First Republic Closure Contradicts Anti-crypto Narrative

Regulators have questioned crypto’s role in the banking crisis failures, but with First Republic, the bank seems to have fallen without the help of digital assets

article-image

rarrarorro/Shutterstock modified by Blockworks

share

A fourth major US bank failed Thursday, and regulators are going to have a hard time passing this one off as a crypto problem. 

Long-troubled First Republic Bank officially collapsed Monday when regulators took possession of assets and accepted a bid from JPMorgan to take over the reins. 

It’s the fourth bank collapse this year; Silvergate Bank shut its doors March 8, Silicon Valley Bank went down March 10 and Signature Bank failed on March 12. In the weeks since, regulators have questioned crypto’s role in the failures, but with First Republic, the bank seems to have fallen without the help of digital assets. 

Anti-crypto narrative 

Silvergate’s “business model focused almost exclusively on providing services to digital asset firms,” the Federal Deposit Insurance Corporation said in a March 28 statement. The firm’s reliance on crypto was risky, the agency added. 

The FDIC added that in Signature’s case, even though the bank had a more diverse deposit base, it was ultimately crypto-market related fears that triggered the run. 

The New York State Department of Financial Services questioned this narrative, noting in a report that Silvergate’s liquidity position was inadequate and bank officials self-reported unreliable data about the state of its viability. 

Further, the NYSDFS added that for Signature, “the percentage of digital asset customer withdrawals on March 10 was relatively proportional to the percentage of digital asset customers in the deposit base overall.” 

Signature and Silvergate were however viewed by the public and media as “crypto banks,” which the NYSDFS said likely intensified the runs on the institutions. 

Regulators were skeptical of the banking systems’ engagement with crypto before the banks even failed. 

“Banking organizations that use certain sources of funding from crypto–asset–related entities may be exposed to heightened liquidity risks due to the unpredictability of the scale and timing of deposit inflows and outflows,” the FDIC said in a February 2023 statement. 

Signature board member and former Congressman Barney Frank alleges the FDIC took control of the bank’s assets while they were still solvent. The situation proves federal regulators are just after crypto, Frank told New York Magazine

The case for First Republic 

According to earnings statements and documents, First Republic had minimal if any crypto exposure. There are, of course, other pressures banks face,  particularly in the past few years, analysts said. 

“Banks who took in a lot of new deposits during the pandemic ended up locking in lower long-term rates,”  Richard Smith, co-founder of investment research firm Finiac, said. “When short-term rates started to rise and banks were forced to pay higher short-term rates to depositors, those lower long-term rates became a big problem.”

JP Morgan assumed all First Republic assets Thursday – deposits, both insured and otherwise, and $173 billion in loans – for a winning bid of $10.6 billion. JP Morgan is not assuming the failed bank’s debt or preferred stock. 

“Our government invited us and others to step up, and we did,” JPMorgan CEO Jamie Dimon said in a statement. “Our financial strength, capabilities and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the deposit insurance fund”

The FDIC is coughing up around $13 billion to cover the failure of First Republic.


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter.

Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Javits Center North | 445 11th Ave

Tues - Thurs, March 18 - 20, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

kamino cover.jpg

Research

Kamino has solidified its position as the leading money market on Solana and is emerging as a DeFi bluechip. Although DeFi competition is fierce, Kamino has kept iterating on its product to provide the best-in-class UX, paired with a robust risk management framework and battle-tested infrastructure. Given the rollout of Kamino Lend V2, the protocol may scale aggressively over the coming months, penetrating previously untapped markets in Solana DeFi.

article-image

Also in the tokenized fund space, Franklin Templeton launches on Base and Securitize hits $1 billion in tokenized RWA onchain

article-image

It turns out that bitcoin never actually hit an all-time high in March. Thanks a lot, inflation.

article-image

Spire, Citrea and Nillion also announced raises this week

article-image

The latest recipient of an SEC Wells notice is a Web3 gaming company

article-image

Thursday’s selloff was led by tech stocks, triggered by disappointing outlooks from giants Meta and Microsoft

article-image

Historically, positive returns have been a bit more of a toss-up during the year’s 11th month