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What the Collapse of First Republic Bank Means for Small Businesses

The recent collapse of First Republic Bank has raised concerns among small businesses about the impact of this event on their operations. With First Republic Bank being the third bank to fail in the last two months, it has been taken over by federal regulators and has been sold to JPMorgan Chase.


At the time of closure, the bank had $229.1 billion in total assets, surpassing Silicon

Valley Bank ($209 billion at the time of closure) became the second-largest bank failure in American history.



First Republic Bank seized, sold to JPMorgan Chase

Before I share my advice to business owners, here's a brief summary of the last few weeks.


Why Did First Republic Bank Fail?

The rise in interest rates and the failures of Silicon Valley and Signature Bank caused many of First Republic Bank's clients to withdraw their money from the bank in fear that their deposits were in danger. As bank withdrawals exceeded $100 billion and their stock plunged 93% in late March, it became apparent that First Republic was no longer viable on its own.


What Happens Next for First Republic Bank and their Customers?

The Federal Deposit Insurance Corp. announced that it had seized the bank and would be sold to JPMorgan Chase. When a bank fails, depositors are generally only entitled to claim up to the $250k insured by the FDIC; however, First Republic depositors can breathe a sigh of relief as JPMorgan will be assuming all deposits – insured and uninsured.


 

Best Practices for Small Businesses

As a small business owner, you may be wondering what you can do to mitigate any impact on your business from events like these in the financial system. Here are some ideas on how to respond.


Credit Tightening

The collapse of a bank can lead to a tightening of credit in the financial system. Other banks may become more cautious in their lending practices, making it more difficult for small businesses to secure loans or lines of credit. To prepare for this, evaluate your current financial situation and identify areas where you can reduce expenses or increase cash reserves.


Supply Chain Disruptions

Small businesses that rely on suppliers or customers who were associated with First Republic Bank may experience disruptions in their supply chain. To mitigate this risk, maintain open communication with your suppliers and customers, and develop contingency plans for potential disruptions. This may include identifying alternative suppliers or customers, renegotiating contracts, or adjusting your inventory management strategy.


Increased Regulatory Scrutiny

Following a bank collapse, regulators may implement stricter regulations and oversight of the financial sector. This could lead to increased compliance costs for small businesses that rely on financial services, such as accounting, insurance, or investment management. Stay up-to-date on regulatory changes and ensure your business remains compliant to avoid potential fines or penalties.


If you need assistance navigating these uncertain times, our team is here to help. We offer a range of advisory, bookkeeping, and accounting services tailored to the unique needs of small businesses. Contact us today to learn more about how we can support your business.


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