Too Big To Fail

Following the collapse of First Republic Bank, the FDIC and JPMorgan Chase announced that America’s largest bank would step in and acquire most of First Republic’s assets and assume all of its deposits in a deal brokered over the weekend.

“Our government invited us and others to step up, and we did,” Jamie Dimon, Chairman and CEO of JPMorgan Chase said in the bank’s announcement of the deal. Under the agreement, JPMorgan will assume $92 billion of deposits, including $30 billion in deposits from large banks (incl. JPMorgan) that were part of a failed rescue attempt in mid-March and will be repaid or eliminated once the deal is completed.

Already the largest bank in the United States, JPMorgan held more than $2 trillion in domestic deposits at the end of 2022, putting its share of total deposits in the U.S. banking system above 10 percent. That would normally prohibit it from making further acquisitions under federal law, but the rule does not apply when the acquired bank is failing.

Despite the fact that the move deal was widely welcomed for stabilizing the banking system and calming markets, it also drew some criticism. Dennis M. Kelleher, President and CEO of Better Markets, a non-profit promoting financial market reform, called the auction process “time-pressured, panicky-looking, and biased,” warning that such deals would result in “unhealthy consolidation, unfair competition and a dangerous increase in too-big-to-fail banks.”

Of course JPMorgan's CEO wouldn’t have any of that criticism. “We need large, successful banks in the largest economy in the world," Mr. Dimon told reporters on a conference call on Monday. “We have capabilities to serve our clients, who can be cities, schools, hospitals, governments. We bank the IMF, the World Bank. And anyone who thinks the United States should not have that can call me directly.”

As the following chart shows, JPMorgan along with Bank of America, Wells Fargo and Citibank tower above the competition in terms of deposits. With combined domestic deposits of $6.1 trillion at the end of 2022, these big four exceeded the combined deposits of their 33 closest competitors at the time.