Kansas Heartland Tri-State Bank Closure Indicates Continued U.S. Banking Crisis

On July 28, 2023, the Kansas Office of the State Bank Commissioner closed Heartland Tri-State Bank of Elkhart, Kansas, appointing the Federal Deposit Insurance Corporation (FDIC) as receiver.

This closure marks another chapter in the ongoing banking crisis in the United States, following the recent failures of First Republic, Silicon Valley Bank, and Signature Bank.

As of March 31, 2023, Heartland Tri-State Bank had approximately $139 million in total assets and $130 million in total deposits. Dream First Bank, National Association, of Syracuse, Kansas, has agreed to assume all deposits and purchase essentially all assets of the failed bank.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $54.2 million, making the acquisition by Dream First Bank the least costly resolution for the DIF.

The four branches of Heartland Tri-State Bank will reopen as branches of Dream First Bank on July 31, 2023, under normal business hours. Customers can continue to access their money and make loan payments as usual.

The first half of 2023 has witnessed several bank closure events that have sent shockwaves through the financial industry.

The banking crisis continues to unfold, marked by significant bank collapses. The collapse of Silicon Valley Bank in March 2023 triggered days of chaos in the U.S. banking system.

First Republic Bank, the nation’s second-largest bank failure ever, was acquired by JPMorgan in May 2023 after rescue efforts failed. Signature Bank’s failure further added to the turmoil, shaking up the banking industry.

A few factors contribute to the ongoing banking crisis. Rising U.S. interest rates are believed to be a contributing factor. The U.S. Federal Reserve increasing its benchmark rate to 5.25% in July 2023 (the highest rate since 2007). Alongside this, systemic issues within the banking sector, compounded by inadequate risk management, have been brought to light.

These revelations have spurred lawmakers to take action, introducing new legislation aimed at safeguarding customer deposits and stabilizing the financial system.

Image source: Shutterstock


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JPMorgan to Acquire First Republic Bank Assets

JPMorgan Chase is poised to acquire the assets of First Republic Bank (FRB), after regulators closed the bank on May 1. JPMorgan and several other banks had submitted bids to acquire the troubled bank’s assets after early efforts to rescue it failed.

As part of the purchase and assumption agreement with the FDIC, JPMorgan will take on all of FRB’s assets, including uninsured deposits. With $229.1 billion in assets and $103.9 billion in deposits, FRB was a significant acquisition for JPMorgan.

In addition to acquiring the bank’s assets, JPMorgan also entered into a loss-sharing agreement with the FDIC for residential and commercial loans acquired by FRB. Under the agreement, any losses and recoveries on the loans covered by the loss-share agreement will be shared between the FDIC and JPMorgan.

All depositors of FRB will become part of JPMorgan and will have access to their total deposits insured by the FDIC. The 84 locations of FRB in eight states will reopen as JPMorgan Chase, allowing customers to continue banking services at the current branch until they receive any change notification from JPMorgan.

The trouble began for FRB on April 26 when news of a government receivership surfaced. The bank’s shares dropped 20% in just a few hours following the announcement. The days following the announcement were even more volatile for the bank before regulators eventually closed the bank.

With FRB’s closure, it becomes the latest US bank to collapse in 2023, joining Silicon Valley Bank and Signature Bank.

This acquisition is a significant move for JPMorgan, as it expands its reach and strengthens its presence in the banking industry. JPMorgan has a history of making large-scale acquisitions, and this acquisition of FRB’s assets follows a pattern of growth through strategic acquisitions.

First Republic Bank had a reputation as a premier private bank for high-net-worth individuals and businesses. However, the bank had been struggling for some time due to a high level of non-performing loans and other financial difficulties. Despite efforts to rescue the bank, regulators determined that the best course of action was to close it and transfer its assets to another institution.

The loss-sharing agreement between JPMorgan and the FDIC is designed to mitigate any potential losses and ensure that depositors are protected. This agreement is a standard part of any acquisition involving a failed bank, and it ensures that the FDIC is able to recover as much of its costs as possible.

