First Republic Secures $30 Billion Bailout From Big Banks

New York (CNN) First Republic Bank, which is facing a crisis of investor and customer confidence, is set to receive a $30 billion lifeline from a group of America’s largest banks.

“This sign of support from a group of large banks is very welcome and shows the resilience of the banking system,” the Treasury Department said in a statement on Thursday.

Big banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.

The $30 billion infusion will provide the struggling San Francisco lender with much-needed cash to handle customer withdrawals and boost confidence in the US banking system at a turbulent moment for lenders.

A spokesman for the First Republic declined to comment.

In a statement, the banks said their action “reflects their confidence in the First Republic and in banks of all sizes,” adding that “regional, medium-sized and small banks are vital to the health and functioning of our financial system.” .

Markets volatile due to liquidity issues

First Republic shares, which were halted several times Thursday for volatility, ended the day up more than 10%.

The bank’s troubles underscored ongoing concerns about the banking system following 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 amid concerns that depositors could withdraw their money.

Many regional banks, including First Republic, have large amounts of uninsured deposits in excess of the FDIC’s $250,000 limit. While not nearly as high as SVB’s massive percentage of uninsured deposits (94% of the total), First Republic has a whopping 68% of all deposits that are uninsured, according to S&P Global.

That caused many customers to leave the bank and put their money elsewhere, which posed a problem for First Republic: It has to borrow money or sell assets in order to pay customers their deposits in cash.

To make money, banks use part of customer deposits to lend to other customers. But First Republic has an unusually high liabilities-to-deposits ratio of 111%, according to S&P Global. That means the bank has lent out more money than it has in customer deposits, making it a particularly risky bet for investors.

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Yellen organizes a quiet meeting

According to two people familiar with the matter, Treasury Secretary Janet Yellen met JPMorgan CEO Jamie Dimon privately in Washington on Thursday before 11 banks agreed to deposit $30 billion with First Republic Bank to stabilize the faltering lender.

The meeting served as the culmination of a series of talks over the past two days between Yellen and other US officials and executives from some of the country’s largest banks as they sought a private-sector lifeline for the struggling California bank.

Yellen had spearheaded efforts from the government side, while Dimon led efforts to organize the bank executives who would eventually be behind the dramatic infusion of deposits.

According to another source familiar with the matter, Yellen first came up with the idea of ​​having the largest US banks come together to funnel deposits to First Republic. The move was seen as crucial to stabilizing the bank’s deposit base – but also as an important signal to financial markets both through the bank and the US financial system.

The Federal Reserve created a credit system to prevent regional banks from failing after the collapse of the SVB. The facility will allow banks to lend their government bonds to the Fed as collateral for one-year loans. In return, the Fed will give banks what the banks paid for Treasury bonds, which fell over the past year as the Fed hiked interest rates.

This extraordinary federal intervention does not appear to have been enough to satisfy investors.

First Republic on Sunday announced a deal with JPMorgan to get quick access to cash when needed, and the bank then said it had $70 billion in idle assets it could use to quickly pay for customer withdrawals when needed .

— CNN’s Phil Mattingly contributed to this report


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