the same overpriced mortgage assets (read SF condo going for $3M that economically is only worth $1.5M). The smart money bet? When Fed cuts interest rates, assets will jump 20%, and JPM will book a profit. Heads I win, Tails you lose!

  14. kramartini says:

    Exactly how is the $13 billion from the FDIC being paid and to whom? Is this actual cash being paid today?

    • Wolf Richter says:

      This comes out of the FDIC insurance fund that it has for that purpose. The fund is paid for by fees that the FDIC collects from FDIC-insurance banks.

      • HowNow says:

        The near-equivalent to the FDIC is what the brokerages have strung together: the SIPC. This is insurance for a brokerage going bust. Each brokerage makes an annual contribution to this fund.

        How well financed is the SIPC?

        “At its meeting on September 8, 2022, SIPC’s Board of Directors determined the assessment rate effective January 1, 2023 will continue to be .0015 of Net Operating Revenues.”

        Any wonder why Merrill Lynch was jammed into Bank of America?

        • Arnold says:

          The chances of a brokerage misplacing your securities is extremely low.

          Only in the case of outright fraud ( ie Bernie Madeoff ) where your securities are never purchased in the first place are you in danger.

      • ED Koller says:

        Who winds up with there derivative exposure the FDIC or the FED or the takeover bank?????

        • Wolf Richter says:

          People need to stop getting fooled by all the BS about derivatives out there in the financial blogosphere.

          Every time you trade stock options, you trade derivatives. Banks use derivatives to hedge interest rate risk — which these banks that collapsed did NOT do at all or not enough of, or else they would not have collapsed!!!

          Now a word about these scary amounts of “notional value” of derivatives – read this carefully:

          For example and equity index swap: If the index is at 100 today, and the bank does a $10 million one-year swap with you, and then the index is at 108 in a year, then you pay the bank $800,000 (the index’s 8% return on the $10 million notional amount). If the index is at 93 in a year, the bank pays you $700,000.

          The notional value of this swap = $10 million. It’s $10 million notional for you, and it’s $10 million notional for the bank. And when notional values are totaled, as they usually are, that trade turns into $20 million notional.

          Yet the actual financial risk for both is just a small fraction of the notional value – as every stock options trader knows.

          And the actual financial risks of this derivative cancel each other out – even though the notional valued is totaled to $20 million.

          There are folks out there in the financial blogosphere that have been making hay for years with this “notional value” of derivatives, when in fact they’re spreading clueless BS. I call them “purveyors of financial fiction.”

  15. Fed Up says:

    “The FDIC will cover 80% of the losses from the single-family residential mortgages for seven years, and 80% of the losses of commercial loans, including commercial real estate (CRE) loans, for five years.”

    I can’t even say what I thinking.

    • GotCollateral says:

      How much toxic trash do you think they can package up in that 80% + 80%, even if it didn’t originate at FRC?

      Greater than 0%?


  16. BobbleheadLincoln says:

    A major banking crisis and thus far not a single cent of high risk deposit lost.

    JPMorgan gains a massive intangible win here. Sentiment. They appear very strong and future proof in uncertain times. Deposits will continue to flow their way now. Which may well undermine the Fed’s intended effect here. They restored confidence in the last place that needed it.

  17. cb says:

    They should have offered to let the borrowers buy out their loans at an appropriate discount.

    • phleep says:

      Bravo! We may need a lot more of such creative improvisation. That happened in 2008 with such little problems as the cratering auto industry/Detroit region. But your idea is better. Offer the rich a piece of the solutions. I hope Powell’s and Yellen’s hench-persons are reading this blog.

  18. Rico says:

    If it looks like a bailout and you know it’s a bailout and a politician, the Fed and government say it’s NOT a bailout, it’s a bailout.
    I just read they are considering guaranteeing payroll deposits.

    • Wolf Richter says:

      If the FDIC is officially insuring deposits, rather than doing bailouts, the banks have to pay fees for that FDIC insurance on the insured balance.

      There is a lot of money in payroll accounts but banks are now NOT paying FDIC insurance on them; they just benefit from the de-facto bailout insurance. And that’s a problem. If the FDIC charges banks for the insurance on payroll accounts and then provides the insurance, I’m OK with it. It’s just another insurance product, like homeowner’s insurance or auto insurance.

