Big banks throw $30 billion lifeline to First Republic
The 11 biggest U.S. banks are putting $30 billion on deposit at First Republic, offering a financial lifeline to the struggling lender.
JPMorgan, Bank of America, Citigroup and Wells Fargo – the four largest banks in the U.S. – deposited $5 billion apiece, and others including Goldman Sachs, Morgan Stanley and State Street contributed smaller amounts.
“The actions of America’s largest banks reflect their confidence in the country’s banking system,” the big four said in a statement. “Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most.”
Regulators, who have been working for a week to resolve troubled regional lenders and avoid a broader panic, applauded the move. “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, FDIC Chairman Martin Gruenberg, and Acting Comptroller of the Currency Michael Hsu said in a joint statement.
The banks will earn the same rate as other depositors, according to a person familiar with the terms.
Big banks got a surge of deposits over the past week, much of it from First Republic customers who pulled their money in a panic. They are essentially giving much of that money back.
The banks said the deposits, which exceed the $250,000-per-customer FDIC insurance limit, were unsecured. The FDIC may choose to explicitly insure them, as it did last weekend with the deposits of Silicon Valley Bank, whose collapse sparked the panic, and Signature Bank, the second to fail.
The multi-billion dollar infusion will help the San Francisco bank meet demand for customer withdrawals and aim to secure confidence among the public as the global financial banking sector enters a particularly volatile moment not seen since the 2008 recession.
Tensions rose last week after the collapse of Silicon Valley Bank, another Bay Area-based lender that had been extensively supporting the startup tech industry. It's downfall was the second-largest bank failure in U.S. history.
Many First Republic customers subsequently panicked and began withdrawing funds. Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday over concerns that depositors could pull their cash too quickly.
Thursday's announcement seemed to temporarily calm investors, with First Republic's shares ending about 10% higher after trading had been halted several times throughout the day.