3 Ways the First Republic Bank Failure Is Different Than SVB

After several years with no bank failures, we've already seen three in 2023. It isn't the first time several banks have failed in quick succession, and some years have seen many more bank collapses. Indeed, according to FDIC data, over 150 banks failed in 2010. 

What's worrying is that the combined total assets of the banks that collapsed this year is the highest since the turn of the century. The assets of Silicon Valley Bank, First Republic, and Signature Bank totaled almost $550 billion. 

Size was one of several things SVB and First Republic had in common. Both had around $200 billion in assets and both failed after customers withdrew significant amounts of funds on the back of concerns over the banks' balance sheets. 

However, there are also several differences in how the failures of the two banks played out. It's worth understanding these scenarios, because if more banks topple, the changing FDIC approach could impact how customer deposits are handled moving forward.

1. First Republic was acquired immediately by JPMorgan Chase 

There are a few ways the FDIC can intervene when a bank fails. One, as we saw with SVB, is to create a bridge bank. This is essentially a way to bridge the gap between the bank failure and another solution, whether that's acquisition or closure. In the case of SVB, it took a few weeks for First Citizens Bank & Trust Company to buy it after the FDIC intervened. Customer accounts stayed with the bridge bank before being transferred to First Citizens.

First Republic was a different story. The FDIC auctioned off the ailing bank over a weekend so it could announce the acquisition early on Monday morning. This means that customer accounts got transferred to JPMorgan Chase, which bought First Republic, without needing a bridge bank.

2. The FDIC guaranteed uninsured deposits with SVB

If you're worried about the money in your bank account, there are several safeguards in place. Chief among them is FDIC insurance, which covers accounts for up to $250,000 per depositor, per person, per account type. Unfortunately, a large proportion of SVB's deposits fell outside this threshold. According to S&P Global, 93.8% of SVB deposits were not FDIC insured. First Republic Bank also had a high proportion of uninsured deposits -- 67.4% of the bank's deposits were not insured.

When authorities stepped in and closed down SVB, it sparked fear throughout the industry. A lot of SVB's customers were tech startups, venture capitalist firms, and life science companies, among others. Fearing runs at other banks and the knock-on effect on these businesses and their employees, authorities announced the FDIC would cover all deposits at SVB, even those above the $250,000 threshold. 

This did not happen with First Republic. Instead, it was JPMorgan that took over all the accounts, including the ones with uninsured deposits. If you or your company has over $250,000 in deposits with a single bank, be aware that there are no guarantees that authorities will step up again to cover them if there's another failure. 

3. The SVB failure cost the FDIC more money

The FDIC insurance fund was designed to ensure Americans do not lose their deposits in the event that their bank fails. It did its job. It's also interesting to note that the price tag for the First Republic failure was significantly lower than SVB. Here's what the FDIC estimates the cost of each bank failure will be:

• First Republic: $13 billion 
• SVB: $20 billion

It's also reassuring to know there's still money left in the fund to cover any further issues with banks. The FDIC website says it had almost $120 billion in its insurance fund as of March, 2021. It plans to recoup the cost of the recent closures by charging banks, particularly big banks, through a special assessment spread across the next two years.

Bottom line

While the failures of the two banks panned out differently, what matters most is that no depositor has lost money in the recent bank failures. So far, the safeguards that are in place to protect your savings and checking accounts have worked.

As a consumer, the current banking crisis is unnerving to say the least, particularly as we don't know whether more banks will fail. One step you can take is to make sure your account is FDIC insured. If you hold more than $250,000 with a single bank, it's also worth taking steps to protect any additional funds. This might include opening a new bank account elsewhere, or creating a joint account to give yourself extra coverage.