      • Augustus Frost says:

        It would be, without an FRB put or general government bailout of the fund. Without this limitation, your analogy is invalid.

        The real private economy doesn’t insure uninsurable risks.

        • Wolf Richter says:

          The FDIC is a US government agency and has the full faith and credit of the government. It doesn’t need a government “bailout.” It IS the government. This is a government insurance program, just like flood insurance, Medicare, etc., paid for by the beneficiaries.

          If the government officially insures ALL deposits, there will never be another run on the bank. End of story. The FDIC will still have to regularly resolve mismanaged banks, and regulators still have to crack down, but there won’t be a run. Stockholders and bondholders of mismanaged banks will lose all their money, and life goes on.

        • HowNow says:

          Wolf, ideally the system should work just fine. But, starting with the bail-out of Long Term Capital Management back in ’98, which was done to prevent widespread financial contagion (justifiably so), these problems should have been addressed. The Fed should have instituted “firewalls” that would keep high-risk financial exposure out of banking and far removed from being insured by the general public. They are the regulators who have to keep apologizing for their lack of foresight. The FED always plays “catch up”, they never front-run these problems.
          It’s incompetence to allow risk-taking by “government insured” entities and put these govt. institutions on the hook for things their executives simply do not understand. The CEOs don’t know what’s going on below: e.g. traders that grossly overleverage on high-risk option trading. As noted above, JPM got a slap on the hand for illegal commodities trading.
          Why the hell should an insured bank be allowed to get involved in that? And if Dimon was CEO when illegal trading was discovered, why isn’t he in the slammer instead of running the biggest U.S. bank?
          Realistically, it’s the fault of Congress. Those knuckleheads are too busy watching their portfolios than protecting the financial system.

        • Raging Texan says:

          I get it, FDIC IS the govt. But it’s still a business and I cannot read the Constitution and find any authorization for the Govt to be operating businesses.

          If we had a real constitutional party, they would do a lot of shocking things including selling off FDIC, social security, unemployment insurance, medicare , national parks and all other govt businesses.

      • RichardW says:

        “It’s just another insurance product, like homeowner’s insurance or auto insurance.”

        But if it turns out that the FDIC has set the premium too low to cover all losses, it’s taxpayers who lose, not shareholders of an insurance company. Am I wrong?

        • Wolf Richter says:


          I think the premiums have been too low, as we can now see. But so far, the taxpayer has not funded the FDIC insurance — the taxpayer lent money to it during the Financial Crisis and got all that money back in the years that followed.

          When there are big losses, as during the Financial Crisis, the FDIC makes banks pay a “special assessment” to cover those losses over the following years. This process has already started now with the bank failures we’ve had.

          The fees that a bank has to pay are based on various factors, including the amount insured. So if the insurance gets expanded, and covers larger amounts, such as payroll accounts, or higher limits, then the fees will increase proportionately.

      • WaterDog says:

        They should have different tiers.

        Most people don’t have $250k+ in their accounts.

        They need a $50k tier, $250k tier, $1 million tier.

        I don’t need to subsidize a payroll department. Charge them the additional FDIC amount.

        They can deduct it and tons of corporations don’t even pay taxes now.

        E.g. “Double Irish,” “Dutch Sandwich,” “Bermuda Blackhole” and all the other tax shenanigans that big companies and super rich play.

  19. Ernie Ciccotelli says:

    Isn’t anyone concerned that, yet again, a systemically important financial institution has managed to swallow whole another large bank, and in the process make itself more indispensable to the country and therefore, also less accountable and less controllable? What is to stop JPMC and others of it’s systemically important ilk from getting into a positions where they can literally threaten the country with serious reprisals if the country does not give them what they want when they want it?

