Keeping perspective amid latest banking challenge

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Keeping perspective amid latest banking challenge

Vanguard Perspective


May 1, 2023

First Republic Bank, as of year-end 2022 the 14th-largest U.S. commercial bank by assets, has been taken over by the Federal Deposit Insurance Corporation (FDIC) and will be sold to JPMorgan Chase Bank, the FDIC said May 1. All depositors of First Republic Bank will become depositors of JPMorgan Chase and will have full access to their deposits. Nonetheless, the third regional bank failure in less than two months poses challenges for policymakers and tests investors’ long-term focus.

Here we provide background on recent stress in the U.S. banking system, summarize the limited exposure of our U.S.-domiciled funds to First Republic (ticker: FRC), and offer perspective for investors.


Trouble at First Republic emerged in March—its share price plunged nearly 90%—amid the collapse of Silicon Valley Bank and Signature Bank. Silicon Valley Bank suffered a run on deposits by customers concerned about its ability to meet its liabilities, given declines in the value of its assets. The bank had substantial holdings of long-term U.S. Treasuries and mortgage-backed securities, which lost value in 2022 as the Federal Reserve raised interest rates to quell inflation. Regulators closed Silicon Valley Bank on March 10. Two days later, Signature Bank was also shut down by regulators. The FDIC fully protected all depositors, insured and uninsured, at both banks.

Net deposit withdrawals by First Republic customers during the first three months of the year totaled more than $70 billion, or 40% of all the bank’s deposits as of year-end 2022, according to the bank’s first-quarter earnings release, issued April 24. The figures would have been worse if not for $30 billion in deposits by some of the largest U.S. banks, which sought to stabilize First Republic. The bank also raised its borrowings sevenfold.

After those disclosures, First Republic’s share price further collapsed over the past week, hastening its seizure and sale. The three bank failures are likely to lead to tighter regulation and supervision by federal and state authorities, who will be challenged with ensuring bank stability while enabling credit growth.

Exposure of Vanguard funds to First Republic securities

Securities issued by First Republic, including stocks and bonds, represented less than 0.01% of U.S.-domiciled Vanguard fund assets as of March 31, 2023.1

The U.S.-domiciled Vanguard funds that held First Republic stocks or bonds as of that date had, at most, 0.08% of their net assets invested in those securities. All the holdings were in index funds, which seek to mirror as closely as possible the performance of their market-based benchmarks. No actively managed Vanguard funds, including money market funds, had exposure to First Republic securities as of March 31, 2023. 

Investors should take a long-term view

The Federal Reserve continues to grapple with too-high rates of inflation. As we described in our economic and market outlook for 2023, we believe that rapid monetary tightening aimed at bringing down inflation will ultimately succeed but at the cost of a global recession in 2023. Restrictive monetary policy stresses the banking system and slows credit formation. The tension between the Fed’s inflation-fighting mandate and its financial stability goal likely could spur greater market volatility in the coming months.

Fed policymakers next meet May 2 and 3. Vanguard expects them to raise their target for short-term interest rates by 25 basis points (0.25 percentage points), to a range of 5.00%–5.25%. Policymakers are likely to raise rates another time or two this year and then maintain their peak rate target until 2024.

For investors, unexpected and fast-moving economic or financial market news can be disquieting. In the vast majority of cases, however, we believe that investors benefit in the long run by sticking with well-considered financial plans and portfolios.

We believe investors should focus on:

  • Aligning their asset allocation with their risk tolerance.
  • Controlling costs.
  • Adopting realistic expectations.
  • Holding broadly diversified funds.
  • Maintaining discipline.

In general, investors should change their portfolios only when there are meaningful shifts in their investment horizons, goals, or financial circumstances, and not in response to short-term market conditions or performance.

1 The holdings of most Vanguard funds as of the end of a given month are updated on our websites around the middle of the following month. An exception applies to certain of our ETFs, which disclose their holdings daily.


  • All investing is subject to risk, including the possible loss of the money you invest.
  • Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
  • There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • Diversification does not ensure a profit or protect against a loss.

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