bintananth
behind a desk
1st Republic failed because they weren't prepared for interest rate hikes. Banks make their money by borrowing short, lending long, and pocketing the difference. They goofed that up.Looking at it, it's basically, roughly, how it would work in a free market. The bank failed. The insurer (The FDIC), thus gets control of the entire bank in order to pay off the depositors. To do this, it sees if it can sell the bank off and save money, which it could.
The problem isn't the sell off, it's the failure in the first place.
(i.e. They learned nothing from the S&L Crisis of the 80s and 90s. Over a span of 10yrs one-third of those failed.)
When interest rates rise the value of the long term debt you hold takes a hit. Fr'ex: a $1,000 30-year 5% bond issued yesterday is now worth $861.62 if the 30yr rate jumps to 6% overnight. That's before you factor in the now more-expensive short-term money the bank borrowed (i.e.: the deposits) to buy that bond.
Ouch.