    • phleep says:

      If counter-party trust disappears from markets, the markets evaporate and then we, in the blinking of an eye, find ourselves in a fierce zero-sum fight for scraps, in a shrunken and paralyzed economy. The likeliest next stop from there is a failed state, and gangster rule sorts things. Sometimes the ugly and annoying (and somewhat unfair) processes of government are needed to hold the tent up, or it will literally come down on our heads. Markets can and do fail. At which point we descend into chaos far, hard and fast. So hopefully we can keep these things in a reasonable, imperfect balance. It is not a binary of government bad, freedom good. The world is not that simple. IMO.

      • HowNow says:

        The repeal of the Glass-Steagall Act was the beginning of the end. Now we have financial Gordian knots that are impossible to untangle.

        If the Congressional Banking Committee could get their brown noses out of the wazoo of big money, we might get this banking derailment back on the tracks.

        • MarkinSF says:

          “The repeal of the Glass-Steagall Act was the beginning of the end”
          So true. Since the repeal we’ve had the Dot Com crash the GFC and now?…
          Unfortunately you won’t find many comments on this site that even acknowledge this.

      • Sams says:

        Trouble is the broader public loose trust in government as they see that different rules apply to those more equal than others.

        There is then a slippery slope as cheating, scamming, corruption, nepotism and so get entrenched on all levels of what is left of society.

        In the end, the tent hold up by government is a failed state. No chaos, but nothing do work as written law and rule states.

      • Raging Texan says:

        phleep you are spreading baloney fearmongering.

        The idea that everyone will die unless we continue to support this unconstitutional thieving monstrosity of a FED, a lawless federal govt, and a fractional reserve banking system is false.

        • WaterDog says:


          What could go wrong…

          Except you know… Like national defense.

          You wanna be Russian or Chinese?

          Texas in name checks out tho. He prob just wants to shoot stuff.

  20. PilotDoc says:

    I flip houses for 20%. These guys flip banks….

    • Raging Texan says:

      You’ll need a higher % to break even. The govt has admitted to increasing the money supply by up to 40% in a year*, and there is no limit.

      40% – 20% = negative 20% real rate of return.

      Maybe if you are leveraged your ROE can be high enough to profit from this- assuming you don’t do to yourself with leverage what FRC did to itself.

      *So far they haven’t done 40% every year, but there were zero political consequences last time and no cap or limit on the future.

  21. SocalJimObjects says:

    So the Fed will raise rates again, ensuring there will be further bank failures, so will the Big 4 or Big 5 banks end up owning all other banks with FDIC support?

    Folks, this is what a Banana Republic looks like.

    • DawnsEarlyLight says:

      You’ve been peeking!

    • Flea says:

      This is how we become communist country

      • Pea Sea says:

        Lol. Raising interest rates–after years of artificial rate repression by the central bank–is “communism.” Honest to God, Wolf, where do you find these people?

      • SocalJimObjects says:

        You wish. Communism implies equal outcome for everyone, this is actually worse, all the good stuff flows to the top, leaving everyone else with scraps, in other words it’s a guzzling up economy as opposed to trickle down.

        “You will own nothing, and you will be happy”, it’s all going according to plan. Greatest country in the world. It’s ok though, as long as housing prices in So Cal go up and up.

        • Flea says:

          So cal and communism in Russia has created ogliarchs , and enriched top ruling officials. Pretty much as America

        • Raging Texan says:

          Communism equal outcomes, right, so Xi was subject to the same lockdowns and risks as common people in China, right, because communism is about equal outcomes?

        • grimp says:

          what you describe as actually worse than communism IS what occurs under communism in the real world.

      • Whatsthepoint says:

        You mean fascist country, when the corporations and big banks commandeer the government and effectively take over…you don’t notice until the jackboots arrive….

      • Sams says:

        No, not communist country. Another -ism, the corporate state.

      • Kurtismayfield says:

        This is why no one can have coherent political debates. Most people don’t understand definitions.

        BTW: Corporate oligarchy is closer to Fascism not Communism.

  22. cd says:

    there is a chase bank on every corner in the City and most of the west coast cities they mention, I would think they are going to retain much FRB folks and branches

    • Jim E says:

      CD, did you mean Chase will NOT retain most FRB branches and staff due to duplication with numerous Chase branches in SF, etc? That’s my thought.

  23. grimp says:

    This “risk free” stuff is about as real as a free lunch.

