Top Reasons Why US Bank Republic First Bank Collapsed

The Pennsylvania Department of Banking and Securities (PABS) has closed the Republic First Bank recently due to its collapse. The First Republic Bank is known as the Republic Bank and has been officially closed on April 26th, 2024. It was a Philadelphia-based bank and has become the first bank that has collapsed this year. The last bank that collapsed was the Citizens Bank, based in Sac City, Iowa, back in November of 2023.

It is not the first time Republic First Bank has been associated with collapse. The bank had previously failed in 2023 following the Silicon Valley and other Bank collapses. It has become the sixth largest bank that failed in the USA after 2010.

PABS has appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver for this US Bank, and the Fulton Bank has officially taken over the Republic Bank.

According to 31st January 2024, the Republic First Bank had $6 Billion worth of assets and $4 Billion in deposits and the cost to the Deposit Insurance Fund (DIF) comes out to around $667 million.

Why did Republic First Bank collapse?

Last year was a bad phase for US banks where three major banks collapsed in May only. It includes the Silicon Valley, Signature Bank, and the Republic First Bank. These collapses also impacted the stock and cryptocurrency market performance.

The signs of Republic Bank’s collapse have been noticeable since 2023 when the bank cut jobs and even exited the mortgage origination due to the difficulties of high cost and failure to increase profitability in business. To deal with the collapse, the bank had dealt with a few investor groups, including George, a veteran businessman Norcross, and Philip Norcross, a famous attorney. Despite the efforts to revive the bank for months, everything came to an end in February 2024.

For the Republic Bank collapse, two prominent reasons have come forward, including management disputes and increased inflation rates.

Increasing Interest Rates Led To Republic Bank Failure

As per the company reports, in the fourth quarter of 2021, the management heavily invested in long-duration securities, which had low fixed interest rates. As with the increase in interest rates over periods, those securities values continuously declined.

The same has happened with many other banks that invested in government securities or bonds to make a return on their investment during the low-interest times. It is because, with low interest, it gets harder to make profits.

As the interest rate surged, the government bonds moved out of the money, causing heavy losses. Hence, the increasing inflation rate has turned out to be the main factor behind the fall of Republic First Bank.

Other than that, the frequent changes in management and strategic planning of the bank have been blamed for the failures.

With the failure in revival, the FDIC began to seize and sell the First Bank, which led to the fall of the bank’s stock price.  The impact of the fall was also visible in stock prices, as earlier, the stock was valued at $2 per share, but by April 26, the stock value fell to 1 cent. The stock was already delisted from Nasdaq in August and was traded over the counter. With this, the stock’s market cap dropped to $2 million.

Final Thoughts

The Republic First Bank has officially become the first victim of the USA’s rising interest rate in the last 18 months. It is also possible that similar interest rises will lead to the failure of more banks in the future. More importantly, the effects of such collapses are also visible in other financial sectors like Stocks and Cryptocurrency.

Also Read: Why MicroStrategy Is Still Buying Bitcoin Despite $53 Million Loss?

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