JPMorgan Chase, Citigroup among 11 banks to pump $30 bn into First Republic

To prevent the breakdown of another US bank in last one week, eleven of the biggest banks including JPMorgan Chase, Citigroup, Goldman Sachs, have come forward to form a $30 billion rescue package for First Republic Bank

Livemint
Updated17 Mar 2023, 10:10 AM IST
Eleven of the biggest banks have come forward to form a $30 bn recue package for First Republic Bank
Eleven of the biggest banks have come forward to form a $30 bn recue package for First Republic Bank (REUTERS)

To prevent the re-occurrence of Silicon Valley Bank moment again in the US banking scenarios, eleven of the biggest banks have come together to form a $30 billion rescue package for First Republic on Thursday.

The package is jointly formed to prevent the California-based bank from becoming the third bank to fail in less than a week and head off a broader crisis in the banking sector. Notably, First Republic caters to the need of a similar clientele as Silicon Valley Bank, which failed Friday after depositors withdrew about $40 billion in a matter of hours. First Bank was also facing similar issue in last few days.

Read all US banking crisis related updates here.

As part of the aid package, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, will put around $ 5 billion in uninsured depositis into First Republic. Meanwhile, Morgan Stanley and Goldman Sachs would deposit USD 2.5 billion each into the bank. The remaining contributors including BNY Mellon, State Street, PNC Bank, Truist and US Bank will collectively put $ 5 billion into the bank.

Also Read: Banks borrow $164.8 bn from Fed in rush to backstop liquidity

In a statement, the group of banks affirmed that other unnammed banks had seen large amounts of withdeawals of uninsured deposits that exceeed the $ 2,50,000 level insured by the Federal Deposit Insurance Corporation. Despite informing about the additional funding from JPMorgan and Federal Reserve, First Republic Bank witnessed a more than 60% drop in its shares on Monday.

Rescue package reminds of initial days of 2008 financial crisis

The intervention of eleven banks for the formation of rescue package brought back memories of the 2008 financial crisis, when banks collectively came to the aid of weaker banks in the early day of crisis. Banks then bought each other in hurried deals in order to keep the crisis from spreading further.

Also Read: Global markets: SGX Nifty to First Republic Bank — key triggers that may drive stock market today

The $30 billion rescue packaage is a show of vote of confidence in the First Republic, First Republic's shares dropped more than 60 per cent Monday, even after the bank said it had secured additional funding from JPMorgan and the Federal Reserve.

Also Read: Credit Suisse faces 1st US investor lawsuit over meltdown

The banks came to the rescue of one of their competitors, but Silicon Valley couldn't survive the crisis because its closest and most loyal customers fled the bank at the first sign of trouble.

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

The US banking regulators also showed support on the package issued by the large banks.

Also Read: ‘$200 mn from SVB moved to GIFT City’

"This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system," said Treasury Secretary Janet Yellen, Acting Comptroller of the Currency Michael Hsu, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin Gruenberg.

The $30 billion rescue package is expected to act as a barrier against the future bank fallout in the US. After the SVB crisis, mid sized banks were hit hard as investors feared depositors would withdraw their cash and run to the nation's biggest banks.

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First Published:17 Mar 2023, 10:10 AM IST
HomeNewsWorldJPMorgan Chase, Citigroup among 11 banks to pump $30 bn into First Republic

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