Leaders of top US financial agencies say move is ‘welcome’ amid fears California-based lender could be next to collapse.
Shares of the crippled California-based bank pared earlier losses to trade higher on Wall Street on Thursday, following reports it could receive an infusion of funds from some of the country’s most prominent financial institutions.
A group of 11 private US banks, including Bank of America, Citigroup and JPMorgan Chase, then announced they would deposit $30bn into First Republic.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo said they would each make a $5bn uninsured deposit, while Goldman Sachs and Morgan Stanley are each making an uninsured deposit of $2.5bn.
BNY-Mellon, PNC Bank, State Street, Truist and US Bank also are each making an uninsured deposit of $1bn. “Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said.
The move was welcomed by the heads of the US Department of the Treasury, Federal Reserve, Federal Deposit Insurance Corporation and Comptroller of the Currency.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” they said in a joint statement.
Washington has been scrambling to prevent a financial crisis following the rapid collapse of Silicon Valley Bank late last week after it experienced a traditional bank run, where depositors rushed to withdraw their funds all at once.
It was the second-largest banking collapse in US history after the 2008 failure of Washington Mutual. And the financial bloodletting continued with the subsequent collapse of New York-based Signature Bank at the weekend.
First Republic was one of the banks that had been under more stress amid worries of another run on a regional bank, and a significant shift in deposits to larger banks.
The rescue plan executed for First Republic averts an outright takeover of the bank by a larger institution, which would have run counter to a broad White House push against excessive concentration in other US sectors.
The Fed also underscored its overall support for the banking sector, saying: “As always, the Federal Reserve stands ready to provide liquidity through the discount window to all eligible institutions.”
Thursday’s announcement came just hours after Treasury Secretary Janet Yellen sought to reassure US legislators that the country’s banking sector remained “sound” despite the recent banking failures.
Yellen is the first official from President Joe Biden’s administration to face legislators over the decision to protect uninsured money at Silicon Valley and Signature banks.
“I can reassure the members of the committee that our banking system is sound and that Americans can feel confident that their deposits will be there when they need them,” she said during a Finance Committee hearing in the Senate on Thursday morning.
“This week’s actions demonstrate our resolute commitment to ensure that our financial system remains strong and the depositors’ savings remained safe.”