FDIC says supervisors could have been more aggressive before First Republic's failure (updated)

First Republic Bank

08/09/2023 17:33

(Adds detail on the bank's findings and context from paragraph
3)
    By Pete Schroeder
       WASHINGTON, Sept 8 (Reuters) - A U.S. banking regulator
said its supervisors could have been more aggressive in policing
First Republic Bank's risk management prior to its May failure,
but it was unclear if that would have saved the bank in the face
of the unexpected speed that depositors pulled their money.
    The Federal Deposit Insurance Corporation (FDIC) said in a
new report published Friday that a loss of market and depositor
confidence ultimately sank the bank. 
    However, it added bank supervisors were too "generous" in
gauging some of its risks, notably around interest rates and a
high level of uninsured deposits. The regulator found its
supervisors actually spent less time at the bank from 2018 to
2023, a period in which the firm doubled in size.
    First Republic's failure at the beginning of May was the
third bank collapse in a matter of weeks, after a tumultuous
period that kicked off with the abrupt failure of Silicon Valley
Bank in March. First Republic's collapse, which saw the bank
seized by regulators and most of its assets sold to JPMorgan
Chase  JPM.N , was the second largest bank failure in American
history.
    The 63-page review of the FDIC's supervision of the bank
does not ultimately conclude whether the bank would have
survived with stricter oversight, noting the "unexpected" speed
at which depositors fled banks. 
    It however said the bank likely would have been more
resilient to the spreading panic had supervisors criticized bank
management practices sooner.
    "It is much easier to suggest what examiners should have
done, once one has a full understanding of the events that
actually happened and how they diverged from historical norms,"
the agency said in its report.
    The FDIC ultimately found that its supervision team was
timely in examining First Republic and producing its findings.
    It acknowledged though that field supervisors may have
benefited from a more "holistic" approach, including more input
from large bank experts and leadership in Washington who could
have more effectively challenged bank management.
    The FDIC said in its report that supervisors could have
challenged the bank's plan to mitigate interest rate risk
through continued growth starting in the second half of 2021. 
    But it admitted such criticism would have been met with
"pushback" from the bank, given its strong growth and low
interest rates at the time.

 (Reporting by Pete Schroeder; Editing by Emelia
Sithole-Matarise)
 ((Pete.Schroeder@thomsonreuters.com; 202-310-5485;))