Big banks unveil $30 billion rescue package for First Republic

NEW YORK (AP) — Eleven of the nation’s largest banks on Thursday announced a $30 billion bailout for First Republic Bank to prevent the California-based bank from becoming the third bank to do so in less bankruptcy in less than a week to avert a broader crisis in the banking sector.

First Republic serves a similar clientele to Silicon Valley Bank, which failed on Friday after depositors withdrew about $40 billion in a matter of hours. It appears that First Republic, which had a total of $176.4 billion in deposits as of Dec. 31, faced similar problems.

In a statement, the banking group confirmed that other unnamed banks have seen large withdrawals of uninsured deposits that exceed the $250,000 level insured by the Federal Deposit Insurance Corporation. First Republic shares fell more than 60% Monday even after the bank said it secured additional funding from JPMorgan and the Federal Reserve.

The bailout brought back memories of the 2008 financial crisis, when banks came together to bail out weaker banks in the early days of the crisis. Banks then bought each other in hasty deals to prevent the crisis from spreading any further.

The $30 billion in uninsured deposits are seen as a vote of confidence in First Republic, whose banking operations were often the envy of the industry prior to last week. The bank targeted wealthy clients, including many billionaires, and offered them generous financial terms. The Wall Street Journal reported that Facebook founder Mark Zuckerberg got a mortgage through First Republic.

Shares in the First Republic fell as much as 36% on Thursday but rallied after reports said the bailout was in the works. The stock closed up 10%.

As part of the relief package, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have agreed to each invest $5 billion in uninsured deposits in First Republic. Meanwhile, Morgan Stanley and Goldman Sachs would each pay $2.5 billion into the bank. The remaining $5 billion would consist of $1 billion in contributions from BNY Mellon, State Street, PNC Bank, Truist and US Bank.

“The actions of America’s largest banks reflect their confidence in the nation’s banking system,” the banks said in their statement.

The banks, in particular, came to the aid of one of their competitors, while Silicon Valley Bank failed because its closest and most loyal customers – venture capitalists and start-ups – fled the bank at the first sign of trouble.

“We are putting our financial strength and liquidity into the larger system where it is needed most,” the banks said.

The country’s banking regulators also praised the rescue package.

“This sign of support from a group of large banks is very welcome and shows the resilience of the banking system,” said Treasury Secretary Janet Yellen, Acting Comptroller Michael Hsu, Federal Reserve Chair Jerome Powell and FDIC Chair Martin Gruenberg .

The $30 billion First Republic bet is seen as a bulwark against future bank runs. Shares in many mid-tier banks were hit hard this week as investors feared depositors would withdraw their money and rush to the country’s largest banks.

Over the weekend, the federal government, determined to restore public confidence in the banking system, took action to protect all bank deposits, even those that exceeded the FDIC limit of $250,000 per individual account. As the banking crisis began with Silicon Valley Bank, regulators told reporters earlier this week that it had become necessary for the government to halt the banking system as it seemed more runs were possible.