In a collective effort to prevent another bank failure, eleven of the largest banks in the US have come together to offer a $30 billion rescue package to San Francisco-based First Republic Bank. This move aims to prevent a broader banking crisis and restore public confidence in the banking system.
First Republic serves a client base similar to Silicon Valley Bank, which recently failed after depositors withdrew about $40 billion in hours. New York’s Signature Bank was also shuttered last week. First Republic, with deposits totaling $176.4 billion as of December 31, was facing similar issues.
The rescue package is seen as a vote of confidence in First Republic, which has a banking franchise that was often the envy of the industry. The bank catered to wealthy clients, including billionaires, and offered them generous financial terms. Under the aid package, JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo will each contribute $5 billion in uninsured deposits to First Republic. Morgan Stanley and Goldman Sachs will deposit $2.5 billion each into the bank. The remaining $5 billion will be made up of $1 billion contributions from BNY Mellon, State Street, PNC Bank, Truist, and US Bank.
The move brings back memories of the 2008 financial crisis when banks collectively aided weaker banks in the early days of the crisis. The $30 billion in uninsured deposits is expected to be a bulwark against future bank runs.
First Republic’s shares had dropped over 60% on Monday, even after the bank secured additional funding from JPMorgan and the Federal Reserve. However, the shares rallied on Thursday after reports of the rescue package.
The nation’s banking regulators issued a joint statement praising the rescue package, saying it “demonstrates the banking system’s resilience.” Over the weekend, the federal government moved to protect all bank deposits, including those exceeding the FDIC’s $250,000 limit per individual account, to restore public confidence in the banking system.
