Top 3 takeaways from JPMorgan Chase’s First Republic Bank acquisition

Move over, Silicon Valley Bank. First Republic Bank is now the second-largest bank failure in U.S. history. Three of the top 30 U.S. banks have now failed in less than two months.

The bidding process stretched into the night. Early Monday morning, federal authorities approved JPMorgan Chase’s bid to take over First Republic’s assets. Here are three things to know about Chase’s takeover.

Exception to the rule

JPMorgan Chase, already the nation’s largest bank, will now take over First Republic Bank, which had $229.1 billion in assets and $103.9 billion in deposits as of April 13, according to the FDIC. The FDIC said Chase agreed to purchase “substantially all” of First Republic’s assets, in addition to assuming all deposits.

That said, authorities had to carve out an exception to allow the largest U.S. bank to get even bigger. The 1994 Riegle-Neal Act prohibits banks from making acquisitions that would push its share of nationwide deposits over 10%. Chase already holds more than 10% of the nation’s deposits, which would have technically made it ineligible. But authorities were prepared to make that exception, specifically requesting that JPMorgan Chase make a bid for First Republic.

In the end, Chase’s offer to take nearly the entire bank was reportedly the cleanest and best deal for the FDIC, which expects its deposit insurance fund to take a $13 billion hit. Bloomberg reports that other bids would have cost the FDIC billions more.

Chase to the rescue: Take two

It’s not the first time JPMorgan Chase has come to First Republic’s rescue. Back in March, CEO Jamie Dimon led efforts to inject $30 billion in deposits into First Republic when it was first starting to falter following the collapses of SVB and Signature Bank. In all, 11 of the biggest U.S. banks rallied behind a rescue package to stabilize First Republic, including Bank of America, Citigroup and Wells Fargo. Of the $30 billion provided, Chase ponied up $5 billion.

On Monday, Chase leaders insisted there is no conflict of interest between the bank being an adviser to First Republic, followed by a bidder for First Republic. In an analyst call, executives said the two teams were separate. Chase CFO Jeremy Barnum vowed Monday to repay the other banks for the rescue deposits they contributed.

Chase’s complicated bank buyout history

JPMorgan Chase’s history of helping failing financial institutions likely led to it carving out some protections this time around. Following the 2008 financial crisis, federal regulators requested that JPMorgan step in and rescue investment bank Bear Stearns and Washington Mutual, the latter of which remains the largest bank failure in U.S. history.

Coming to the feds’ aid in 2008 burned Dimon pretty hard in the years that followed. Chase was held legally liable for billions of dollars in fines and settlements levied against the banks it inherited. Ultimately, Dimon said that he regretted saving the banks for that reason and wouldn’t have made the same decision again.

With First Republic’s saga now complete, Dimon said Monday, “This part of the crisis is over.” But he still left the door open for a smaller institution to fail, noting that bank failures will always happen.