First Republic Bank bailed out by major banks under $30 billion plan

First Republic Bank has reached an agreement with some of the largest U.S. banks to stabilize its balance sheet following the collapse of Silicon Valley Bank, federal regulators announced Thursday.

The San Francisco-based bank will receive $30 billion in deposits from 11 banks, according to a joint statement the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation.

“This show of support from a group of major banks is welcome and demonstrates the resilience of the banking system,” they said in a statement.

Bank of America, Citigroup, JPMorgan Chase and Wells Fargo each deposit $5 billion, banks announced in a press release. Goldman Sachs and Morgan Stanley each deposit $2.5 billion.

“The actions of America’s largest banks reflect their confidence in the nation’s banking system,” the group of 11 banks said. “Together, we are deploying our financial strength and liquidity into the broader system, where it is most needed.”

Financial institutions said regional banks such as First Republic are “essential to the health and functioning of our financial system.” They added that the US banking system remains safe and well capitalized.

“Recent events have not changed that,” the banks said.

The bank-to-bank bailout – which had the blessing of the US government – ​​came as First Republic Bank faced the threat of an exodus of investors and depositors.

Shares of First Republic have fallen 66% over the past week on fears the bank does not have enough cash to handle an influx of withdrawals.

The First Republic, like Silicon Valley Bank, has used much of its deposits on long-term investments that have lost value over the past year due to Federal Reserve interest rate hikes. .

According to S&P Global, about 68% of the bank’s deposits are uninsured, which is higher than most of its competitors but lower than Silicon Valley Bank’s 94%.

Rating agency Moody’s weighted derating First Republic this week, noting that the high rate of uninsured deposits could prompt depositors to quickly move their money elsewhere.

“If it were to face larger than expected deposit outflows and liquidity guarantees prove insufficient, the bank may need to sell assets, thus crystallizing latent losses on its portfolio. [securities]”, Moody’s analysts wrote.

Bloomberg News first reported news of the $30 billion bailout on Thursday.

The effort to save another bank from bankruptcy came as the US banking system faced an apparent crisis of confidence.

Federal regulators on Sunday guaranteed all deposits at the failed Silicon Valley Bank and Signature Bank in a bid to restore public confidence and prevent further bank runs.

“This week’s actions demonstrate our steadfast commitment to ensuring our financial system remains strong and depositors’ savings remain safe,” Treasury Secretary Janet Yellen said. told the Senate Finance Committee THURSDAY.

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