FDIC, Lax Oversight of Failed Bank, San Francisco CA, 2023

WASHINGTON – Today, the Federal Deposit Insurance Corporation (FDIC) dropped a bombshell, releasing a report detailing its lackluster supervision of First Republic Bank, San Francisco, California. The internal review paints a grim picture of the agency’s oversight, revealing how it failed to foresee and mitigate risks that contributed to the bank’s spectacular collapse.

The report pins the blame on ‘a loss of market and depositor confidence, resulting in a bank run’ after the March 2023 failures of Silicon Valley Bank and Signature Bank. It highlights First Republic’s vulnerabilities, including rapid growth, overreliance on uninsured deposits, and failure to adequately manage interest rate risk.

While the report acknowledges that the FDIC conducted continuous examinations and issued positive ratings, it admits the agency fell short in its forward-looking assessments of interest rate impacts. It also suggests opportunities for a more holistic approach, including greater involvement from headquarters supervision resources.

The review identifies eight items for further study, focusing on examiner guidance and processes. With First Republic’s closure in May 2023, the FDIC stepped in as receiver and sold its assets to JPMorgan Chase Bank.

FDIC Chief Risk Officer Marshall Gentry and Chairman Martin J. Gruenberg are now under the microscope as the public demands accountability for the agency’s failures. The report serves as a stark reminder of the importance of robust financial regulation in maintaining stability in the banking sector.

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