US Big Banks Unite to Provide Financial Stability to First Republic Bank
America’s largest banks have come together to demonstrate their confidence in the country’s banking system, announcing a $30 billion uninsured deposit into First Republic Bank on Thursday. Bank of America, Citigroup, JPMorgan Chase and Wells Fargo are each making a $5 billion deposit, while Goldman Sachs and Morgan Stanley are each contributing $2.5 billion. BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank are each making a $1 billion deposit.
The unprecedented rescue plan is meant to provide financial stability to First Republic, which has been under pressure following last week’s failure of peer Silicon Valley Bank, as well as a downgrade by two ratings agencies. First Republic’s stock, which closed at $115 per share on March 8, had plummeted to below $20 at one point on Thursday, before the news broke and rose to $40 per share, up more than 20%.
US Treasury Secretary Janet Yellen said “the banking system overall is safe and sound” on Thursday, while the vice president of the European Central Bank, Luis de Guindos, said Europe’s banking sector was “resilient”. Credit Suisse also announced it would borrow up to $54 billion from the Swiss National Bank.
The deposits from the larger banks are meant to add to the liquidity of First Republic, which had more than $70 billion in availability liquidity. However, due to the unrealized losses on First Republic’s bond portfolio, an acquisition of the bank is unappealing, sources said.
The actions of US’s largest banks have been welcomed by US officials as a sign of confidence in the strength of the banking system. FRC stock closed the day up 10.3%, boosted by the news that JPMorgan, Bank of America, Wells Fargo and Citigroup will deposit $5 billion each into First Republic. Goldman Sachs and Morgan Stanley provided $2.5 billion each while BNY Mellon, PNC Bank, State Street Corp. put in a billion dollars each. Central banks around the world have also been raising interest rates to try to slow down inflation and cool the global economy.
0. “Stock Market Today: Stocks Rally on Credit Suisse, First Republic Bank Rescue News” Kiplinger's Personal Finance, 16 Mar. 2023, https://www.kiplinger.com/investing/stocks/stock-market-today-stocks-rally-on-credit-suisse-first-republic-bank-rescue-news
1. “US banks launch $30bn rescue of First Republic to stem spiraling crisis” The Guardian, 16 Mar. 2023, https://www.theguardian.com/business/2023/mar/16/first-republic-bank-rescued-latest
2. “Wall Street rides to the rescue as 11 banks pledge First Republic $30 billion in deposits” CNBC, 16 Mar. 2023, https://www.cnbc.com/2023/03/16/group-of-financial-institutions-in-talks-to-deposit-about-20-billion-in-first-republic-sources-say.html
3. “Stock markets rises as Wall Street swoops to rescue First Republic” BBC, 17 Mar. 2023, https://www.bbc.com/news/business-64986520
4. “Credit Suisse: Why it's struggling and why that's a big deal” CNN, 16 Mar. 2023, https://www.cnn.com/2023/03/16/investing/why-credit-suisse-is-struggling/index.html
5. “Stock Market Rallies As 11 Bank Giants Aid First Republic; Apple, Microsoft Flash Buy Signals | Investor's Business Daily” Investor's Business Daily, 17 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/stock-market-rebounds-11-bank-giants-aid-first-republic-apple-microsoft-flash-buy-signals/