US banking giants have come together to avert another American bank collapse. Embattled lender First Republic received a $30 billion rescue deal from some of the nation’s biggest banks like JPMorgan, Citigroup, Bank of America and Wells Fargo.
While all these banks provided $5 billion each, more than half a dozen other banks, including Goldman Sachs, Morgan Stanley, US Bancorp, Truist, PNC, State Street and Bank of New York Mellon chipped in with amounts ranging from $1 to $2 billion each.
“Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most. Smaller- and medium-sized banks support their local customers and businesses, create millions of jobs and help uplift communities. America’s larger banks stand united with all banks to support our economy and all of those around us,” the banks that are part of the rescue deal said in a statement.
What’s the Crisis?
Troubles at California-based First Republic Bank started in the aftermath of the bank run on Silicon Valley Bank that led to its eventual collapse and takeover by the regulators. As the bank came under pressure, its shares lost more than a third of their value, as investors were spooked by the failure of SVB and Signature Bank.
Adding to the pressure, S&P Global and Fitch Ratings downgraded First Republic’s credit rating. According to the rating agency, deposit withdrawals were a potential problem for First Republic as well. .”We believe the risk of deposit outflows is elevated at First Republic Bank despite the actions of federal banking regulators and the bank actively increasing its borrowing availability to mitigate risk associated with the bank failures over the last week,” the rating agency said as it downgraded the bank, according to Yahoo News.
First Republic Bank at Glance
First Republic bank was founded in 1985 by Jim Herbert in California. The bank initially catered to wealthy customers and businesses. According to Yahoo Finance, 40 percent of the bank’s total deposits came from the San Francisco Bay area, while 19 percent was from from New York and 9 percent from Boston and 8 percent from Los Angeles.
The withdrawal pressure on the bank happened in the aftermath of the collapse of SVB and Signature Bank. It was reported that out of the bank’s $176.4 billion in deposits, a huge chunk was above the insurance levels backed by Federal Deposit Insurance Corporation.
S&P Global Market Intelligence said as of the end of last year, 67.7 percent of the bank’s domestic deposits were uninsured. The uninsured investors made a beeline for withdrawals in the wake of other California bank failures.
The US Federal Reserve and J.P. Morgan Chase lined up a massive $70 billion credit facility to stave off a crisis but that did not alleviate the crisis. The Bank’s CEO assured the investors that First Republic was well capitalized but it did not end the crisis.