Big US banks rescue First Republic Bank

Eleven major US banks announced a $30 billion bailout package for First Republic Bank on Thursday, in an attempt to prevent it from becoming the third US lender to fail in less than a week. thus prevent a broader banking crisis.

San Francisco-based First Republic serves a clientele similar to that of Silicon Valley Bank, which collapsed last week after depositors withdrew some $40 billion in a matter of hours. Signature Bank of New York closed on Sunday. Apparently First Republic, which had deposits totaling $176.4 billion as of December 31, was facing similar problems.

The group of banks responsible for the bailout package confirmed that other unnamed banks have recorded a large number of uninsured deposit withdrawals. The United States Federal Deposit Insurance Corporation (FDIC) guarantees deposits of up to $250,000 in individual accounts.

First Republic shares plunged more than 60% on Monday, even after the bank said it had secured additional funding from JPMorgan and the Federal Reserve.

The rescue package was reminiscent of the 2008 financial crisis, when banks banded together to help weaker institutions in the early days of the emergency. Subsequently, the banks bought each other out in hasty deals in order to prevent the crisis from spreading further.

The $30 billion of uninsured deposits is seen as a vote of confidence in First Republic, which, until a week ago, was often seen as an industry-envyed banking franchise. The bank served wealthy clients, many of them billionaires, and offered generous financial terms. The Wall Street Journal reported that Facebook founder Mark Zuckerberg obtained a home loan through First Republic.

First Republic shares fell as much as 36% during trading on Thursday but rallied after plans for the bailout package were unveiled. Its titles closed with gains of 10%.

As part of the relief package, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have agreed to give $5 billion each in uninsured deposits to First Republic. Morgan Stanley and Goldman Sachs will deposit $2.5 billion each to the bank. The remaining $5 billion will consist of $1 billion contributions from BNY Mellon, State Street, PNC Park, Truist and US Bank.

“The actions of the main banks in the United States reflect their confidence in the country’s banking system,” the institutions said in a statement.

Notably, the banks came to the rescue of one of their competitors, and Silicon Valley Bank collapsed as its closest and most loyal clients — venture capitalists and startups — left the institution at the first sign of trouble.

“We are deploying our financial strength and liquidity to inject it into the broader system, where it is needed most,” the banks said.

The country’s banking regulators also issued a statement praising the bailout package.

“This show of support from a group of large banks is more than welcome, and shows the integrity of the banking system,” said the Treasury Secretary Janet Yellen; the interim comptroller of the Currency, Michael Hsu; Fed Chairman Jerome Powell and FDIC Chairman Martin Gruenberg in a joint statement.

The $30 billion bet on First Republic is seen as a bulwark to prevent future incidents of bank runs. Shares of many midsize banks were hit hard this week as investors feared depositors would withdraw their money and take refuge in the country’s largest banks.

Determined to restore public confidence in the banking system, the federal government took action over the weekend to protect all bank deposits, including those over the $250,000 individual account limit guaranteed by the FDIC. Although the banking crisis began with Silicon Valley Bank, regulators told the press a few days ago that government support for the banking system became necessary as further panic incidents seemed possible.

[Con información de The Associated Press]

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