How First Republic became such a hot mess

New York (CNN) It may seem surprising that First Republic, a medium-sized bank catering to wealthy clients in coastal states, became such a threat to the US banking system that the government had to trump the industry to stage an intervention.

The reason has a lot to do with the wealthy people who bank there.

“It’s the greatest example of a bank that could go down and shouldn’t go down — a top-notch bank,” said a source close to the 48-hour deal to give First Republic $30 billion in cash.

San Francisco-based First Republic, the nation’s 14th-largest bank, received the cash injection from 11 rivals, including America’s largest lenders.

When Jamie Dimon, CEO of JPMorgan Chase, reached out to Treasury Secretary Janet Yellen and Federal Reserve Board Chairman Jerome Powell on Thursday, “the conversation quickly turned to First Republic,” the source told CNN.

The government-sponsored bailout is not a bailout — the goal is to give the bank enough money to cover customer withdrawals and reassure investors it can withstand the turbulence that has plagued the industry over the past week.

So far it has not had the desired effect.

Shares of First Republic fell 25% on Friday. His rescuers are also having a hard time JPMorgan Chase (JPM) a decrease of 3% and bank of America (BAG) fall 4%.

“The market is saying, ‘This is still not enough. We need more,'” Ed Mills, Washington policy analyst at Raymond James, told CNN Friday.

Why did First Republic have a target on its back?

Investors saw similarities between First Republic and the bankrupt Silicon Valley Bank — another medium-sized Bay Area lender with a big-bag customer base.

“These savers are particularly susceptible to triggers,” said Patricia McCoy, a Boston College law professor. “They’re sophisticated, they know they have other options, and they have mechanisms to move money quickly.”

That “particularly volatile” pool of savers poses a risk to investors, said McCoy, who helped found the Consumer Financial Protection Bureau.

Major banks like JPMorgan Chase have diversified their depositor base with more of what McCoy calls “sticky deposits.” In other words, ordinary people who have less than the $250,000 FDIC insured limit in the bank.

About two-thirds of the First Republic’s deposits were uninsured. That’s far less than the 94% uninsured by Silicon Valley Bank, but according to S&P Global, First Republic also had an unusually high loan-to-deposit ratio of 111% at the end of last year — meaning it has lent more money than it has deposits.

— CNN’s Matt Egan and Christine Romans contributed to the reporting.

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