NEW YORK (AP) — As 11 of the largest US banks this week announced their $30 billion rescue package for First Republic Bank, those banks in particular came to the rescue of one of their competitors. When Silicon Valley Bank failed, it was because its closest and most loyal customers, venture capitalists and startups, 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 issued a statement praising the bailout: “This sign of support from a group of big banks is very welcome and demonstrates the resilience of the banking system,” said Treasury Secretary Janet Yellen, Acting Comptroller for the currency, Michael Hsu, Federal Reserve Chair Jerome Powell and FDIC Chair Martin Gruenberg said in a joint statement.
The $30 billion bet on First Republic – to prevent it becoming the third bank to fail in less than a week – was set up as a bulwark against future bank runs.
The newest: First Republic plans private stock sale to raise money: report
First Republic FRC based in San Francisco,
serves a similar customer base as Silicon Valley Bank SIVB,
last week failed after depositors withdrew about $40 billion in a matter of hours. New York’s Signature Bank closed on Sunday. It appears that First Republic, which had a total of $176.4 billion in deposits as of Dec. 31, faced similar problems.
Context: From the sudden collapse of the SVB to the fallout of Credit Suisse: 8 charts show turbulence in the financial markets
Also: SVB Financial files for Chapter 11 bankruptcy with approximately $2.2 billion in cash
And: California House Democrats are calling for an investigation into Goldman Sachs’ relationship with Silicon Valley Bank
The group of banks behind the bailout confirmed that other unnamed banks had seen large withdrawals from uninsured deposits. The Federal Deposit Insurance Corp. insures deposits up to $250,000 for individual accounts.
It must be noted that First Republic shares fell more than 60% on Monday even after the bank said it had secured additional funds from JPMorgan JPM,
and the Federal Reserve. It recovered sharply in the following session but ended Friday near the week’s lowest levels.
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 others in hasty deals to prevent the crisis from spreading.
See: Why First Republic’s $30 billion bailout didn’t end the turmoil in the banking sector
The $30 billion in uninsured deposits are seen as a vote of confidence in First Republic, whose banking operations were the envy of much 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.
As part of the relief package, JPMorgan Chase, Bank of America BAC,
Citigroup C,
and Wells Fargo WFC,
agreed to invest $5 billion each in uninsured deposits in First Republic.
Morgan StanleyMS,
and Goldman Sachs GS,
agreed to deposit $2.5 billion each into the bank. The remaining $5 billion would consist of contributions of $1 billion from BNY Mellon BK,
state road STT,
PNC bank PNC,
Truist TFC,
and US bank USB,
“The actions of America’s largest banks reflect their confidence in the nation’s banking system,” the banks said in a statement.
Shares in many regional and mid-sized banks were hit hard as investors feared depositors would withdraw their money and rush exclusively to the largest banks.
Do not miss: Signature Bank Chicago wants you to know that the bank is not bankrupt
Also read: Analyst says banking crisis is ‘over’ Is it too early to invest in bank stocks?
Last 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 that it had become necessary for the government to halt the banking system as it seemed more runs were possible.
MarketWatch contributed to this.
Continue reading:
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The collapse of the SVB reveals the Fed’s massive failure to recognize the bank’s warning signals
Elizabeth Warren suggests refraining from rolling back banking rules in 2018: ‘We now have evidence of what happens if you slack’
No, Silicon Valley Bank has not donated “more than $73 million to Black Lives Matter.”
Source : www.marketwatch.com