News Release: First Republic Sales Underscores Need to Handle Megabank Risk


May 1, 2023

Carter Dougherty

First Republic Sales Underscores Need to Handle Megabank Risk

Washington, D.C. – The sale of First Republic Bank to JPMorgan Chase this weekend has highlighted the urgency of strengthening guardrails around Wall Street megabanks while also laying the groundwork for a longer-term effort to reduce concentration in the banking sector.

“Federal authorities have a number of tools designed to manage the risks of Wall Street’s megabanks to the financial system,” said Alexa Philo, senior policy analyst at Americans for Financial Reform Education Fund and a former Federal Reserve Bank of New York examiner. “They need to use those tools promptly, and err on the side of caution, especially since the financial system has already shown significant instability already this year.”

The Federal Reserve is currently examining how to strengthen megabank capital, a step that could make them more resilient to shocks if the Fed stands up to pressure from the bank lobby, as AFREF has urged, to water down those rules. Capital rules are part of the plan for responding to this year’s banking crisis that AFREF outlined in a recent policy memo.

In his report on the Silicon Valley Bank collapse, Fed Vice Chair for Supervision Michael Barr emphasized that strong capital matters – even though that bank failed due to liquidity issues – because “we need to bolster resiliency broadly in the financial system, and not focus solely on specific risk drivers.”

The failure of First Republic has now pushed a bank with assets of around $229 billion into the arms of JPMorgan Chase, with assets of about $4 trillion, a step that makes the biggest bank even bigger. Yet financial regulators have not updated the federal government’s bank merger guidelines, even though President Biden called for this step over 18 months ago. Nor have they tackled the “too-big-to-manage” problem evident at Wells Fargo, the fourth-largest bank in the United States.

Also, First Republic has now become the third bank failure this year that followed extensive reliance on Federal Home Loan Bank liquidity. This system screams out for reform, a point AFREF has made repeatedly.

“Either the Federal Home Loan Bank system needs to refocus its mission on affordable housing, or it needs to go away,” said Caroline Nagy, senior policy analyst at Americans for Financial Reform Education Fund. “It should not function as a lender of second-to-last resort.”