Republic First is the good kind of bank failure

Safety third. Nobody should want banks to fail. But if y must, it’s best if y’re like Republic First. Regulators wound up Philelphia-based lender on Friday for being “unsafe and unsound,” official-speak for low on equity, and high on drama. re’s little risk of its demise affecting ors – though some depositors might be a little too calm.

Republic First h a problem common to many banks: spiking interest rates. Its growing pile of mortgage-backed securities lost value as rates rose, a similar situation to Silicon Valley Bank’s failure last March. Regulatory filings showed $425 million of unrealized losses at 2023’s end, compared with $290 million of equity. A plan to raise capital fizzled in February.

Tumult at top probably didn’t help. Over past three years, Republic First saw acrimonious battles with rabble-rousing investors, on-again-off-again stock sales, lawsuits – including ousted boss Vernon Hill’s complaint that his dog Sir Duffield was still appearing in marketing materials – and disclosure lapses. That last problem got stock delisted from Nasdaq exchange last year.

level of idiosyncratic turbulence means customers elsewhere might be less worried that ir institution will be next. It also bolsters comforting idea that economic conditions alone rarely cause banks to unspool. Office of Comptroller of Currency concluded deces ago that in nine out of 10 cases, when a financial institution fails, management problems are also to blame.

Depositors in or U.S. banks have anor reason to be calm: “substantially all” of Republic First’s have been saved in a sale to rival Fulton Bank. That’s despite $835 million of balances being above insurance limit of $250,000 at end of December, one-fifth of lender’s total. Federal Deposit Insurance Corp will take a $667 million hit from windup, ultimately passed on to or banks.

That leaves a mystery: Why did any uninsured depositors stick around at a conflict-riven bank that h lost 99% of its market value in a single year? Perhaps some h or forms of coverage. Or maybe y just felt confident that, when banks do fail, even wealthiest depositors are in practice untouchable. If so, ir faith has yet to be challenged.

Nobody should want banks to fail. But if y must, it’s best if y’re like Republic First. Regulators wound up Philelphia-based lender on Friday for being “unsafe and unsound,” official-speak for low on equity, and high on drama. re’s little risk of its demise affecting ors – though some depositors might be a little too calm.

Republic First h a problem common to many banks: spiking interest rates. Its growing pile of mortgage-backed securities lost value as rates rose, a similar situation to Silicon Valley Bank’s failure last March. Regulatory filings showed $425 million of unrealized losses at 2023’s end, compared with $290 million of equity. A plan to raise capital fizzled in February.

Tumult at top probably didn’t help. Over past three years, Republic First saw acrimonious battles with rabble-rousing investors, on-again-off-again stock sales, lawsuits – including ousted boss Vernon Hill’s complaint that his dog Sir Duffield was still appearing in marketing materials – and disclosure lapses. That last problem got stock delisted from Nasdaq exchange last year.

level of idiosyncratic turbulence means customers elsewhere might be less worried that ir institution will be next. It also bolsters comforting idea that economic conditions alone rarely cause banks to unspool. Office of Comptroller of Currency concluded deces ago that in nine out of 10 cases, when a financial institution fails, management problems are also to blame.

Depositors in or U.S. banks have anor reason to be calm: “substantially all” of Republic First’s have been saved in a sale to rival Fulton Bank. That’s despite $835 million of balances being above insurance limit of $250,000 at end of December, one-fifth of lender’s total. Federal Deposit Insurance Corp will take a $667 million hit from windup, ultimately passed on to or banks.

That leaves a mystery: Why did any uninsured depositors stick around at a conflict-riven bank that h lost 99% of its market value in a single year? Perhaps some h or forms of coverage. Or maybe y just felt confident that, when banks do fail, even wealthiest depositors are in practice untouchable. If so, ir faith has yet to be challenged.