First Republic Gets $30 Billion Rescue From Top US Banks

Jack Phillips
By Jack Phillips
March 16, 2023US News

The beleaguered First Republic Bank will receive $30 billion from the top U.S. banks in a bid to stabilize the troubled firm, the banks confirmed in a joint statement Thursday.

Eleven of the largest U.S. banks will provide an infusion to the bank following a volatile week that saw the lender’s stock plunge following the collapse of Silicon Valley Bank (SVB) last week, the institutions said, confirming anonymously sourced reports there were discussions to shore up First Republic.

“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a statement Thursday. “Smaller- and medium-sized banks support their local customers and businesses, create millions of jobs and help uplift communities. America’s larger banks stand united with all banks to support our economy and all of those around us.”

The banks that will provide deposits include Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY-Mellon, PNC Bank, State Street, Truist, and U.S. Bank. Those deposits will be uninsured, the statement said.

The U.S. Department of Treasury, Federal Deposit Insurance Corporation, and Federal Reserve also issued a statement confirming the move. “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the agencies said.

After the collapse of SVB and New York’s Signature Bank, there were fears that contagion would spread to First Republic. The institution, like the aforementioned two, reportedly had a large number of uninsured deposits, triggering fears that customers would withdraw their money en masse.

First Republic’s stock closed at around $115 per share on March 8, but as of Thursday, it traded below $20 as it was halted multiple times throughout the week. By the end of Thursday, its stocks rose by about 9 percent.

Ratings service Moody’s on Tuesday said that it would put First Republic under review for a downgrade because of the highly volatile funding conditions for it and other U.S. banks exposed to uninsured deposit withdrawals.

NTD Photo
A combination file photo of Wells Fargo, Citigbank, Morgan Stanley, JPMorgan Chase, Bank of America, JPMorgan, and Goldman Sachs. (Reuters)

The development could help calm the nerves of bank investors after the collapse last week of SVB, which was the second biggest bank failure in U.S. history after the demise of Washington Mutual in 2008. The shuttering of SVB Friday and of New York-based Signature Bank two days later has revived bad memories of the financial crisis that plunged the United States into the Great Recession of 2007–2009.

Over the weekend the federal government, determined to restore public confidence in the banking system, moved to protect all the banks’ deposits. That includes those that exceeded the FDIC’s $250,000 limit per individual account, sparking criticism from some top investors.

On Thursday morning, Treasury Secretary Janet Yellen insisted to senators during a hearing that bank deposits and savings “remain safe” and that the federal government is committed to ensuring that deposits are safe and that the American banking system is sound.

“I can assure the members of this committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them,” Yellen told lawmakers in a prepared statement. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

Analysts have said that banks have suffered due to the Federal Reserve’s attempts to hike interest rates to offset decades-high inflation. Higher rates can tame inflation by slowing the economy, but they raise the risk of a recession later on and also can harm the prices of stocks, bonds, and other investments.

Yellen added that the rescue was designed to ensure that customers could gain access to their money, pay their pills, and pay their workers. Debtholders and shareholders are not protected from losses linked to the bank’s collapse, she said, adding that the Federal Reserve also made it easier for banks to borrow in case of a possible emergency.

Also Thursday, she made no mention of the situation regarding Credit Suisse, the Swiss-based giant that saw its shares plunge earlier this week. The firm said in a statement this week that it would borrow up to 50 billion Swiss francs, or about $53 billion, from Switzerland’s central bank to provide more liquidity.

The Associated Press contributed to this report.

From The Epoch Times

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