Overall, JPMorgan’s acquisition of First Republic Bank’s assets is a significant development in the banking industry. As JPMorgan continues to grow and expand its reach, this acquisition demonstrates its commitment to providing excellent banking services and support to customers across the United States.


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JP Morgan Executive Warns of Banking Collapse

In a recent interview with Bloomberg Television, Bob Michele, the chief investment officer of JP Morgan Asset Management, expressed concern over the future of regional banks in the United States. Michele was particularly worried about how these banks will operate once the Federal Deposit Insurance Corporation (FDIC) and Federal Home Loan Banks (FHLB) emergency lending programs expire.

Michele’s concerns stem from the recent liquidity issues faced by First Republic Bank, which has experienced significant deposit outflows. According to Michele, the impact of these liquidity issues is not limited to First Republic Bank alone but could potentially affect the entire banking industry in the United States.

While the FDIC and FHLB programs were created to help regional banks during times of crisis, their expiration could have devastating consequences for these institutions. Michele warned that the possible collapse of First Republic Bank could cause a domino effect that could lead to the collapse of other regional banks.

Michele’s comments highlight the importance of emergency lending programs for regional banks in the United States. These programs help provide liquidity to banks during times of financial stress, ensuring that they can continue to operate and meet the needs of their customers.

However, Michele’s comments also reveal a deeper concern about the stability of the banking industry as a whole. With the recent rise of fintech companies and the growing popularity of digital banking, traditional banks are facing increasing competition. In this context, the potential collapse of regional banks could have serious consequences for the entire financial system.

To address these concerns, it is crucial for policymakers to take a proactive approach to ensure the stability of the banking industry. This could involve extending emergency lending programs or creating new programs to provide support to regional banks. It could also involve implementing regulatory measures to address the potential risks posed by fintech companies and digital banking.

In conclusion, Bob Michele’s comments highlight the fragility of the banking industry in the United States and the importance of emergency lending programs for regional banks. While the potential collapse of First Republic Bank may not necessarily lead to a widespread collapse of the banking industry, it does underscore the need for policymakers to take proactive steps to ensure the stability of the financial system.


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US authorities consider expanding credit line for banks

In an effort to provide First Republic Bank with a time buffer to address balance sheet concerns, US authorities are reportedly deliberating on expanding an emergency credit line for banks, according to sources familiar with the matter. This option is one of several being explored by officials, who are assessing what support, “if any,” can be provided to the bank.

According to a Bloomberg report released on March 26, First Republic Bank has been deemed “stable enough to operate” by regulators without the need for immediate intervention. However, efforts are being made by the bank to shore up its balance sheet while authorities determine what additional support can be provided.

The sources further claimed that while the expansion of the Federal Reserve’s liquidity offerings would be done in accordance with banking laws, which require that it be “broadly based” and not aimed at benefiting a specific bank, they also warned that the adjustment could be made in a way that ensures First Republic Bank benefits.

The current situation is a result of First Republic Bank facing concerns about its balance sheet, which has led US authorities to consider what assistance can be provided. As of March 26, no decision had been made by US authorities about whether to expand the emergency credit line for banks.

First Republic Bank is a San Francisco-based bank that was founded in 1985 and specializes in private banking, business banking, and wealth management. With over 100 locations throughout the US, the bank has assets of approximately $203 billion, as of December 31, 2021.

It is worth noting that the expansion of the Federal Reserve’s liquidity offerings would not be the first time that such action has been taken. In 2020, the Fed expanded its emergency lending program to support the US economy during the COVID-19 pandemic.

In conclusion, US authorities are reportedly exploring the expansion of an emergency credit line for banks to provide First Republic Bank with a time buffer to address balance sheet concerns. While the bank is deemed stable enough to operate without immediate intervention, efforts are being made to shore up its balance sheet, and authorities are assessing what additional support can be provided. The expansion of the Federal Reserve’s liquidity offerings is one option being explored, and no decision has been made as of March 26.


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