Big banks offer First Republic $30 billion lifeline to avoid impending collapse – zoohousenews.com

(Natural News) As the crisis in customer and investor confidence deepens, First Republic Bank is getting a lifeline from its peers.

Some of the country’s largest banks have joined forces to provide billions of dollars in aid to the ailing lender, boosting confidence in the bank and helping it handle customer withdrawals.

Some of the big banks that helped build the lifeline include Bank of America, Citigroup, Wells Fargo, JP Morgan Chase, Truist, and PNC Financial Services. The lifeline will be around $30 billion, and deposits must remain with First Republic for at least 120 days.

The banks offering the deposits said in a statement: “This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and demonstrates their overall commitment to helping banks serve their customers and communities. “

“Regional, mid-sized and small banks are critical to the health and functioning of our financial system,” they added.

Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and FDIC Chair Martin Gruenberg praised the banks’ actions, saying in a joint statement that it illustrated the resilience of the country’s banking system.

Shares in the San Francisco-based bank were halted multiple times today due to volatility. After falling more than 30 percent earlier in the day, shares were up 22 percent by afternoon.

The problems the bank is facing are part of ongoing worries about the future of the banking system following the collapse of Signature Bank and Silicon Valley Bank in recent days. Silicon Valley Bank, the country’s 16th largest bank, failed on Friday in the largest American bank failure since the 2008 financial crisis. Yesterday, S&P Global Ratings and Fitch Ratings downgraded their credit rating on First Republic Bank over concerns depositors may withdraw their money from the bank.

First Republic has a large proportion of uninsured deposits

First Republic is one of several regional banks that has a large volume of uninsured deposits; the FDIC only insures deposits up to $250,000. One reason Silicon Valley Bank’s collapse was so monumental was the fact that 94 percent of its deposits were uninsured. First Republic’s share of uninsured deposits, while not quite as high, is still a concern at 68 percent.

Concerns about a repeat of what happened at Silicon Valley Bank caused many First Republic customers to withdraw their money and transfer it to larger banks, which meant the bank had to sell assets or borrow money to serve customers to give their cash contributions. This came despite the lender’s reassuring customers that it had arranged $70 billion in new financing from JP Morgan Chase and the Federal Reserve. It also announced that it was entitled to additional funds from the Fed if it felt strong demand for withdrawals, noting that its balance sheet was solid and depositors safe. However, none of this was enough to calm nervous investors.

Banks typically use some of their customers’ deposits to lend to other customers. However, S&P Global reports that First Republic has an exceptionally high liabilities-to-deposits ratio of 111 percent. This indicates that the bank has lent out significantly more money than it keeps in deposits from its customers.

Generally catering to upscale customers and businesses, First Republic Bank offers home mortgage lending and wealth management. At the end of December, it reported assets of over $212 billion.

Sources for this article are:

Edition.CNN.com

NBCNews.com