First Republic provides $30 billion bailout after SVB and Signature Bank collapse

NY
CNN
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First Republic Bank, which is facing a crisis of investor and customer confidence, is set to receive a $30 billion lifeline from a group of America’s largest banks.

“This show of support from a group of large banks is welcome and demonstrates the resilience of the banking system,” the Treasury Department said in a statement Thursday.

The largest banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.

The $30 billion injection will give the struggling San Francisco lender much-needed cash to meet customer needs and bolster confidence in the US banking system at a difficult time for lenders.

A spokesman for the First Republic declined to comment.

In a statementThe banks said their actions “reflect their trust in the First Republic and banks of all sizes”, adding that “regional, medium and small banks are critical to the health and functioning of our financial system.”

First Republic shares, which were stalled several times due to Thursday’s volatility, were up more than 10% by the end of the day.

The bank’s troubles underlined lingering concerns about the banking system after collapse Silicon Valley Bank and Signature Bank.

Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday amid concerns that depositors could withdraw their money.

Many regional banks, including First Republic, have large uninsured deposits in excess of the $250,000 FDIC limit. According to S&P Global, despite the fact that the share of uninsured deposits in the First Republic is not as high as that of SVB (94% of the total), 68% of the total uninsured deposits.

This has caused many customers to leave the bank and put their money elsewhere, creating a problem for the First Republic to borrow money or sell assets in order to pay customers their deposits in cash.

To make money, banks use part of customer deposits to make loans to other customers. But according to S&P Global, First Republic has an unusually high debt-to-deposit ratio of 111%. This means that the bank has lent more money than it has deposits from customers, making it particularly risky for investors.

Treasury Secretary Janet Yellen held a private meeting in Washington on Thursday with JPMorgan CEO Jamie Dimon before 11 banks agreed to deposit $30 billion with First Republic Bank to stabilize the wavering lender, according to two people familiar with the matter.

The meeting was the culmination of a series of conversations over the past two days between Yellen and other US officials and leaders of some of the country’s largest banks as they sought a private sector lifeline for the stricken California bank.

Yellen led the government effort, and Dimon led the effort to organize the bank executives who were ultimately behind the dramatic infusion of deposits.

According to another source familiar with the matter, Yellen was the first to come up with the idea of ​​combining the largest US banks to channel deposits to the First Republic. The move was seen as critical to stabilizing the bank’s deposit base, but also as an important signal to financial markets for both the bank and the US financial system.

The Federal Reserve created a credit system designed to prevent the collapse of regional banks after the collapse of the SVB. The loan will allow banks to lend their Treasuries to the Fed as collateral for loans for one year. In return, the Fed will give banks the value that banks paid for Treasury bonds, which fell last year when the Fed raised interest rates.

This extraordinary federal intervention has not been enough to satisfy investors.

The First Republic announced on Sunday deal with JPMorgan to get quick access to cash if needed, and then the bank said it had $70 billion worth of unused assets that it could quickly use to pay out withdrawals to customers if needed.

– Phil Mattingly of CNN contributed to this report.