First Republic Bank, facing a crisis of confidence from investors and customers, is set to receive a $30 billion lifeline from a group of America’s largest banks.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the Treasury Department said in a statement yesterday.
The major banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.
The $30 billion infusion will give the struggling San Francisco lender much-needed cash to meet customer withdrawals and buttress confidence in the US banking system during a tumultuous moment for lenders.
A First Republic spokesman declined to comment.
In a statement, the banks said their action “reflects their confidence in First Republic and in banks of all sizes,” adding that “regional, midsize and small banks are critical to the health and functioning of our financial system.”
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First Republic’s shares, which were halted several times for volatility yesterday, ended the day up more than 10 per cent.
The bank’s problems underscored continued worries about the banking system in the aftermath of the collapse of Silicon Valley Bank and Signature Bank.
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.
Many regional banks, including First Republic, have large amounts of uninsured deposits above the US$250,000 FDIC limit. Although not close to SVB’s massive percentage of uninsured deposits (94 per cent of its total), First Republic has a sizable 68 per cent of total deposits that are uninsured, according to S&P Global.
That led many customers to exit the bank and put their money elsewhere, creating a problem for First Republic: It has to borrow money or sell assets to pay customers their deposits in cash.
To make money, banks use a portion of customers’ deposits to give out loans to other customers. But First Republic has an unusually large 111 per cent liability-to-deposit ratio, S&P Global says. That means the bank has lent out more money than it has in deposits from customers, making it a particularly risky bet for investors.
The Federal Reserve created a loan system designed to prevent regional banks from failing after SVB collapsed.
The facility will allow banks to give the Fed their Treasury bonds as collateral for one-year loans. In return, the Fed will give banks the value that the banks paid for the Treasuries, which have plunged in the past year as the Fed has hiked interest rates.
That extraordinary federal intervention appears to have been insufficient to keep investors satisfied.
First Republic on Sunday announced a deal with JPMorgan to gain fast access to cash if needed, and the bank then said it had $70 billion in unused assets that it could quickly use to pay customers’ withdrawals if needed.
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Last modified: November 11, 2022
