What Happens When a Bank Buys Your Bank
The continuing saga of 2023 bank failures.
On May 1, customers of First Republic Bank were greeted with a message: Their bank now belonged to JPMorgan Chase.
This was the latest chapter in a series of major regional bank failures so far in 2023. It began in March with the collapse of three banks — Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank.
The largest of that group, SVB, had significant exposure to tech companies and venture capital firms that had relied on the low interest rate environment that ended when the Fed began hiking rates in 2022. On top of that, a significant portion of SVB’s balance sheet contained low-yield treasury bonds that were worth increasingly less in the new rate environment. SVB ended up taking a loss on many of these bonds, and when this news came out, customers lost faith in the institution, triggering a bank run.
Amid this turmoil, several large banks, including Chase, deposited $30 billion into First Republic Bank in an effort to keep it afloat — worrying that it could be next. That only worked for so long. Less than two months later, First Republic Bank supplanted Silicon Valley Bank as the second-largest bank failure in U.S. history.
First Republic Bank suffered much of the same fate. Rising interest rates lowered the value of many of the assets on its balance sheet. There were also general fears related to the previous bank failures that have made already weak banks look even more precarious to customers.
The FDIC temporarily took over First Republic and began the search for a buyer, ultimately settling on Chase, which purchased most of the assets on First Republic’s balance sheet, including deposits, loans and securities.
While there are obvious concerns about the health of the economy and the potential for further bank failures, there’s also the question of what happens when you find yourself in the position of a customer when a bank fails and gets bought by another bank.
What Bank Acquisitions Mean for Customers
What does it mean for customers when their bank is acquired by another bank?
Well, for First Republic customers, it’s business as usual. They still have access to their accounts, checkbooks and bank branches. But eventually, they will likely all be transitioned to Chase accounts as the merger completes.
This is what happened to customers of Washington Mutual in 2008, which to this day remains the largest bank failure in U.S. history. That bank failed as part of the broader financial crisis, and throughout 2009 Chase rebranded Washington Mutual locations as Chase branches.
So what happens if your bank gets bought? Honestly, not a ton. At most, you’ll experience some minor uncertainty during the initial phase of the transition process, and there may be some delays in accessing account features.
Because of the robust protections American banks and their customers enjoy, you have very little to worry about in terms of losing access to your deposits. FDIC insurance protects deposits up to $250,000 per account owner (meaning $500,000 on joint accounts). As we saw with SVB, even deposits well above the FDIC insurance limit may be protected in a crisis to shore up confidence in the banking sector.
You may also have the benefit of gaining access to more branches and ATMs if you prefer physical banking. If your bank is bought by a major national bank like Chase, this can be a huge plus.
Here are some possible negative effects: You may see favorable interest rates on savings accounts and CDs go away as the old bank's products are phased out and the new bank’s products replace them. If you have a CD, the rate you locked in may not be honored through the end of the term. That usually doesn’t happen with a merger but may happen with an acquisition.
Mergers and acquisitions, while similar, may present slightly different experiences for customers. Mergers often occur when two similar-sized banks decide to combine, resulting in a smoother, well-planned process. An acquisition, on the other hand, usually happens when a big bank buys a smaller bank, often, as is the case with First Republic, due to a bank's failure. That naturally leaves quite a bit of uncertainty, although, again, there’s little reason for concern if this happens to your bank.
Staying Calm Amidst Banking Turmoil
Above all, bank failures have little direct effect on consumers. Even as the banking crisis of 2023 continues, the worst you have to worry about are minor annoyances and delays as banks transition ownership.
The banking system in the U.S. is well-protected by the political appetite to ensure minimal damage to the overall economy when a bank is in trouble. There is always concern about more bank failures, which can have a negative impact on the economy at large, but there’s also very little you can do about that beyond ensuring you have plenty of savings to weather whatever storm comes, and the safest place for those savings is still a bank.