US banks launch $30bn bailout of First Republic to stop spiraling crisis | banking End-shutdown

Wall Street giants moved on Thursday to end America’s deepening banking crisis by agreeing to support troubled First Republic, a midsize bank whose shares have taken a hit amid broader banking turmoil.

Bank of America, Goldman Sachs, JP Morgan and others will put $30 billion into First Republic, which has seen clients withdraw their money following the collapse of Silicon Valley Bank (SVB) and fears that First Republic could be next.

“The actions of America’s largest banks reflect their confidence in the nation’s banking system. Together, we are deploying our financial strength and liquidity in the largest system, where it is needed most,” the banks said in a joint statement on Thursday.

Big banks have received billions in deposits from smaller regional banks as the banking crisis has spooked their clients. US authorities swooped in to seize control of SVB and New York’s Signature bank last weekend after frightened customers withdrew their deposits.

Banks and regulators hope the action will act as a firewall, protecting First Republic and preventing the crisis from spreading to other, smaller banks.

Shares of First Republic, a San Francisco-based bank that largely caters to wealthier clients including Facebook co-founder Mark Zuckerberg, had fallen about 70% since news of SVB’s collapse. They were down another 22% on Thursday before the bailout, but ended the day nearly 10% down.

In a joint statement, US Treasury Secretary Janet Yellen, Federal Reserve Chairman Jay Powell and top regulators said: “This show of support from a group of large banks is very welcome and demonstrates the resistance of the banking system”.

Before the news, Yellen assured Congress on Thursday that the US banking system was “sound.”

“I can assure committee members that our banking system is sound and Americans can be sure their deposits will be there when they need them,” he told the Senate finance committee.

SVB had a high percentage of “uninsured” deposits, deposits above the government insured limit of $250,000. SVB’s uninsured deposits accounted for 94% of its total. First Republic’s percentage of uninsured deposits was much lower (68% according to S&P Global), but high enough to worry investors and depositors with more than $250,000 in accounts at the bank.

The unprecedented bailout plan will cause most of the largest US banks to place uninsured deposits at First Republic. Bank of America, Citigroup, JP Morgan Chase and Wells Fargo are each making a $5 billion deposit at First Republic. Goldman Sachs and Morgan Stanley are making deposits of $2.5 billion each, and BNY Mellon, PNC Bank, State Street, Truist, and US Bank are each making a deposit of $1 billion, for a total deposit from all eleven banks. of $30 billion.

The news came as the Swiss central bank issued a $53.7 billion loan to Credit Suisse to stem its own crisis of confidence. The troubled bank’s share price had collapsed after its largest shareholder, the Saudi National Bank, said it could not provide Credit Suisse with any more financing.

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