Why First Republic failed. Are other banks to follow?

People walk past the headquarters of First Republic Bank in San Francisco, Monday, May 1, 2023. Regulators seized troubled First Republic Bank early Monday, making it the second-largest bank failure in U.S. history, and promptly sold all of its deposits and most of its assets to JPMorgan Chase Bank in a bid to head off further banking turmoil in the U.S. (AP Photo/Haven Daley) People walk past the headquarters of First Republic Bank in San Francisco, Monday, May 1, 2023. Regulators seized troubled First Republic Bank early Monday, making it the second-largest bank failure in U.S. history, and promptly sold all of its deposits and most of its assets to JPMorgan Chase Bank in a bid to head off further banking turmoil in the U.S. (AP Photo/Haven Daley)

By Associated Press May 2, 2023 5 min read

First Republic Bank has become the second large regional bank with assets over $200 billion to fail in just a few weeks. Like Silicon Valley Bank, which was seized by the government on March 10, First Republic catered to a wealthy clientele, which helped it grow deposits rapidly but may have also contributed to its undoing. The bank’s business model left it susceptible to a sudden rise in interest rates.

Since the collapse of Silicon Valley Bank — and Signature Bank the same weekend — investors have wondered who’s next. First Republic quickly rose to the top of that list, but investors and analysts worried about banks such as Comerica and KeyCorp, which also had large numbers of accounts with deposits above the federally-insured level of $250,000.

Here are some things to know about the collapse of First Republic Bank.

WHY DID FIRST REPUBLIC FAIL?

First Republic grew rapidly through deposits from wealthy individuals and companies. It used those deposits to make large loans, including jumbo mortgages, when interest rates were at historically low levels in hopes of then convincing customers to expand into more profitable products like wealth management.