Eleven of the largest banks on Thursday formed a $30 billion rescue package for First Republic in an effort to stop a repeat of the Silicon Valley Bank incident in the US banking system.
The package is jointly created to stop the California-based bank from failing as the third institution in less than a week and stop a wider banking sector catastrophe. Importantly, First Republic serves a clientele that is comparable to that of Silicon Valley Bank, which failed on Friday after receiving roughly $40 billion in withdrawals from customers in a few of hours. In the past few days, First Bank also experienced a similar problem.
JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo would each provide roughly $5 billion in uninsured deposits to First Republic as part of the aid plan. Morgan Stanley and Goldman Sachs would each deposit USD 2.5 billion into the bank during this time. BNY Mellon, State Street, PNC Bank, Truist, and US Bank are the last investors, and together they will invest a total of $5 billion in the bank.
The group of banks confirmed in a statement that other unnamed banks had seen significant withdrawals of uninsured deposits in excess of the $2,500,00 threshold covered by the Federal Deposit Insurance Corporation. First Republic Bank saw its share price fall by more than 60% on Monday despite disclosing the new capital from JPMorgan and the Federal Reserve.
Rescue efforts bring to mind the early days of the 2008 financial crisis.
The development of the rescue package involving eleven banks brought back memories of the early days of the 2008 financial crisis, when banks collectively stepped in to support weaker banks. In an effort to prevent the situation from getting worse, banks then quickly purchased one another.
Even after the bank said it had gotten extra money from JPMorgan and the Federal Reserve, First Republic’s shares fell more than 60% on Monday. The $30 billion rescue package is a sign of confidence in the company. The banks stepped in to save one of their rivals, but Silicon Valley was unable to weather the crisis because its most intimate and devoted clients left the bank at the first indication of difficulty.
The banks declared, “We are putting our financial strength and liquidity into the bigger system, where it is most required.
The large banks’ deal received backing from American banking regulators as well.
Treasury Secretary Janet Yellen, Acting Comptroller of the Currency Michael Hsu, Federal Reserve Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said, “This display of support by a group of significant banks is highly welcome and underscores the resiliency of the banking system.
The $30 billion bailout plan is anticipated to serve as a safeguard against further financial instability in the US. Mid-sized banks suffered greatly during the SVB crisis as investors anticipated depositors would withdraw their money and flee to the country’s largest banks.
