First Republic Bank’s collapse this spring was a watershed moment. Now a much smaller lender called Republic First Bank is in financial purgatory, a case that may test regulators and turn the idea of too-big-to-fail upside down, the Wall Street Journal reported. Republic First, a Philadelphia lender with $6 billion of assets, shares many of the problems that sank San Francisco-based First Republic. Those include heavy paper losses that don’t get counted on its balance sheet under the accounting rules and would wipe out its equity, or net worth, if they did. Both banks tried and failed to raise capital. So far Republic First has managed to live on, and its depositors largely have remained loyal. Deposits as of June 30 were down just 10% from a year earlier. However, investors have fled. The stock was delisted last month from Nasdaq. Deposit flight was the proximate cause of the demise earlier this year of First Republic and two other major lenders. Republic First’s financial difficulties may put the faith of depositors to the test. About 60% of its deposits were uninsured as of June 30. If regulators closed the bank without an acquirer in place to take over, that could mean significant losses for uninsured depositors. Regulators have said that such a failure could spur runs on other banks.
