US: 11 Banks pledge to inject $30bln into First Republic Bank

A group of 11 major financial institutions in America came together to deposit a whopping $30 billion into the First Republic bank, in order to revive confidence in American banks.

A group of 11 major financial institutions in America came together to deposit a whopping $30 billion into the First Republic bank, in order to revive confidence in American banks. The group comprised Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, Truist, PNC, U.S. Bancorp, State Street, and Bank of New York Mellon. While the first four institutions contributed $5 billion each, Goldman Sachs and Morgan Stanley contributed $2.5 billion each, and the rest of the banks contributed $1 billion each, according to the press release.

This injection of deposits was necessitated due to the recent selloff of the First Republic bank’s shares, following concerns over the collapse of Silicon Valley Bank (SVB) and Signature Bank, both of which have substantial uninsured deposits like the First Republic bank. The ensuing fears were that First Republic’s customers would rush to withdraw their funds, thereby causing a system crash.

US: 11 Banks pledge to inject $30bln into First Republic Bank

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However, this deposit will stay within the First Republic bank for at least 120 days, providing adequate stability for the bank’s customers, and thereby assuring investors in local banks. The news came at a time when First Republic’s stock had dipped to $20/share, from $115/share just eight days prior. But after the injection, the stock turned the tables, rising to $34.27/share.

First Republic had announced that it had more than $70 billion available in liquidity as of March 12, 2023, not to mention additional funding from the Federal Reserve’s program. The bank borrowed tens of billions of dollars from the Fed and the Federal Home Loan Bank in the past week, and has managed to slow down the flow of customer withdrawals.

During the 2008 financial crisis, many floundering banks were purchased by larger institutions to stabilize the banking system. But given the unrealized losses suffered by the First Republic bank’s bond portfolio due to the spike in interest rates over the past year, the purchase of the bank would be less attractive to potential buyers, according to industry sources. The loss could create a $25 billion hole in First Republic’s balance sheet.

First Republic's target audience consists of high-net-worth customers and corporate clients, with the bank's two main segments being wealth management and real estate lending. As of December 2022, the bank had over $212 billion in assets and a net profit of over $1.6 billion.

The deposit injection by major financial institutions into the First Republic bank is a much-needed boost that instills confidence in local banks, while reassuring the bank's rich and corporate customers. The injection also ensures the stability of the banking system and prevents a potential system crash.