Jean-Pierre told reporters that the actions taken by U.S. regulators would also ensure that First Republic, which she said was “severely mismanaged,” would be held accountable.

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.

Many of the bank’s accounts had deposits well north of the federally-insured $250,000. Once Silicon Valley Bank went under, clients pulled their money, fearful their deposits were in danger. First Republic said last week that depositors had withdrawn more than $100 billion, most of it during a few days in mid-March.

“Too many (First Republic) customers showed their true loyalties were to their own fears,” wrote Timothy Coffey, an analyst with Janney Montgomery Scott, in a note to investors.

What’s more, the large loans on First Republic’s books dropped in value as the Federal Reserve rapidly raised interest rates last year. So, if the bank tried to sell the loans to raise capital, it would do so at a loss. Similar circumstances had doomed Silicon Valley Bank.

First Republic planned to sell off unprofitable assets, including low interest mortgages that it provided to wealthy clients. It also announced plans to lay off up to a quarter of its workforce, which totaled about 7,200 employees in late 2022. But those plans were seen as too little, too late, by analysts.

By the middle of last week, it became clear government intervention in First Republic was necessary. Treasury officials asked banks to submit bids for First Republic, and bankers and regulators worked through the weekend to find a way forward.