Amidst a crisis of confidence among its investors and customers, First Republic Bank is poised to receive a much-needed boost in the form of a $30 billion lifeline. This generous infusion of capital is set to be extended by a consortium of America’s largest banks, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.
The move has been hailed by the Treasury Department as a clear demonstration of the resilience of the banking system.
- Bank of America, Wells Fargo, Citigroup, and JPMorgan Chase are depositing $5 billion each into First Republic Bank.
- Goldman Sachs and Morgan Stanley are depositing $2.5 billion each into First Republic Bank.
- Truist, PNC, U.S. Bancorp, State Street, and Bank of New York Mellon are depositing $1 billion each into First Republic Bank.
In a statement released on Thursday, the Department expressed its appreciation for the show of support from these major financial institutions.
This cash injection is expected to bolster confidence in the US banking system at a time of great upheaval and uncertainty. The funds will enable the beleaguered San Francisco-based lender, First Republic Bank to meet customer withdrawals and shore up its financial position, which has been under strain in recent times.
While a spokesperson for First Republic declined to comment on the matter, a joint statement released by the participating banks conveyed their strong support for the struggling institution. The statement highlighted the banks’ confidence in First Republic and in the banking industry as a whole. It emphasized the crucial role played by regional, midsize, and small banks in maintaining the overall health and functioning of the financial system.
Liquidity Woes
The markets were sent into a tailspin on Thursday amid concerns over liquidity woes, with First Republic Bank taking a particular hit. The bank’s shares were halted multiple times due to volatile trading, ultimately ending the day with a gain of over 10%. However, these gains were not enough to dispel concerns over the broader banking system, which have been compounded by the recent collapses of Silicon Valley Bank and Signature Bank.
The difficulties faced by First Republic Bank have brought to the fore worries over the potential for depositors to withdraw their funds, leading to credit rating downgrades from both Fitch Ratings and S&P Global Ratings. The latter expressed concerns over the large proportion of uninsured deposits held by the bank, which account for 68% of its total deposits. While not as significant as the 94% uninsured deposits held by SVB, this figure nonetheless represents a sizable risk factor for First Republic and other regional banks with similar levels of uninsured deposits that exceed the $250,000 FDIC limit.
First Republic Bank has been hit hard by a wave of customer withdrawals as panicked depositors moved their funds to other institutions. This exodus has created a serious problem for the bank, which now finds itself scrambling to borrow money or sell off assets in order to meet its obligations to customers.
Banks typically generate revenue by using a portion of customers’ deposits to issue loans to other customers. However, First Republic has an unusually high liability-to-deposit ratio of 111%, according to S&P Global. This means that the bank has lent out more money than it has in deposits from customers, making it an especially risky proposition for investors. The bank’s current predicament underscores the challenges faced by financial institutions with high ratios of liabilities to deposits, as they struggle to maintain adequate levels of liquidity in a rapidly evolving market environment.
Treasury Secretary Janet Yellen was the driving force behind a series of private meetings held in Washington over the last two days, aimed at securing a lifeline for beleaguered financial institution First Republic Bank. Yellen’s efforts culminated in a quiet meeting with JPMorgan CEO Jamie Dimon on Thursday, shortly before 11 of the largest banks in the US agreed to deposit a total of $30 billion into First Republic to stabilize the struggling lender.
According to sources familiar with the matter, Yellen and other government officials worked closely with Dimon and other bank executives to coordinate the deposit infusion, which was seen as a crucial step in restoring confidence in the US banking system during a time of significant turbulence. Yellen’s role in spearheading the initiative from the government side was instrumental in securing the support of some of the country’s largest financial institutions, while Dimon played a key role in rallying his fellow bank CEOs behind the effort.
Treasury Secretary Janet Yellen was the mastermind behind the idea of the largest US banks pooling their resources to direct deposits towards First Republic Bank, a move seen as critical to stabilizing the struggling lender’s deposit base and restoring confidence in the US financial system.
Despite the Federal Reserve’s creation of a loan system aimed at preventing the failure of regional banks in the wake of Silicon Valley Bank’s collapse, concerns about First Republic’s viability persisted among investors. The facility would allow banks to use their Treasury bonds as collateral for one-year loans from the Fed, but the value of Treasuries has plummeted in the past year due to interest rate hikes.
In response to these concerns, First Republic announced a deal with JPMorgan on Sunday to gain quick access to cash, and revealed that it had $70 billion in unused assets that could be tapped to pay customers’ withdrawals if needed. While the bank’s efforts to shore up its finances have helped to ease some of the concerns among investors and customers, the infusion of $30 billion in deposits from 11 of the largest US banks is expected to provide a much-needed boost to the struggling lender.
