First Republic bank customers wake to new owner

It still looks like a First Republic bank -- inside and out. But for loyal customers such as Felicia Captain Kiehm, it was a sad day.

“I was really surprised and saddened, quite honestly,” said Captain Kiehm, a First Republic customer for the last 15 years. “Because I feel like they’re part of my family. That’s how long I’ve been banking here. Itr makes a difference when you walk into a bank and you feel the personal concierge style of service.”

Over the weekend, JP Morgan Chase acquired First Republic -- after a run on the latter bank drained its deposits to a critical level.

“A whole bunch of uninsured depositors took about a hundred billion dollars out of the bank,” said Michael Goldstein, PhD, a Professor of Finance at Babson College. That run on First Republic began back in March. “You can have a winning strategy, but if everyone pulls a hundred billion dollars out of your bank, you’re not going to survive.”

First Republic’s strategy was simple.

“Their strategy was interacting with high net-worth individuals,” said Goldstein. “High net-worth individuals can put more than $250,000 in the bank.”

The trouble is, the government only insures deposits up to $250,000. Anything beyond that is potentially at risk -- most especially if the bank is overly reliant on high-income depositors -- which First Republic was, said Goldstein.

Throw in sudden mass panic and worry -- and you get the kind of rapid downfall that’s now hit three U.S. banks.

“If I think everyone else is going to take their money out, then I want to take my money out, too,” Goldstein said. “If you think the bank might fail, then why hang around for it?”

But Goldstein said depositors should be heartened by the JP Morgan Chase takeover, as it is the largest bank in the U.S. and therefore considered too big to fail. “There’s no reason now to pull your money, and you can access it today,” he said.

And Goldstein thinks this brief, limited collapse in the banking industry is over.

“The system is working, it’s self-correcting,” he said. “Maybe not if you’re a bank shareholder -- but if you’re a bank depositor.” And he said there’s no reason for anyone with up to $250,000 in any account to switch banks because of what happened at First Republic -- and probably no reason to change banks even if accounts are worth far more than that. Because the risk to depositors of losing their money, he said, remains extraordinarily low.

Felicia Captain Kiehm just hopes the ‘new’ First Republic will feature the same customer service as the old one.

“It’s a great place where you go and everybody knows your name,” she said.

This is a developing story. Check back for updates as more information becomes available.

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