First Republic Secures $30B Rescue From 11 Banks

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Facts

  • First Republic Bank on Thursday received a lifeline from 11 of America's largest banks, who pledged to deposit $30B in order to shore up lenders' concerns at a time of crisis for the US banking industry, including the collapse of Silicon Valley Bank and Signature Bank last week.1
  • Following the two collapses, and over fears First Republic could be next in line because many of its deposits exceed the Federal Deposit Insurance Corporation (FDIC) threshold of $250K – meaning they’re uninsured – First Republic said it secured $70B in liquidity Sunday. However, that did little to calm the nerves of investors or creditors.2
  • By Thursday, First Republic's shares plummeted 36% as depositors continued to withdraw their funds and send them elsewhere. However, as news broke of a further liquidity injection, the stock rose 10% to $34.35 by market close.2
  • Bank of America, Wells Fargo, Citigroup, and JPMorgan Chase will each deposit roughly $5B, while Goldman Sachs and Morgan Stanley will contribute around $2.5B each. Truist, PNC, US Bancorp, State Street, and Bank of New York Mellon will each send around $1B.1
  • Meanwhile, the Federal Reserve (Fed) announced Thursday that it has lent out over $300B to fledgling banks in the past week in order to help them meet withdrawal demands. Around $143B went to Silicon Valley Bank and Signature Bank, which have now been taken over by the FDIC.3
  • Also, US Treasury Secretary Janet Yellen on Thursday addressed the Senate Finance Committee, saying, “I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them.'4

Sources: 1CNBC, 2Forbes, 3Guardian and 4CBS.

Narratives

  • Pro-establishment narrative, as provided by The Conversation. A joint effort between the federal government and the US's largest banks has done well to avoid a run on banks with this lifeline for First Republic and other swift measures. The US banking sector, however, isn’t out of the woods yet, and it’ll take more government action to prevent a wider crash.
  • Establishment-critical narrative, as provided by Lew Rockwell. Amid the precarious financial environment, banks should have taken proactive measures to mitigate their losses, such as selling off their long-term bonds when they had a chance. It wasn’t a secret that the Fed intended to raise the yields on treasury bonds, yet many banks — such as Silicon Valley Bank — did nothing to shore up their vulnerable balance sheets.