First Republic secures $30 billion rescue from large banks | CNN Business

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First Republic Bank, facing a crisis of investor and consumer confidence, is set to receive a $30 billion lifeline from a group of America’s largest banks.

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

Major banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.

The $30 billion infusion will provide the San Francisco lender with much-needed cash to restore consumer confidence and confidence in the U.S. banking system during a tumultuous moment for lenders.

A spokesman for First Republic declined to comment.

In a statementthe banks said their action “reflects their confidence in First Republic and banks of all sizes,” adding that “regional, mid-sized and small banks are critical to the health and functioning of our financial system.” are.”

Shares of First Republic, which were halted several times on Thursday due to volatility, ended the day up more than 10 percent.

The bank’s problems indicated continued concern about the banking system thereafter. Fall of Silicon Valley Bank and Signature Bank.

Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday on concerns that depositors could withdraw their cash.

Many regional banks, including First Republic, have uninsured deposits exceeding the $250,000 FDIC limit. While not close to SVB’s large percentage of uninsured deposits (94% of its total), First Republic has a whopping 68% of total deposits that are uninsured, according to S&P Global.

This led many customers to pull out of the bank and put their money elsewhere, creating a problem for First Republic: it had to borrow money or sell assets to repay customers’ deposits. are

To make money, banks use a portion of customers’ deposits to lend to other customers. But First Republic has an unusually high 111% liability-to-deposit ratio, S&P Global says. This means the bank has given out more money than it has collected from customers, making it a particularly risky bet for investors.

Treasury Secretary Janet Yellen met privately with JPMorgan CEO Jamie Dimon in Washington on Thursday before 11 banks agreed to stabilize the struggling lender, according to two people familiar with the matter. Agreed to raise $30 billion.

The meeting was the culmination of talks between Yellen and other U.S. officials and leaders of some of the nation’s biggest banks over the past two days as they sought a private-sector lifeline for the troubled California bank. Searched.

Yellen led the effort on the government side, while Dimon tried to organize the bank executives who would eventually get behind the dramatic infusion of deposits.

According to a separate source familiar with the matter, Yellen first conceived the idea of ​​U.S. banks pooling together for direct deposits to the largest republic. The move was seen as critical to stabilizing the bank’s deposit base — but also a key signal to financial markets about both the bank and the US financial system.

The Federal Reserve created a debt system to prevent regional banks from failing after SVB collapsed. The facility would allow banks to pledge their Treasury bonds as collateral for one-year loans to the Fed. In return, the Fed will pay banks the price banks paid for Treasuries, which has fallen over the past year as the Fed has raised interest rates.

This unusual federal intervention appears to be insufficient to keep investors satisfied.

The First Republic made an announcement on Sunday. Deal with JP Morgan. to quickly access cash when needed, and the bank then said it had $70 billion in unused assets that it could use quickly to pay back customers if needed.

— CNN’s Phil Mattingly contributed to this report.