  24. old school says:

    I do my part. No money in a bank. A little money in a credit union so I have a payment system. Banks are intermediary institutions and I am happy not to have them as part of my life.

    I have about 18 months of living expenses in various precious metals for old school savings. The remainder is in Vanguard, which provides good value. Banks seem kind of obsolete to me unless you need to borrow for a business.

    • JimW says:

      Modern banks are the necessary intermediaries between the Treasury, the Fed and the public in our fiat monetary system. They are the transmission mechanism of the great money machine. In the GFC the mechanism started to freeze and scared the government to death. The quick and effective resolution of the recent bank failures shows that the government actually learned something from the GFC.

      • old school says:

        I am not sure. Fed might have misplayed things very badly. In a way Fed has shot midsized and small banks by their actions last 3 years. Similar to S&L mess. You can’t get banks in an upside down cost of funding with erratic policy.

        I think banking system is vulnerable. Shorts are out looking for next vulnerable bank. Wouldn’t surprise me if they disallow shorting of banks. Maybe they will try to gate deposit withdrawals.

        • SocalJimObjects says:

          Gating deposit withdrawals will only exacerbate the panic, and banning shorting has been tried before, and each time, it led to further selling after a brief reprieve.

          We’ve seen this movie before. Eventually there’s going to be a bank or a couple of banks that no one from the private sector will want to bail out, and then there’s going to be a panic while Congress ponders on the wisdom of simply providing unlimited insurance, but eventually they will. I am scared to think about what that actually will mean, but the USD might drop big afterwards.

        • Old Ghost says:

          Old School wrote: ” Maybe they will try to gate deposit withdrawals.”

          Doesn’t anybody read the fine print when they open a new savings account? Banks used to tell you they could, at their discretion, make you wait 30, 60, or 90 days to take money out of a savings account.

          Or has that rule gone out of style?

    • Raging Texan says:

      If Vanguard is good and trustworthy, what are they doing with all the voting rights they harvested via their index funds? Surely they are a voice against corruption and oligarchy, right? Surely they aren’t voting with the oligarchy, right?

  25. Economic Armageddon says:

    Is it me, or is one of the tell-tale signs of a massively impending recession the number of really REALLY big banks failing — in volume, frequency, AND duration?

    This pattern looks eerily familiar to one from 15 years ago…

    • old school says:

      I agree. It sure seems like all the signs are there. Maybe the bell is Federal Housing agency trying to help lower credit borrowers on the day we have a giant bank fail. Banks are going into survival mode and will cut off credit to all but rock solid borrowers unless government is going to guarantee it.

      Just looked at SP500 Price to Sales at 2.4. It got to 3.0 at end of 2021. Depending on how far you go back median is 1.5 and 2009 low was 0.8. Market is not pricing in recession. My guess is recession lows on SP between 1400 and 2600.

  26. dang says:

    And that’s how it’s done in this age of influence and power.

    Sorry if I step on a few toes sometimes, all in good fun.

    • dang says:

      As always I appreciate comments from anyone, really. That’s an infinite universe out there so the normal distribution is definitely stretched as to who to include as normal. Sometimes, when there are not enough data points, there is not one point in the sample equal to the average.

      There are at least two ends to every continuous curve, the beginning and the end. No one ever considers the poor slobs that inhabit the 96th percentile and above. How do they deal with a society that is different from their understanding of the norms.

  27. The Good Ole Reach Around says:

    Too Big Too Fail, Jaimee Diamond early Xmas present, JPM night and shining Armour of the gang of thieves. Federal Reserve and FDIC making deals with the whipping boys from Wall Street to keep the Ponzi scheme going. Everywhere you look in our financial system there is ensuing chaos, makes you wonder what is the purpose of all these government agencies. I will keep my money with Wells Fargo, after 25 years I learned to trust them. I received over $3,000 refund recently from WFC from a home refinance back in 2004 they screwed me over. WFC has the best fraud alert reconciliation in banking. If you can’t beat them, join them….All correspondence starts with the words “Value Customer”

    • phleep says:

      > Everywhere you look in our financial system there is ensuing chaos
      Really? My payments (through TBTF banks) work fine, effortlessly. I see thousands of businesses making payroll, funding their activities, consumers buying stuff, etc., day after day, all quite smoothly and seamlessly. It’s like bad drivers: most people on the road are well-behaved, if you look for it. If you only look for the bad drivers, sure, you will find a few. I’m just looking (sampling) with honest statistical eyes.

