In an effort to allay concerns that First Republic Bank would be the second-largest banking collapse in US history, the country’s biggest institutions have moved to support the regional lender.
11 private US banks, including Bank of America, Citigroup, and JPMorgan Chase, declared on Thursday that they will inject $30 billion into the First Republic, a struggling company based in California.
While Goldman Sachs and Morgan Stanley are each making an uninsured deposit of $2.5 billion, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo each indicated they will make a $5 billion uninsured deposit.
Also, a $1 billion uninsured deposit is being made by each of BNY-Mellon, PNC Bank, State Street, Truist, and US Bank. The banks declared, “Together, we are putting our financial strength and liquidity into the larger system, where it is most needed.
After news that it would receive a funding infusion from some of the biggest financial institutions in the nation, First Republic’s stock prices recovered some of its earlier losses to close Thursday’s trading session higher on Wall Street.
The leaders of the US Department of the Treasury, Federal Reserve, Federal Deposit Insurance Corporation, and Comptroller of the Currency all expressed their appreciation for the deposits.
In a joint statement, they said: “This show of solidarity by a number of significant institutions is highly welcome and underscores the resilience of the banking sector.
Following the abrupt failure of Silicon Valley Bank late last week due to a typical bank run, in which depositors raced to withdraw all of their money at once, Washington has been frantically trying to avert a financial disaster.
It was the second-largest banking collapse in US history, behind Washington Mutual’s fall in 2008. The following bankruptcy of the New York-based Signature Bank over the weekend added to the financial carnage.
One of the banks that had been particularly stressed out was First Republic due to concerns of a second run on a local bank and a big movement in deposits to larger institutions.
The First Republic rescue plan put into action prevents a larger institution from taking over the bank altogether, which would have been in opposition to a larger White House campaign against excessive concentration in other US industries.
Additionally, the Fed reaffirmed its commitment to provide general support for the banking industry, stating that it “as always, stands available to provide liquidity through the discount window to all qualifying institutions.”
The news on Thursday came only hours after US legislators were reassured by Treasury Secretary Janet Yellen that the nation’s banking system was still “sound” despite recent bank collapses.
Yellen is the first government representative from President Joe Biden’s team to testify before lawmakers regarding the choice to safeguard uninsured funds at Silicon Valley and Signature banks.
She added during a Finance Committee hearing in the US Senate on Thursday morning, “I can tell the members of the committee that our banking system is robust and that Americans can feel confident that their savings will be there when they need them.
The actions this week show how determined we are to keep our financial system robust and the savings of our depositors secure.
