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Today in the Market (5/1/2023)

Good Evening! As Wall Street processed JPMorgan Chase’s acquisition of regional lender First Republic Bank, U.S. equities fell slightly under Monday.

The S&P 500 slid barely by 0.04%, while the Dow Jones declined by 0.14%. The Nasdaq Composite fell 0.11%.

ANOTHER ONE FALLS

This Morning, the government seized First Republic Bank and sold most of its assets to the largest bank in the U.S., JPMorgan Chase (JPM).

So what happened to get to this point? First Republic attempted to withstand the winds of collapse on its own. However, it was not enough after customers withdrew more than $100 Billion in deposits in Q1 of this year. This resulted in the share value plummeting by almost 75% last week. This is where the government stepped in and closed it for good.

What does JPMorgan get out of it? JPM will acquire the $92 Billion in deposits that remained in First Republic. This helps the government by not having a repeat like with SVB collapse, which cost the FDIC’s Deposit Insurance Fund around $20 Billion.

A common theme… The government-brokered acquisition is just the latest example where larger banks acquire smaller failing banks at a discount. Another example was First Citizens acquiring the remains of SVB or UBS buying Credit Suisse for $3.3 Billion back in March.

NEW RULES!

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In light of Silicon Valley Bank’s failure, the FDIC proposed an increase in deposit insurance for business payment accounts at banks. However, this would require congressional approval.

Why? When the Santa Clara bank failed, technology companies and venture capital firms with deposits at Silicon Valley Bank exceeding the FDIC’s $250,000 maximum risked not having sufficient funds to pay employees or suppliers. To guarantee uninsured deposits, regulators invoked special authorities.

So what does the FDIC suggest? The FDIC proposes two alternative possibilities for overhauling the deposit insurance system in the report. This includes extending limitless coverage, completely insuring all accounts, or preserving the present system with the possibility of increasing the cap from the current $250,000 per account.

Companies only! The FDIC warns that providing greater coverage for business accounts may be exploited by people, trusts, or estates that aren’t actually company accounts and that legislators must clearly specify the requirements for qualifying accounts

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