    • dang says:

      Not to pop your Wells Fargo bubble, that I have banked with long enough to know they are still paying zero pct interest on the money they are being paid nearly 5% by the Fed. In my mind, the symptoms suggest an organized crime model of a banking cartel. The US could use a post office bank that automatically invested the savings of customers with the Fed so that they would lose less to inflation.

      • Wolf Richter says:


        Savers can already invest directly with the government and get government yields. Anyone with a bank account can open an account with and buy Treasury securities of all kinds, i-bonds, etc. There’s lots of stuff available there that now offers over 5%. It’s not hard to do.

        • Raging Texan says:

          thanks Wolf, it’s such a blessing to harvest negative real returns directly from the Govt without having to visit a local bank.

        • MM says:

          T-bills with June/July maturities were toping 5.4% today – good place to park some cash assuming you have faith they’ll resolve the debt ceiling fiasco (I do).

          Lots of bond and MMF funds to park cash in as well – no reason to leave your money somewhere it doesn’t accrue interest (outside of what you need for day to day expenses).

        • WaterDog says:

          I BONDS!!!

          Yes, the rate is slightly lower right now.

          As Wolf pointed out, it’s due to energy.

          Buy for the .9% fixed rate and wait for the CPI-U to tick back up.

          When Oil goes back up you’ll get a nice little Christmas present.

    • Swamp Creature says:

      Wells Fargo has the worst security of any bank I’ve ever dealt with. Their fraud department is a fraud.

  28. dang says:

    I understand, however, when I surveyed the Walmart customer in 2008 or so, many of them were self proclaimed union members doing to themselves the very thing you warned against:

    “corporate gold collar criminals financially rape society”, which sounds bad. Perhaps they partook from the chalise of good fortune. They must have been chosen by God to do great things, ie make a lot of money.

  29. phleep says:

    Only one problem: the actual playing-out of these scenarios, on the ground. Revolutions gave us Napoleon (precursor to Adolf), Lenin/Stalin, Mao. I can’t think of any (since the USA one) that inflicted anything but horrific mass violence, misery, poverty and war. It just hands the whip handle to a new crew, usually the most ruthless and grandiose. It’s an incredible gamble with lives, safety, etc.

    • HowNow says:

      Mao: Killed 45 million Chinese (Cultural Revolution)
      Stalin: Killed 20 million Russians, minimum
      Hitler: Killed 6.9 to 7.4 million Germans (due to the war)

  30. OutWest says:

    Perhaps it is somewhat related to geopolitics. The US needs to appear to have a stable banking system, at any cost.

    • dang says:

      At any cost seems to be a theatrical gesture that detracts from the concept of the necessity that the US banking system reflect, not appear, the rock of Gibraltar reputation that is so richly earned.

      When that reputation is no longer valid, let the replacement step up.

    • HowNow says:

      That’s true of any industry, not just banking.

  31. dang says:

    “We need a revolution at this point. ”

    John Lennon thought about that very idea and attempted to capture the multidimensional aspect of the idea in his song ” You Say You Want a Revolution”; the Beatles 1967 or so.

  32. Depth Charge says:

    It’s time to forcefully take QE away from the FED forever, and fire Jerome Powell. The FED needs to be neutered or even abolished. They went directly against their mandate of stable prices and destroyed pricing. And they’re still doing it.

  33. RichardW says:

    Question… Presumably FRC had reserves with the Fed. Did JPM get those? Are they included in the “$29.6 billion in securities, which JPM continues to carry at par”‽ Or maybe they’ve been wiped out.

    • Wolf Richter says:

      Reserves are bank cash on deposit at the Fed. They’re a liquid bank asset. Whatever cash First Republic still had, if any, was part of the assets that JPM acquired.

  34. Bleep says:

    How many banks have failed in Japan recently…….

