First Republic vs Republic First: A Comparison

First Republic’s Troubles

First Republic, which had been supervised by the FDIC since 2018 and received largely positive examination ratings throughout, was determined to have failed due to a number of factors:

1. First Republic was particularly prone to interest rate changes due to a business model that catered to a low interest rate environment.  First Republic didn’t properly mitigate this risk.
2. Certain aspects of First Republic’s business model made it vulnerable in the wake of SVB’s closure. These aspects included:
   1. Growth in assets and deposits at a rate more rapid than its peers, although still not as dramatic as the rapid growth seen from SVB (with an annual growth rate of 45%).
   2. Significant asset and funding concentrations. Asset concentrations and funding concentrations mean that those assets and funding types share common risks and market sensitivities that can disproportionately affect portfolios.
   3. A lack of diversification in loan and funding concentrations, unrealized losses, and an overreliance on uninsured deposits.
3. First Republic relied heavily on uninsured deposits and depositor loyalty, which quickly faded following the collapse of SVB and Signature Bank, leading to a run on the bank.

Republic Bank’s Differences

Amidst confusion between the identities of Republic Bank and First Republic Bank, the Bank’s newly seated CEO stepped in to outline differences between the banks. While First Republic largely engaged with a high-net-worth clientele, and SVB largely lent to tech start-ups, Republic Bank made it clear that they generally only lend to long established businesses that are already profitable. Throughout their tenure, Republic Bank also emphasized their “fanatic” customer service and strong depositor loyalty. However, Republic First announced a decline in deposits in 2022 and 2023.

Upon the Bank’s restructuring of the Board, the Bank’s management strategy was to stabilize and reduce their balance sheet while winding down their mortgage origination business. In exchange, they planned to lean on their customer base’s loyalty to build their deposit base. However, taken with Republic Bank’s other circumstances, their plan ultimately failed.

 Takeaways

While one of the only true similarities between these bank failures – aside from their similar names – is an overreliance on depositor and customer loyalty, this factor taken in combination with other areas of weakness for each bank contributed to their demise. The unique circumstances leading to the failure of Republic Bank may help to reassure other small banks in the market. By presenting a demonstration of how unfortunate circumstances and shaky management can snowball when not properly corrected, we can see that perhaps this bank failure isn’t necessarily a sign of any larger theme. Regardless, examining this failure is key to understanding and learning from the experiences of other banks.