New York, March 17: Eleven of the biggest banks in the United States announced a USD 30 billion rescue package for First Republic Bank on Thursday, in an effort to prevent the California-based bank from becoming the third bank to fail in less than a week.
First Republic serves a similar clientele as Silicon Valley Bank, which failed Friday after depositors withdrew about USD 40 billion. It appears that First Republic, which had deposits totalling USD 176.4 billion as of December 31, was facing a similar crisis. First Republic Bank Shares Fall 60% in Premarket Trading Amid Concerns Over Its Financial Strength.
In a statement, the group of banks confirmed that other unnamed banks had seen large amounts of withdrawals of uninsured deposits, which are those that exceed the USD 2,50,000 level insured by the Federal Deposit Insurance Corporation. First Republic's shares dropped more than 60 per cent Monday, even after the bank said it had secured additional funding from JPMorgan and the Federal Reserve.
Thursday the bank's shares were down as much as 36 per cent but rallied after reports the rescue package was in the works and closed up nearly 9 per cent. JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have agreed to each put USD 5 billion in uninsured deposits into the First Republic.
Meanwhile, Morgan Stanley and Goldman Sachs would deposit USD 2.5 billion each into the bank. The remaining USD 5 billion would consist of USD 1 billion contributions from BNY Mellon, State Street, PNC Bank, Truist and US Bank.
"The actions of America's largest banks reflect their confidence in the country's banking system," the banks said in their statement. The nation's banking regulators also issued a statement in support of the bank rescue package. SVB Collapse: HSBC Buys British Arm of Collapsed Silicon Valley Bank, Deal Facilitated by Bank of England and UK Government.
"This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system," said Treasury Secretary Janet Yellen, Acting Comptroller of the Currency Michael Hsu, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin Gruenberg.
The news could help calm the nerves of bank investors after the collapse last week of Silicon Valley Bank, which was the second biggest bank failure in U.S. history after the demise of Washington Mutual in 2008.
The shuttering of Silicon Valley Bank Friday and of New York-based Signature Bank two days later has revived bad memories of the financial crisis that plunged the United States into the Great Recession of 2007-2009. Over the weekend the federal government, determined to restore public confidence in the banking system, moved to protect all the banks' deposits, even those that exceeded the FDIC's USD 2,50,000 limit per individual account.
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