First Republic’s Jumbo Mortgages Brought On Bank’s Failure (1)

The seeds of First Republic Bank’s downfall were sown in the jumbo mortgages of Silicon Valley, where a unique strategy to loan wealthy individuals extraordinary sums of money blew up in spectacular fashion.

In the early 1980s, First Republic Chairman Jim Herbert, then running San Francisco Bancorp, wanted to get into a new line of business. The Bay Area’s high earners were coming to him and asking for unusually large loans to buy pricey properties in the area.

“Why don’t we do a couple of these and see how they go? Can’t bankrupt the whole bank,” Herbert said ...