America’s biggest banks moved to shore up the First Republic on Thursday, easing fears that the regional lender could be the next domino to fall after collapses including Silicon Valley Bank.
A consortium of 11 US private banks, including Bank of America, Citigroup and JPMorgan Chase, announced that they would deposit $30 billion in First Republic.
The move marks a dramatic initiative by lenders to shore up the system following the failures of three mid-sized lenders last week.
“This action by America’s largest banks reflects the confidence they place in First Republic and banks of all sizes,” the group said in a joint statement.
“Together, we are deploying our financial strength and liquidity in the larger system where it is most needed,” the banks said.
Shares of First Republic pared earlier losses to trade higher on Wall Street on Thursday after reports it may receive funding from some of the nation’s most prominent financial institutions.
“This show of support by a group of large banks is welcome, and demonstrates the resilience of the banking system,” said leaders from the Treasury Department, the US Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. joint statement.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo are each pouring $5 billion in uninsured deposits into First Republic, while Goldman and Morgan Stanley will each put in $2.5 billion.
A group of five other lenders, including PNC Bank and US Bank, are allocating $1 billion each.
In a statement, First Republic founder Jim Herbert and CEO Mike Roeffler said, “The collective support strengthens our liquidity position … and is a vote of confidence for First Republic and the entire American banking system.”
The action comes on the heels of emergency measures taken by the Federal Reserve and other US regulators on Sunday night to reassure all depositors of two failed banks, Silicon Valley Bank and Signature Bank.
Last Friday’s failure of the SVB has raised concerns about a contagion effect, with concerns particularly keen that more banks could be run by depositors.
The crisis has also spread to Europe, with the Swiss Central Bank intervening to support Credit Suisse after it came under pressure.
‘Elevated’ outflow risk
Founded in 1985, First Republic is the 14th largest US bank by assets with $212 billion at the end of 2022.
Headquartered in San Francisco, the lender has a presence on the East Coast in New York and Florida as well as western states like Washington and Wyoming.
But the majority of the bank’s “affluent” customer base is concentrated in coastal urban areas, Morningstar analyst Eric Compton wrote in a recent note to clients.
The bank is known for personal banking and wealth management. As a result of its clients, it has a large percentage of uninsured deposits which has placed it under scrutiny following the failures of SVB and Signature.
The past week also saw crypto banking titan Silvergate shut down due to market turmoil and regulatory pressure.
Although First Republic’s customers come from a wide range of areas, there are concerns that many of them may flee for the relative safety of large, well-capitalized Wall Street banks in light of ongoing turbulence in the financial markets.
According to S&P Global Ratings, 68 percent of the bank’s accounts have deposits of more than $250,000, a level automatically guaranteed by US regulators.
“We believe the risk of deposit outflows has increased at First Republic Bank,” S&P said Wednesday in downgrading the lender.
S&P said this is despite the actions of federal banking regulators and actively increasing its lending availability to reduce the risk associated with last week’s bank failures.
As of Thursday morning, First Republic’s share price had fallen more than 75 percent week-to-week, raising concerns about its long-term viability.
Wall Street shares closed solidly higher after the 11 banks announced.
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)