Will the first Republic Bank fail?
The largest American banks are investing $30 billion in First Republic Bank to support the struggling San Francisco lender and as a means of assuaging public anxiety over the stability of the country’s financial system.
Eleven leading lenders have joined together in response to the shocking demise of Silicon Valley Bank last week.
Federal authorities said it showed “the resiliency of the financial system,” according to a joint statement from Treasury Secretary Janet Yellen, Federal Reserve Governor Jerome Powell, FDIC Chief Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu.
The money injection aims to allay investors’ and depositors’ concerns that First Republic and other midsize banks would become the target of dangerous runs. Also, the private sector’s participation may aid the Biden administration in fending off the very disastrous political accusation that it is bailing out banks.
According to a statement from the lenders, JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo will each contribute $5 billion, with other institutions contributing smaller sums.
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The banks issued an united statement in which they praised the “excellent profitability, strong capital, abundant liquidity, and good credit” of the banking sector. Recent events have little impact on this.
First Republic, the nation’s fourteenth-largest bank by assets, was shaken by Silicon Valley Bank’s demise late last week, which resulted in a $42 billion run on deposits. Regulators shut down New York’s Signature Bank on Sunday due to its close ties to the cryptocurrency sector.
The possibility of additional bank failures has stoked concerns about financial instability on Wall Street and among Washington officials.
On the First Republic news, however, equities soared, with the Dow Jones Industrial Average surging by more than 300 points.
The domestic deposit ceiling of $250,000 set by the FDIC is exceeded by more than two thirds of First Republic’s domestic deposits. Fitch Ratings cut the bank’s credit rating on Wednesday due to investors’ pessimism about its future.
According to data from S&P Global Market Intelligence, about 94 percent of domestic deposits at Silicon Valley Bank and nearly 90 percent of deposits at Signature were uninsured.
Prior to the news, a First Republic spokeswoman declined to comment.
