First Republic secures $30 billion rescue from large banks
March 17, 2023 at 14:17
New York CNN —First Republic Bank, facing a crisis of confidence from investors and customers, is set to receive a $30 billion lifeline from a group of America’s largest banks.
The major banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.
The $30 billion infusion will give the struggling San Francisco lender much-needed cash to meet customer withdrawals and buttress confidence in the US banking system during a tumultuous moment for lenders.
The bank’s problems underscored continued worries about the banking system in the aftermath of the collapse of Silicon Valley Bank and Signature Bank.
Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday over concerns that depositors could pull their cash.
Many regional banks, including First Republic, have large amounts of uninsured deposits above the $250,000 FDIC limit.
Although not close to SVB’s massive percentage of uninsured deposits (94% of its total), First Republic has a sizable 68% of total deposits that are uninsured, according to S&P Global.
To make money, banks use a portion of customers’ deposits to give out loans to other customers.
But First Republic has an unusually large 111% liability-to-deposit ratio, S&P Global says.
That means the bank has lent out more money than it has in deposits from customers, making it a particularly risky bet for investors.
Yellen first conceived of the idea of the largest US banks coming together to direct deposits toward First Republic, according to a separate source familiar with the matter.
The Federal Reserve created a loan system designed to prevent regional banks from failing after SVB collapsed.