Are big banks in the U.S. setting themselves up to become ‘too-big-to-fail’?
In the wake of First Republic Bank’s collapse, JPMorgan Chase has stepped in to acquire the majority of the bank’s assets and assume all its deposits, thanks to a weekend deal brokered with the FDIC.
Despite federal regulations typically prohibiting further acquisitions when a bank’s share of total deposits exceeds 10%, JPMorgan’s acquisition is permitted due to First Republic’s failing status.
With this move, JPMorgan will assume $92 billion in deposits, contributing to its existing dominance in the U.S. banking system alongside Bank of America, Wells Fargo, and Citibank.
While many have praised the deal for stabilizing the banking system and easing market concerns, critics argue that it promotes unhealthy consolidation and an increase in “too-big-to-fail” banks.
In response, JPMorgan’s CEO, Jamie Dimon, has defended the acquisition, stating that the United States needs large, successful banks to serve its diverse clientele, which includes cities, schools, hospitals, and governments.
The acquisition of First Republic Bank’s assets further solidifies the dominance of the “big four” U.S. banks – JPMorgan Chase, Bank of America, Wells Fargo, and Citibank.
By the end of 2022, these four giants held a staggering $6.1 trillion in combined domestic deposits, surpassing the combined deposits of their 33 closest competitors.
This concentration of financial power raises concerns about the potential systemic risks and implications for competition in the banking sector, as smaller banks struggle to keep up with the ever-growing influence and capabilities of these behemoths.
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