After the collapse of Silicon Valley Bank and Signature Bank, another bank in the USA is in crisis, the San Francisco-based First Republic Bank. Amidst falling stock prices and fleeing depositors, the First Republic Bank has received $30 billion from 11 large US banks to prevent it from collapsing. The cash injection came into effect after First Republic Bank’s executives met with Treasury Secretary Treasury Janet Yellen and bank regulators in Washington DC.
As per reports, four banks namely JP Morgan Chase & Co., Bank of America Corp., Wells Fargo & Co., and Citigroup Inc made uninsured deposits of $5 billion each into First Republic Bank. Besides two other banks, Goldman Sachs Group Inc. and Morgan Stanley deposited $2.5 billion each.
Five other banks, namely, U.S. Bancorp, Truist Financial Corp., PNC Financial Services Group Inc.Bank of New York Mellon Corp. and State Street Corp. contributed $1 billion each.
The US’s biggest banks agreed to deposit $30 billion with First Republic Bank in an effort to stem the turmoil that’s sent depositors fleeing from regional banks and shaken the country’s financial system.@sonalibasak reports https://t.co/wZTL6d5VaI pic.twitter.com/t5DAmpkQZj
— Bloomberg (@business) March 16, 2023
In a joint statement, the Federal Reserve, Treasury Department, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. said, “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”
Reportedly, the $30 billion cash injection will help redress immediate issues of falling stock prices and fleeing depositors. It must be mentioned that the First Republic Bank’s stock dropped by 60% and market capitalisation fell from $21 billion to under $5 billion in a week’s time.
The deal was reportedly put together by power brokers including U.S. Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan Chase CEO Jamie Dimon, who discussed the package on Tuesday.
The $30 billion deposits by the banks came after First Republic was given access to $70 billion in funds by JPMorgan, but this was not enough to calm the worries of the investors following the demise of Silicon Valley Bank, as depositors had started to move cash to large banks.
It underwent a liquidity crisis after customers moved billions of deposits out of the bank in distress. The joint deal by 11 US banks to help the First Republic Bank comes amidst fears of the collapse of the entire banking system. The Silicon Valley Bank (SVB) and the Signature Bank shut shop earlier this month. In Europe, Credit Suisse is also facing a major crisis, although it has been extended a lifeline by the Swiss central bank, which has offered a loan up to 50 billion francs ($54 billion).
In the past, the First Republic Bank had several wealthy businesses and individuals as its customers. As of December last year, it had $176 billion in deposits and $213 billion in assets. The aggressive increase in interest rates by the Federal Reserve System took a toll on the First Republic Bank.