    Must be a tough market in the USA if the banking system is in such good shape according to all the government talking heads….

    • Flea says:

      Why is Warren in Japan ,with every top ceo .coming to do his bidding. Something is up . Warren is usually 2 steps ahead of market. That’s why I own his stock

  35. Spencer says:

    see Thomas Hoenig; “Another Banking Crisis Was Predictable
    The original sin was monetary policy” WSJ

  36. Rico says:

    We can’t have runs on banks. We know what happened in the 1930’s. It destroys an economy.
    Protection of payroll deposits seems to be a no brainer.
    I was an early adapter of internet banking, automatic paycheck deposit and bill pay. A lot of value and innovation there.

    • Bobber says:

      There would be no runs on the banks if they matched duration of assets with duration of liabilities. In other words, if a bank wants to make a lot of 30-year mortgage loans, they’d have to sell a lot of 30-year CDs and other forms of long-term deposits.

      As long as banks are allowed to borrow short and lend long, banking will be unstable. Taxpayers will foot periodic bailout bills for oligarchs and executives.

      Another sustainable solution is to implement capital requirements in the 40% range. The current policy of 10% capital is ridiculous. It shifts liability for bailouts from bank owners to the public.

      Regulation does not work. How many times do we have to hit in the head with the bailout bat before we figure that out? The Fed just admitted in its report that it couldn’t enforce the regulations on the books. So why would it help to put more regulations on the books? Regulators are captured.

      • Tom S. says:

        I think it’s a little premature to decide that the regulations failed. The regulators certainly did. Also, these banks were not subject to stress tests. Regulations on mid sized banks were lessened, rates were lowered to 0, and the chase for risky yield was on. It’ll be a while before we understand where the most toxic loans went, my guess is the crypto space is not innocent. In many ways it’s a testament to the regulations working that we haven’t had a large bank stumble with the sudden shift in rate regime.

    • Sams says:

      With full reserve banking, hard money or if banks had to switch to serial number accounting the likehood of bank runs would diminish. Credit would be sparse, but a monetary system and economy do not have to be debt based.

      • Bobber says:

        Many individuals and businesses use banks for payment processing, including payroll. Why don’t banks offer complete safety and 100% reserves for those deposits. They could charge a fee for the payment service.

        If depositors wanted a return on that money, they’d have to explicitly take on the risk of bank runs and bank failure. The risk would be much more visible, and better compensated.

        Payment processing should be a risk-free service offering. Heck, most business checking accounts don’t pay any interest, so why are checking account depositors required to take on risk of their bank failing? Currently, they are taking on that risk for zero consideration, and the banks have profited from this unfair structural advantage for decades.

  37. Paul says:

    Putting “highly competitive bidding process” in quotations was my favorite part of this article.

    • Bobber says:

      Did the government tell JP Morgan and the other big banks their $30B deposits would be guaranteed if Republic went under?

      If that was the case, why did the big banks say they were injecting money in Republic because they had confidence in Republic?

      Government role is not to mask problems and participate in back-office deals with too-big-to-fail players.

      Also, what if anything been corrected? Will government simply be changing rules on the fly or funding bailouts when needed?

      Webster’s dictionary defines chaos as “a state of utter confusion”.

      Isn’t that what we have? We don’t know if our debts will be paid, unless we print money. Legislatures are paralyzed and can’t find any common ground. We don’t now if deposits are guaranteed or if the FDIC fund is adequate to cover risks. Laws are being changes on the fly, so no laws have real force. Small businesses don’t know if they can survive, given favoritism towards large businesses. It’s hard to draw a line between government and big business. Young people don’t know if they’ll ever be able to afford a home or fund a retirement. Nobody can say with any confidence whether we have a free market or government controlled economy. Asset and price inflation up the YingYang. Can’t take anything for granted.

      The world is so void of trust and integrity, people are buying yellow rocks and computer bits on a screen.

      • Einhal says:

        Is suspect they did know that the $30 billion they “injected” was risk free.

        Also, home prices are back on the rise, according to CNBC.

        Good job Fed!

