nside the $30 billion rescue of First Republic Bank

THE First Republic Bank’s $30 billion bailout began with a series of phone calls on Tuesday between JPMorgan Chase CEO Jamie Dimon, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen.

Dimon was in Washington, according to a person familiar with the events, and he wanted to discuss some banking capital issues. The subject quickly turned to the fate of the country’s 14th largest bank.

Shares of the San Francisco lender had fallen since last week’s failure of Santa Clara-based Silicon Valley Bank, and $70 billion in funding from JPMorgan Chase and the Federal Reserve announced on Sunday night failed to ease the pressure earlier this week. The stock fell 62% on Monday.

The CEO of the nation’s largest bank, the chairman of the Fed and the secretary of the Treasury have begun to think things through, according to people familiar with the discussions, with input from another powerful regulator: the chairman of the Federal Deposit Insurance Corporation, Martin Gruenberg. Their idea? JPMorgan could give deposits to First Republic.

Such an infusion could help solve a major problem. Deposit withdrawals are what put pressure on Silicon Valley Bank and prevented it from continuing to stand. Customers withdrew $42 billion in a single day last Thursday, leaving the bank with a negative cash balance, and regulators seized the bank on Friday. The concern was the same that could happen to the First Republic.

The next day, Dimon presented this idea to some of his peers. At a Bank Policy Institute event, he approached other executives, including Citigroup CEO Jane Fraser and Citigroup’s $5 billion in uninsured deposit commitments (VS), Bank of America (BAC) and Wells Fargo (WFC) soon followed. JPMorgan also agreed to invest $5 billion.

Jamie Dimon, chairman and CEO of JPMorgan Chase & Company, testifies during a Senate Banking Committee hearing in 2022. (AP Photo/Jacquelyn Martin)

A $20 billion injection was seen as sufficient, but these four banks decided to seek more from smaller rivals on Wednesday and Thursday. American Bank (USB), True (TFC), PNC (ANC), State Street (STT) and Bank of New York Mellon (BK) each accepted deposits of $1 billion. The last to join, according to people familiar with the events, were Goldman Sachs (GS) and Morgan Stanley (MS). They each agreed to deposit $2.5 billion.

“A whole bunch of deposits have been pouring into the big banks in the last five days,” said one of the people familiar with the deal. “It’s basically about recirculating capital.”

The attempted bailout of one of the country’s biggest regional lenders puts Dimon at the center of a national banking crisis for the second time in 15 years.

In 2008, he acted twice to help stabilize the financial system when JPMorgan Chase (JPM) bought New York-based investment bank Bear Stearns in March of that year, securing a $29 billion backstop from the federal government, and then Seattle’s Washington Mutual in September 2008. In the case of Washington Mutual , JPMorgan Chase bought its operations after regulators seized the Seattle Savings. It is still the largest bank failure ever recorded in the country.

The two deals made JPMorgan Chase the largest coast-to-coast bank in the country and gave it an even more powerful hand on Wall Street. They also burdened it with years of legal and regulatory headaches. Dimon said if he could do it again, he wouldn’t have bought Bear Stearns for those reasons.

The $30 billion injection announced Thursday sent shares of First Republic soaring, which ended the day up 10%. Powell, Yellen and Gruenberg said in a joint statement that “this show of support from a group of major banks is welcome and demonstrates the resilience of the banking system.”

JPMorgan does not have any special arrangements under the deal, according to one of the people familiar with the talks. “These deposits will be treated exactly the same as anyone’s uninsured deposit,” the person said. Deposits must remain at First Republic for 120 days and earn interest at the same rate as current depositors.

“The selfish part,” this person added, “strengthens the banking sector, which lifts all boats.”

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