The Federal Insurance Deposit Corp. said on Friday it could have done more to alert First Republic Bank’s (OTCPK:FRCB) of the risks the bank was taking before it collapsed in May.
The agency said it could have been “more forward-looking in assessing how increasing interest rates could negatively impact the bank.” It also could have done more to challenge and encourage the bank to take actions to mitigate the interest rate risk, according to the FDIC’s internal review of its supervision of San Francisco-based First Republic (OTCPK:FRCB).
“Given First Republic’s size, there were also opportunities for the FDIC to take a more holistic approach to supervising the bank, including greater involvement of FDIC headquarters supervision resources and leadership in assisting the San Francisco region with effectively challenging bank management’s strategies and assumptions, and bringing a broader horizontal perspective and understanding of risks,” the FDIC said in a statement.
The report highlighted attributes of First Republic’s (OTCPK:FRCB) business model that made it more vulnerable to interest rate changes and the contagion that spread after the failure of Silicon Valley Bank in March. Those included: “rapid growth and loan and funding concentrations, overreliance on uninsured deposits and depositor loyalty, and failure to sufficiently mitigate interest rate risk.”
Considering the bank’s size, risk profile and sophistication, First Republic (OTCPK:FRCB) “should have taken additional proactive measures to mitigate interest rate risk,” the FDIC’s report said.
The FDIC supervised the bank under a continuous examination process, and the FDIC’s examination team “issued required examination products timely, assigned generally positive examination ratings, and issued few Supervisory Recommendations,” it said.