JP Morgan Chase has taken over the troubled US bank First Republic in a deal brokered by regulators.

The Wall Street giant said it would pay $10.6bn (£8.5bn) to the Federal Insurance Deposit Corp (FIDC), after regulators shut down the smaller bank.

The First Republic had been under pressure since last month, when the collapse of two other US lenders sparked fears about the state of the industry.

Authorities said they hoped the deal would resolve any panic.

The bank’s 84 offices in eight states will reopen as branches of JPMorgan Chase Bank from Monday after regulators seized control and immediately sold to the Wall Street institutions.

In a scramble to come up with a rescue package, US officials were understood to have contacted six banks before landing on America’s largest lender, according to news agency AFP.

Jamie Dimon, chief executive of JP Morgan Chase, said the government had “invited” the banking giant, along with others, to “step up, and we did”.

“This part of the crisis is over,” Mr Dimon said, noting that several other banks were at risk of such massive customer flights.

“Down the road – rates going up, recession, real estate – that’s a whole different issue. For now, we should take a deep breath.”

Jamie Dimon

Jamie Dimon told reporters on Monday: ‘Hopefully this will help stabilize everything.’

The failure of the San Francisco-based First Republic is the second-largest in US history and the third in the US since March.

Worth more than $20bn at the beginning of March, the bank was known for catering to wealthy clients and was ranked as the 14th biggest in the US at the end of last year.

But as fears hit the industry after the collapse of two other lenders last month, it was seen as vulnerable.

It had an unusually high share of customer accounts holding more than the $250,000 guaranteed by the US government, which were at risk of leaving.

It also had a big book of mortgages, which had been hurt by the sharp rise in interest rates last year.

In recent weeks, worried investors have dumped shares.

The sell-off accelerated last week after the firm admitted that customers had withdrawn roughly $100bn of deposits during the panic in March, more than anticipated.

Betsey Stevenson, professor of economics at the University of Michigan, said First Republic did not have “systemic problems” but failed because customers panicked.

The sale to JP Morgan was better than the alternative, she added.

“It’s just not a good idea for a bank to have to liquidate everything over a weekend in order to meet the demands of their depositors,” she said.

JP Morgan will take on $173bn of loans, about $30bn of securities and $92bn of deposits from First Republic, it said in a statement.

It said it hoped to retain First Republic customers and boost its wealth management business.

Shares in JP Morgan gained 2.6% following the deal.

As part of the agreement, the FDIC will share losses on some loans with the JP Morgan and provide it with $50bn in financing. It has estimated that its insurance fund would take a hit of about $13bn in the deal.

‘Sound and resilient banking system’

A spokesperson for the US Treasury Department said it was “encouraged” that the deal was carried out in a way “that protected all depositors”.

“The banking system remains sound and resilient, and Americans should feel confident in the safety of their deposits and the ability of the banking system to fulfill its essential function of providing credit to businesses and families,” the spokesperson added.

The failure of First Republic follows the collapse of Silicon Valley Bank (SVB) in March and the demise a few days later of another US lender, Signature Bank.

Following the collapse of SVB and Signature, US authorities stepped in to guarantee deposits beyond typical limits in an effort to head off further runs on bank deposits.

But that did not immediately prevent concerns from spreading.

In Europe, Swiss officials were forced to broker a rescue for troubled banking giant Credit Suisse, which saw 61.2bn Swiss francs ($69bn; £55.2bn) leave the bank in the first three months of the year.

In March, a group of America’s biggest banks, including JPMorgan, stepped forward to pump $30bn into the First Republic in a bid to stabilize the business, but the efforts proved futile.

Mr Dimon said the deal had bought time and allowed regulators to close the firm without having to guarantee all deposits.

Those deposits will be repaid as part of the deal.

The turmoil in the banking sector is seen as part of the fallout after central banks around the world, including the US, raised interest rates sharply last year.

Those moves have hurt the value of debt with lower interest rates.

But analysts have said the current situation doesn’t appear to be a repeat of the 2008 financial crisis as there isn’t the same system-wide problem, when banks around the world suddenly found they were exposed to rotten investments in the US housing market .

That led to enormous government bailouts and a global economic recession.

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