{"id":2508,"date":"2023-05-01T19:19:03","date_gmt":"2023-05-01T19:19:03","guid":{"rendered":"https:\/\/wifamily.news\/?p=2508"},"modified":"2023-05-01T20:02:09","modified_gmt":"2023-05-01T20:02:09","slug":"is-jp-morgans-purchase-of-failed-bank-from-fdic-a-government-bailout","status":"publish","type":"post","link":"https:\/\/wifamily.news\/?p=2508","title":{"rendered":"Is JP Morgan\u2019s Purchase of Failed Bank From FDIC a Government Bailout?"},"content":{"rendered":"

This post originally appeared at https:\/\/www.wisconsinrightnow.com\/is-jp-morgans-purchase-of-failed-bank-from-fdic-a-government-bailout\/<\/a><\/p>\n

\"JP<\/p>\n

\u00a0<\/p>\n

The FDIC took over the embattled San Francisco bank, First Republic, and auctioned it off, with JP Morgan taking over as regulators hope to fend off a domino effect in the banking sector.<\/p>\n

\u201cOur government invited us and others to step up, and we did,\u201d Jamie Dimon, chairman and CEO of JPMorgan Chase said in a statement after the purchase.<\/p>\n

But critics point out that JP Morgan profits sizeably off the deal and argue it amounts to a government bailout.<\/p>\n

First Republic\u2019s collapse is the biggest bank failure since the 2008 financial crisis, when the federal government bailed out banks with billions of taxpayer dollars. In this new deal, JP Morgan took on about $92 billion in First Republic\u2019s deposits and another roughly $203 billion in assets.<\/p>\n

\u201cJPM is paying about $10.6 billion, but is getting $13 billion from the FDIC, or in other words, we the taxpayer,\u201d E.J. Antoni, an economic expert at the Heritage Foundation, said. \u201cThat means JPM already booked a profit on the deal. Another $50 billion is available from the FDIC to JPM if losses from First Republic\u2019s assets continue to mount. To cover the existing and any future losses, the FDIC will levy a \u2018special assessment\u2019 on banks that is passed to customers.\u201d<\/p>\n

Dimon admitted his company \u201cmodestly benefits\u201d in the deal.<\/p>\n

\u201cThe service JPM is providing here is to provide a massive amount of liquidity to meet depositor\u2019s demands,\u201d Antoni said. \u201cThat will prevent the sale of some $30 billion in securities that First Republic had which have lost value, if sold today. If held to maturity, however, those securities will still pay their anticipated rate of return.\u201d<\/p>\n

Other experts say comparing this to a traditional bank bailout goes too far and emphasize that stabilizing the banking sector was necessary for the sake of the broader economy. First Republic is the third U.S. bank to fail since March of this year.<\/p>\n

Notably, the FDIC is funded by insurance premiums paid by banks, not by Congressional appropriations.<\/p>\n

\u201cI would not call this a bailout,\u201d Gary Wolfram, an economics professor at Hillsdale College, told The Center Square. \u201cIt is an attempt to stabilize the banking system. The reason the FDIC was created nearly 90 years ago was to guard against \u2018runs\u2019 on banks. Individual banks hold only a fraction of their deposits on reserve with the Fed, and if we all went in to get our money you have the scene from the Jimmy Stewart movie, \u2018It\u2019s a Wonderful Life.\u2019<\/p>\n

\u201cWhile J.P. Morgan may benefit, it is taking on $92 billion in deposits that were in First Republic (as well as the loans and securities) and it is large enough that people will probably not withdraw their deposits for fear that J.P. Morgan will fail,\u201d he added.<\/p>\n

Antoni argues taxpayers will still foot the bill.<\/p>\n

\u201cThe FDIC levies fees on banks which are passed on to customers. Anything, like an overdraft fee, contributes to this,\u201d he said. \u201cThe interest rate on a loan will be slightly higher and the interest rate you get paid on your savings account will be slightly lower. This functions like a particularly regressive tax because low-income people are much more likely to pay things like overdraft fees. However, the FDIC also has an existing line of credit with the Treasury of $100 billion. Tapping into that costs the taxpayer. Additionally, when the FDIC has really gotten into trouble in the past, the Treasury has not only expanded that line of credit but simply paid for outstanding FDIC bills, meaning those dollars were never repaid.\u201d<\/p>\n

While calling this a bailout is up for debate, the federal government is taking the blame for fueling inflation and then hiking interest rates to compensate for inflation, which is what has put the strain on the banking sector.<\/p>\n

\u201cThe Fed is offering an alternative to the FDIC guaranteeing all deposits as it did with the other two banks,\u201d Wolfram said. \u201cIt is following the Swiss authorities actions with Credit Suisee. The recent swift and large increase in interest rates by the Fed resulted in a sudden decrease in the value of bond holdings of banks, such as Silicon Valley, and now it is trying to deal with the result of this. This is complicated by the massive deficits of the federal government and the Fed\u2019s attempts to deal with inflation caused by the massive increase in the money supply (a 40% increase in M2 that started in March 2020).\u201d<\/p>\n

Casey Harper
\nGo to Source<\/a>
\nReposted with permission<\/p>\n","protected":false},"excerpt":{"rendered":"

This post originally appeared at https:\/\/www.wisconsinrightnow.com\/is-jp-morgans-purchase-of-failed-bank-from-fdic-a-government-bailout\/ \u00a0 The FDIC took over the embattled San Francisco…<\/p>\n","protected":false},"author":15,"featured_media":2510,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[],"class_list":["post-2508","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wi-right-now"],"_links":{"self":[{"href":"https:\/\/wifamily.news\/index.php?rest_route=\/wp\/v2\/posts\/2508","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/wifamily.news\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/wifamily.news\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/wifamily.news\/index.php?rest_route=\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/wifamily.news\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2508"}],"version-history":[{"count":2,"href":"https:\/\/wifamily.news\/index.php?rest_route=\/wp\/v2\/posts\/2508\/revisions"}],"predecessor-version":[{"id":2511,"href":"https:\/\/wifamily.news\/index.php?rest_route=\/wp\/v2\/posts\/2508\/revisions\/2511"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/wifamily.news\/index.php?rest_route=\/wp\/v2\/media\/2510"}],"wp:attachment":[{"href":"https:\/\/wifamily.news\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2508"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/wifamily.news\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2508"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/wifamily.news\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2508"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}