Eleven of the largest US banks have banded together to rescue First Republic Bank from facing a similar fate to Silicon Valley Bank, as large depositors withdrew their uninsured funds at the first sign of trouble, causing the bank’s failure. The $30bn bailout package, which included $5bn in uninsured deposits from each of Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, was praised by US banking regulators as a demonstration of the resilience of the banking system. First Republic primarily caters to the wealthy and before this week, its banking franchise was the envy of much of the industry.
Important Details about First Republic was rescued by rivals. Silicon Valley Bank was abandoned by its friends. –
– Eleven major U.S. banks announced a $30 billion rescue package for First Republic Bank this week.
– The package was aimed at preventing First Republic from becoming the third bank to fail in a week and to prevent future bank runs.
– The rescue package is seen as a vote of confidence in First Republic, which serves a similar clientele as Silicon Valley Bank.
– Silicon Valley Bank failed last week after depositors withdrew about $40 billion in a matter of hours, and New York’s Signature Bank was also shuttered.
– The group of banks behind the rescue package confirmed that other unnamed banks had seen large withdrawals of uninsured deposits.
– The $30 billion in uninsured deposits included $5 billion each from JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, and $2.5 billion each from Morgan Stanley and Goldman Sachs.
– The remaining $5 billion consisted of $1 billion contributions from BNY Mellon, State Street, PNC Bank, Truist, and US Bank.
– Federal banking regulators praised the rescue package and expressed confidence in the banking system’s resilience.
– First Republic’s shares dropped more than 60% on Monday, but recovered somewhat in subsequent sessions.
– The bank catered to wealthy clients, including Facebook founder Mark Zuckerberg who reportedly got a mortgage through First Republic.
– The $30 billion rescue package brought back memories of the 2008 financial crisis when banks collectively came to the aid of weaker banks in the early days of the crisis.
– Many regional and midsized banks have been hit hard as investors feared depositors would withdraw their cash and run exclusively to the biggest banks.
NEW YORK (AP) — 11 of the biggest U.S. banks have announced their $30 billion rescue package for First Republic Bank, a move aimed at preventing it from becoming the third bank to fail in less than a week. This rescue package comes at a time when the country’s banking system is looking to demonstrate its resilience in light of the sudden collapse of Silicon Valley Bank and the shuttering of New York’s Signature Bank.
First Republic is a San Francisco-based bank that caters to a similar clientele as that of Silicon Valley Bank. The latter failed last week after depositors withdrew about $40 billion in a matter of hours, the loss of some of this loyal customer base resulted in the bank’s failure. It appears that First Republic was also facing similar issues, as it would have been the third bank to fail in less than a week without this rescue package.
The group of banks behind the rescue package has confirmed that other unnamed banks had seen large withdrawals of uninsured deposits, creating fear among investors who are concerned that depositors may withdraw their cash and run exclusively to the largest banks. The federal government, determined to restore public confidence in the banking system, moved to protect all the banks’ deposits last weekend, even those that exceeded the FDIC’s $250,000 limit per individual account.
The rescue package brought back memories of the 2008 financial crisis, when banks collectively came to the aid of weaker banks in the early days of the crisis. Banks bought others in hurried deals in order to keep the crisis from spreading. The $30 billion bet on First Republic to prevent future bank runs is seen as a vote of confidence in the bank, whose banking franchise was the envy of much of the industry before the past week.
As part of the aid package, JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo agreed to each put $5 billion in uninsured deposits into First Republic. Morgan Stanley and Goldman Sachs agreed to deposit $2.5 billion each into the bank. The remaining $5 billion would consist of $1 billion contributions from BNY Mellon, State Street, PNC Bank, Truist, and US Bank.
The actions of America’s largest banks reflect their confidence in the country’s banking system. The $30 billion in uninsured deposits is seen as a vote of confidence in First Republic, which catered to wealthy clients, many of them billionaires, and offered them generous financial terms. The Wall Street Journal reported that Facebook founder Mark Zuckerberg got a mortgage through First Republic.
The nation’s banking regulators issued a statement praising the rescue package: “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, Acting Comptroller of the Currency Michael Hsu, Federal Reserve Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said in a joint statement.
The shares of many regional and midsized banks have been hit hard as investors feared depositors would withdraw their cash and run exclusively to the biggest banks. It remains to be seen how the rescue package will impact this trend, or whether it will inspire confidence in the banking system.
The sudden collapse of Silicon Valley Bank exposes the mass failure of the Fed to see the bank’s warning signs which has led to Elizabeth Warren proposing nixing the 2018 rollback of banking rules: “We now have evidence of what happens when you ease up.”
In light of the current banking crisis, there have been calls for a guarantee for all bank deposits, with some even proposing unlimited deposit insurance. These proposals are gaining steam in Congress, with ex-FDIC chief Bair saying that guaranteeing all bank deposits should be on the table.
In conclusion, the $30 billion rescue package for First Republic Bank is a significant move to prevent further bank runs and restore public confidence in the banking system. However, it remains to be seen how effective it will be in the long run and whether it will stop depositors from withdrawing their cash and solely putting it in the largest banks. The banking crisis also highlights the need for stricter banking rules and regulations, guaranteeing all bank deposits, and raising awareness of warning signs that may signal potential bank failures.