Mar
What happened to First Republic Bank?
WSJ Newspapers says First Republic was one of the banks to be swept up in the contagion that followed the March 10 failure of Silicon Valley Bank, because of some similarities including their size, their largely wealthy client base and the largely uninsured nature of their deposit bases.
Why does First Republic Bank need deposits?
Like many U.S. regional banks over the past week, First Republic has been facing worries that its depositors will leave, reflecting concerns revolving around its perceived similarity to Silicon Valley Bank.
Silicon Valley Bank failed because its core business of banking venture-capital firms and their startups was bleeding funds, creating a continuing cash need. But the firm had invested heavily in long-term bonds whose value was badly hurt by the Federal Reserve’s interest-rate increases over the past year, meaning it could sell them only at a loss.
When Silicon Valley Bank tried to raise cash anyway, its depositors, largely business customers whose accounts were well above the $250,000 Federal Deposit Insurance Corp. protection limit, fled for other banks. Uninsured depositors across the system took notice and First Republic, which had some two-thirds of its deposits in uninsured accounts, came under scrutiny.
How does the rescue of First Republic Bank work?
JPMorgan, Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. are each making a $5 billion uninsured deposit into First Republic. Morgan Stanley and Goldman Sachs Group Inc. are kicking in $2.5 billion apiece, while five other banks are contributing $1 billion each. The move in part seeks to restore confidence in regional banks by showing the largest firms are willing to put their money to work there.
The situation is reminiscent of the drama in the banking system in the 2008 financial crisis, when JPMorgan purchased Bear Stearns and then Washington Mutual.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” said a group of U.S. to WSJ Newspapers, regulators led by Treasury Secretary Janet Yellen.
First Republic Bank Rescue
Banking executives came together in recent days to formulate the plan, discussing it with Ms. Yellen and other officials and regulators in Washington, the Journal reported.
Big banks received an influx of billions of deposits from midsize lenders including First Republic over the past week in the wake of the collapse of Silicon Valley Bank and Signature Bank. JPMorgan and the others are now effectively giving back some of the money they have raked in.
Are First Republic Bank’s problems over?
It doesn’t seem that way. Shares rallied on Thursday afternoon but the scale of the rally narrowed somewhat as the afternoon played out, suggesting there mightbe some doubts that it will have the desired effect on broader depositor sentiment. On Friday, the bank said WSJ Newspapers, it was suspending its dividend; shares slumped further.
Other banking-sector problems remain potentially unresolved as well. Credit Suisse Group AG shares rallied in Zurich Thursday, a day after the Swiss giant agreed to borrow 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss National Bank to ease its own crisis, but it isn’t clear whether greater unrest in Europe is at hand. Credit Suisse shares turned around and fell Friday.
And top executives of First Republic Bank sold millions of dollars of company stock in the two months before the bank’s shares plummeted during the panic over the health of regional lenders, the Journal reported, a fact that won’t sit well with many people regardless of how the rescue effort plays out.