      • Old Ghost says:

        Bobber wrote: “Did the government tell JP Morgan and the other big banks their $30B deposits would be guaranteed if Republic went under?”

        The 11 banks that deposited $30 billion into Republic were all players in the derivatives market. Some folks have speculated that the 11 banks were bailing out themselves.

  38. Carlos Leiro says:

    How many small or medium banks were there in 1990 and how many are left?
    How many plants were producing in the US in 1990 and how many are producing now?
    The other day a forum commentator said that Elon Musk was a patriot, just as he was announcing two new plants, one in Mexico and one in China!!!!
    How long has the trade balance been negative?
    How long has the news “we have to raise the debt ceiling” is a constant repetition.
    Remember when the children’s universities were paid for by the parents’ savings?
    Well remember the word “Savings” simply. Remember when Ford, General Motors and Chrysler were at the forefront of automobiles.
    Remember when the FDA was a world example and then in a very dark way approved the use of Purdue Pharma’s Oxycontin starting the opioid crisis.
    They remember the “made in USA” respected in the world.
    uffff how many memories.

  39. RickV says:

    Major dislocations in the regional banks stocks again this morning. Pacwest Bancorp down 22.6%, Western Alliance Bancorp down 18.3%, Comerica down 10.05%, Zions Bancorp down 10.96%. Wolf sharpen your pencil for another banking post.

    • Bobber says:

      We are starting to see the damage caused by government favoritism towards big business. Literally, in many cases, it is government that decides whether you stay in business or not.

      It’s gone too far.

  40. MarkinSF says:

    Not sure I’m understanding how this works exactly. Are you saying that JP Morgan is absorbing the entirety of 1st Republic? And that 80% of any losses on the sale of these are being picked up by the FDIC?
    Wouldn’t the assets be primarily consist of LT & ST Treasuries mixed with CRE loans as well as residential?
    Considering both LT Treasuries and CRE are probably massively over valued on the balance sheet doesn’t that equate to a tax payer bailout of CRE?

    • Wolf Richter says:

      1. JPM is not buying the whole company (the corporation), it’s buying the assets. So if First Republic, the corporation, did anything bad, it’s not going to be JPM’s legal problem.

      2. FDIC reimburses JPM 80% of the CREDIT losses of the loans. Meaning only if there is a default, and JPM ends up with the property and sells the property. If an office tower mortgage defaults, and JPM sells the collateral at a foreclosure sale, and the proceeds are $40 million, but the loan is $80 million, JPM will have a $40 million loss. The FDIC will reimburse JPM $32 million.

      FDIC will not reimburse JPM anything if it sells the loan.

      3. Assets consists of — from the article:
      $172.9 billion in loans at book value, which JPM wrote down 13% to $150.3 billion.
      $29.6 billion in securities, which JPM continues to carry at par.
      $5.0 billion in other assets, which JPM wrote down to $4.8 billion.

      The loan portfolio, now written down to $150.3 billion, consists of:
      single family mortgages, mostly to wealthy clients (60%),
      multifamily CRE mortgages (13%),
      business loans (12%),
      other CRE loans (6%),
      and other loans.

      4. No, your assumptions are false. See above. No one is bailing out CRE. JPM is getting help digesting bad CRE loans. If anything, the loss-share agreement might induce JPM to dump the CRE properties to get rid of them, which would drive down CRE prices further.

  41. grimp says:

    So this won’t appear anywhere on or otherwise affect the FED balance sheet?

  42. cresus says:

    Except: a mountain of derivatives are off the book. Backstopping those will require far more than a few billions: trillions. The biggest are interest rates contracts and precious metals contracts. Can dominos be stopped? Hopefully. We will not know until failures are announced. Sudden adult bank death syndrome.

  43. Edward Teach says:

    And this is a surprise to who? I would have given you 100/1 odds J.P. Morgan picked up the bid but not until the FDIC bailout. It’s a rigged system. The 4 biggest banks own 40% of all assets out of the almost 5000 banks out there. J.p. Morgan, Bank of America, Citigroup, Wells Fargo. You think they won’t continue to just gobble up more banks and get even bigger? It’s time to end the corrupt Federal Reserve and it’s monopoly money!

Comments are closed.