Current:Home > StocksFirst Republic becomes the latest bank to be rescued, this time by its rivals -TrueNorth Finance Path
First Republic becomes the latest bank to be rescued, this time by its rivals
View
Date:2025-04-17 15:43:12
The biggest banks in the U.S. are stepping in to save First Republic Bank.
A group of 11 lenders says they will deposit $30 billion in the beleaguered midsized lender in an effort to prop it up.
Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo will deposit $5 billion each. Goldman Sachs and Morgan Stanley will deposit $2.5 billion each. An additional $5 billion will come from five other banks.
The rescue comes after confidence in smaller lenders cratered following the collapse of Silicon Valley Bank and Signature Bank, in what has been an extraordinary week.
The lenders said in a statement that the action was intended to showcase their commitment to lenders like First Republic Bank.
"Regional, midsize and small banks are critical to the health and functioning of our financial system," they said.
In a separate statement, Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, FDIC Chairman Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu praised the banks' decision.
"This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system," they said.
First Republic faced waning confidence about its health
California-based First Republic has experienced an exodus of depositors since the failures of those two banks, as many of its customers moved their money to larger rivals.
That happened even after the lender said it had lined up $70 billion in new financing from both the Federal Reserve and the world's largest bank, J.P. Morgan Chase. First Republic also noted it was eligible to seek additional funding from the Fed if there were heightened demand for withdrawals.
The bank has also said its balance sheet is sound and that depositors are safe, but investors have still worried they were vulnerable to a similar run on deposits as Silicon Valley Bank.
Timothy Coffey, a managing director at the brokerage Janney, said First Republic was known as being relatively conservative.
"From a credit perspective, it's a very safe institution," he said. "They don't do a lot of risky loans."
First Republic had a lot of unsecured deposits
Like SVB, First Republic was founded in California, and it caters to wealthy individuals and businesses.
On Wednesday, Fitch Ratings and S&P Global Ratings both downgraded First Republic's credit rating.
Explaining its decision, Fitch said the bank's "focus on wealthy and financially sophisticated customers in select urban coastal markets in the U.S." has led to "a high proportion of uninsured deposits."
The agency also suggested it is likely First Republic's customers would take their money elsewhere if the lender were to find itself under more pressure Their deposits "can be less sticky in times of crisis or severe stress," Fitch wrote.
According to analysis by S&P Global Market Intelligence, at the end of last year, 67.7% of First Republic's domestic deposits were uninsured by the F.D.I.C — meaning they exceeded the regulator's $250,000 limit.
A shock to the banking system
In the days since regulators shut down Silicon Valley Bank and Signature Bank, anxiety about the health and safety of the banking system has grown.
Shares of U.S. small, regional banks have been hit hard, as investors worried other lenders could also collapse — even though there has been no indication there are system-wide problems.
And fears spread to other parts of the world.
On Wednesday, shares of Credit Suisse sank after its largest investor said it wouldn't commit any more money to the lender, which is facing a completely different set of problems and is in the midst of a massive restructuring.
Shares in Switzerland's second-largest lender recovered after the lender said it would borrow up to $50 billion from the country's central bank.
"What what we have right now in the banking industry is a crisis of confidence," Coffey said.
Treasury Secretary Yellen sought to reassure markets during testimony before the Senate Finance Committee on Thursday.
"I can reassure the members of this committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them," she said.
Yellen defended the government's response to the failures of SVB and Signature Bank, and blamed the collapse of SVB on a bank run that was accelerated by panic on social media.
"There will be a careful look at what happened in the bank, and what initiated the problem," she said. "But clearly the downfall of the bank, the reason it had to be closed, was that it couldn't meet depositors' withdrawal requests."
veryGood! (7)
Related
- Dick Vitale announces he is cancer free: 'Santa Claus came early'
- Worried about taxes? It's not too late to cut what you owe the government.
- Israel launches heavy strikes across central and southern Gaza after widening its offensive
- Drone fired from Iran strikes tanker off India's coast, Pentagon says
- Bill Belichick's salary at North Carolina: School releases football coach's contract details
- Almcoin Trading Center: Token Crowdfunding Model
- Here's What You Should Spend Your Sephora Gift Card On
- Taylor Swift, 'Barbie' and Beyoncé: The pop culture moments that best defined 2023
- Kylie Jenner Shows Off Sweet Notes From Nieces Dream Kardashian & Chicago West
- She died weeks after fleeing the Maui wildfire. Her family fought to have her listed as a victim.
Ranking
- Spooky or not? Some Choa Chu Kang residents say community garden resembles cemetery
- Beyoncé's childhood home in Houston damaged after catching fire early Christmas morning
- Don't Miss J.Crew’s End of the Year Sales Where You Can Score 70% off Clearance, 50% off Cashmere & More
- Burning Man survived a muddy quagmire. Will the experiment last 30 more years?
- Which apps offer encrypted messaging? How to switch and what to know after feds’ warning
- Biden administration allows ban on some Apple Watch imports to take hold
- Floods in a central province in Congo kill at least 17 people, a local official says
- Lamar Jackson fires back at broadcaster's hot take about the Ravens
Recommendation
See you latte: Starbucks plans to cut 30% of its menu
Teen's death in Wisconsin sawmill highlights 21st century problem across the U.S.
Spend Your Gift Cards on These Kate Spade Bags That Start at $48
Jason Sudeikis and Olivia Wilde's Kids Steal the Show While Crashing His ESPN Interview
Israel lets Palestinians go back to northern Gaza for first time in over a year as cease
Biden Administration Takes Historic Step to Protect Old-Growth Forest
Bill Granger, chef who brought Aussie-style breakfast to world capitals, dies at 54
Russian presidential hopeful loses appeal against authorities’ refusal to register her for the race