Eleven banks deposited $30 billion in First Republic Bank

America’s biggest banks swooped in to rescue First Republic Bank FRC 9.98%

A total of $30 billion in cash flooded in to try to stem the panic that followed a pair of recent bank failures.

The bank’s executives came together in recent days to develop the plan, discussing it with Treasury Secretary Janet Yellen and other officials and regulators in Washington, D.C., people familiar with the matter said.

JP Morgan Chase JPM 1.94%

& Co., Citigroup Inc.,

Bank of America Corp

and Wells Fargo & Co. and are each making $5 billion in uninsured deposits with First Republics, the banks said in a statement, confirming an earlier report by The Wall Street Journal. Morgan Stanley and Goldman Sachs Group Inc.

Each is kicking in $2.5 billion, while five other banks are contributing $1 billion each.

Photo: Al Drago/Bloomberg

“This support from a group of big banks is very welcome and demonstrates the resilience of the banking system,” said the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency jointly reported. Report.

Big banks took billions in deposits from mid-sized lenders including First Republic last week in the wake of the collapse of Silicon Valley Bank and Signature Bank. JP Morgan and others are now effectively giving back some of the money they raised.

These deposits do not carry any special contract and fetch a rate in line with the rate of other depositors of the bank, who are familiar with the matter.

The cash infusion would solve the First Republic’s immediate problems of falling share prices and flight from depositors. The bank will still have to contend with a tough business environment in a world where depositors are suddenly aware of the dangers of high interest rates and large uninsured balances.

In testimony to Congress on Thursday, Ms. “Americans can trust that their deposits will be there when they need them,” he said.

He spoke on Tuesday with JP Morgan Chief Executive Jamie Dimon, according to a person familiar with the matter, to begin an effort to secure First Republic’s funding. Mrs. Yellen spoke with other bank chief executives and Mr. Met Timon, the man said.

The deal was an unusual attempt to protect the entire banking system from widespread panic by turning the First Republic into a firewall. After the failures of Silicon Valley Bank and Signature, fears grew that First Republic could be next.

Tremors spread throughout the world. Credit Suisse Group Ag

Beset by a series of missteps and client departures, the Swiss firm was forced to seek a more than $50 billion lifeline from its own central bank on Wednesday after its share price plunged to record lows.

Shares of First Republic rose 10% on Thursday, reversing a decline from the day before on the news. Shares have fallen more than 60% this week, while SVB’s market capitalization has fallen below $5 billion from $21 billion on March 8, when the crisis began.

The collapse of Silicon Valley Bank last week fueled concerns that other regional banks have large uninsured deposits. First Republic offered similar Bay Area customers a failed bank.

Customers pulled billions in deposits from First Republic, and the bank tried to stem the tide on Sunday, announcing additional funding from the Fed and JP Morgan, giving the bank a total of $70 billion in liquidity.

The fund will use the central bank’s discount window, a short-term borrowing program banks can use for quick funding, people familiar with the matter said. Banks are wary of the stigma of tapping into the scheme, which is often cited as the industry’s last resort.

First Republic said Thursday it borrowed $109 billion from the central bank last week. It said insured deposits remained stable over the past week and deposit outflows “reduced significantly”.

But S&P Global Ratings downgraded the bank’s bonds to junk status on Wednesday, and investors continued to sell, adding further uncertainty.

The fast-moving situation is reminiscent of the drama in the banking system during the 2008 financial crisis, when Mr. Dimon played the white knight, buying Bear Stearns and Washington Mutual. Lawsuits, losses and political pressure continued. Mr. Dimon has said he won’t repeat the government-led rescue deal.

The business and stock market valuation of the First Republic had long been the envy of the banking industry. Its customers are wealthy individuals and businesses, primarily on the coasts. Its lending business revolves around making huge mortgages for customers like Mark Zuckerberg. Some of those loans went bad forever. The bank has about $213 billion in assets and $176 billion in deposits at the end of 2022.

Its profits rose in 2022, but the Fed’s aggressive rate hikes took a toll. Wealthy clients of the First Republic were not content to leave large sums in interest-bearing bank accounts.

The industry has tried before to consolidate during times of crisis, but with mixed results. In 1998, hedge fund long-term capital management suffered steep losses, and most of the big banks agreed to bail out for fear of their own exposures. In 2008, their chief executives tried a similar approach to bailing out Lehman Brothers, but could not reach an agreement.

They have also taken less dramatic steps to boost confidence in the financial system. In early 2020, as the pandemic gripped markets, all the biggest banks announced they would be borrowing from the central bank’s discount window. They did not need finance but wanted to reduce the stigma of borrowing.

Other banks contributing to the First Republic rescue package include US Bancorp, PNC Financial Services Group Inc.,

Trust Fund Corp

Bank of New York Mellon Corp

and State Street Corp

Write to David Benoit at David.Benoit@wsj.com, Ben Eisen at ben.eisen@wsj.com, Rachel Lewis Ensign at Rachel.Ensign@wsj.com, and Annamaria Andreotis at annamaria.andriotis@wsj.com

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