A group of 11 U.S. banks has agreed to make $30 billion in deposits at First Republic Bank to avoid another regional bank failure. The rescue comes after Silvergate Bank, Silicon Valley Bank and Signature Bank collapsed amid a liquidity crisis caused by a deposit run.
“Today, 11 banks announced $30 billion in deposits into First Republic Bank. This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, FDIC Chairman Martin J. Gruenberg and Acting Comptroller of the Currency Michael J. Hsu said in a joint statement.
The nation’s biggest banks – including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo – will each make a $5 billion uninsured deposit into First Republic, the banks announced on Thursday. Goldman Sachs and Morgan Stanley will deposit $2.5 billion each. Meanwhile, BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank will contribute $1 billion each.
“Following the receiverships of Silicon Valley Bank and Signature Bank, there were outflows of uninsured deposits at a small number of banks,” the financial institutions’ group said in a joint statement. “The banking system has strong credit, plenty of liquidity, strong capital and strong profitability. Recent events did nothing to change this.”
First Republic Bank also said their board of directors has suspended its common stock dividend.
“The Bank is focused on reducing its borrowings and evaluating the composition and size of its balance sheet going forward. Consistent with this focus and during this period of recovery, the Bank’s Board of Directors has determined to suspend its common stock dividend,” the bank said in a statement.
First Republic, the fourth-largest non-agency jumbo lender in America, was exploring a sale or capital infusion, expecting to attract larger rivals, Bloomberg reported on Wednesday, citing anonymous sources with knowledge of the matter.
To fund its operations, the California-based regional bank announced fresh access to capital from the Federal Reserve Bank and JPMorgan Chase & Co. on Monday, making $70 billion available.
First Republic’s borrowing from the Fed increased from $20 billion on Friday to $109 billion on Wednesday. Meanwhile, short-term borrowings from the Federal Home Loan Bank have risen by $10 billion since March 9.
The bank also said insured deposits remained stable since March 8, but daily deposit outflows have slowed considerably.
Still, on Wednesday, S&P and Fitch Ratings downgraded the bank to “junk.” Credit rating agencies said First Republic’s deposits are focused on wealthy customers who are uninsured and less sticky in times of stress. In addition, the bank’s investment portfolio is concentrated in municipal securities, assets that have credit quality but are relatively illiquid compared to U.S. treasury and agency securities.
As of March 15, 2023, First Republic had a cash position of approximately $34 billion, the bank stated in a news release. The amount does not include the uninsured deposits from the 11 banks with an initial term of 120 days at market rates.
The bank’s stock closed at $34.25 on Thursday, up almost 10%. It was trading down 13% in the after hours.