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JP Morgan bought First Republic via loophole in 1994

On Monday, May 1, 2023, Jamie Dimon’s JP Morgan Chase acquired the troubled First Republic Bank. Marco Bello — via Bloomberg, Getty Images

good morning.

JP Morgan CEO Jamie Dimon rules the American financial world like no one since JP Morgan.

It was the bank namesake who became the de facto central banker and bailed out the US financial system during the panics of 1893 and 1907. And, of course, Dimon himself starred in his 2008 financial crisis, where Bear bought both Stearns and his Washington Mutual. So it shouldn’t surprise anyone that it was Dimon who stepped up this week to buy the failed First Republic Bank business.

For a short time, the original JP Morgan was the target of an effort to destroy Teddy Roosevelt’s credibility. In the end, however, he escaped mostly unscathed. why? Perhaps because power was determined, he was more valuable as a friend than an enemy.Dimon now benefits from a similar dynamic.

As Sean Tully explains in this must-read luck A federal law passed in 1994 allowed interstate banks to limit the total share of domestic deposits a bank could hold to 10%. But that cap only applies to acquisitions. Since 2014, his three largest banks in the United States — JP Morgan, Bank of America and Wells Fargo — have all crossed the threshold, partly due to acquisitions during the last financial crisis, and he is looking to buy other banks. Prohibited. Prior to this purchase, JP Morgan’s deposit share was over 16%. But the 1994 law also contained loopholes to bail out other banks whose banks were about to be closed by his FDIC. And voila! JP Morgan coup.

Unlike the 2008 acquisition that happened when financial troubles were still gaining momentum, this acquisition seems to mark the end of the action. “I think the banking system is very stable,” Dimon declared in a comment. “This part of the crisis is over.” But JPMorgan is bigger than ever and Dimon will be a figure to watch during the financial crisis.

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Alan Murray

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This issue of CEO Daily was edited by Claire Zillman.

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