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CNN
—
First Republic Bank, facing a crisis of confidence from investors and customers, is set to receive a $30 billion lifeline from a group of America’s biggest banks.
“This show of support from a group of major banks is welcome and demonstrates the resilience of the banking system,” the Treasury Department said in a statement Thursday.
The main banks are JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.
The $30 billion injection will give the struggling San Francisco lender much-needed cash to meet customer withdrawals and boost confidence in the US banking system during a tumultuous time for lenders.
A spokesperson for the First Republic declined to comment.
In a reportthe banks said their action “reflects their faith in the First Republic and in banks of all sizes”, adding that “regional, medium and small banks are essential to the health and functioning of our financial system”.
Shares of First Republic, which were halted multiple times for volatility on Thursday, ended the day up more than 10%.
The bank’s troubles underscored lingering concerns about the banking system following the the collapse of Silicon Valley Bank and Signature Bank.
On Wednesday, Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating over fears depositors would withdraw their money.
Many regional banks, including First Republic, have large amounts of uninsured deposits above the FDIC limit of $250,000. While not close to SVB’s massive percentage of uninsured deposits (94% of its total), First Republic has 68% of total uninsured deposits, according to S&P Global.
This led to many customers leaving the bank and putting their money elsewhere, which created a problem for the First Republic: it had to borrow money or sell assets to pay customers’ deposits in cash.
To make money, banks use part of customer deposits to make loans to other customers. But First Republic has an unusually high liability-to-deposit ratio of 111%, according to S&P Global. This means that the bank has lent out more money than it has in customer deposits, making it a particularly risky bet for investors.
Treasury Secretary Janet Yellen met privately in Washington with JPMorgan CEO Jamie Dimon on Thursday before 11 banks agreed to deposit $30 billion in First Republic Bank to stabilize the faltering lender, according to two people familiar with the case.
The meeting was the culmination of what had been a series of conversations over the past two days between Yellen and other U.S. officials and heads of some of the nation’s largest banks as they sought a lifeline from the private sector for the battered California bank.
Yellen had led the effort on the government side, while Dimon led the effort to organize bank executives who would eventually rally behind the spectacular infusion of deposits.
Yellen first conceived the idea of the biggest US banks coming together to direct deposits to the First Republic, according to a separate source familiar with the matter. The move was seen as key to stabilizing the bank’s deposit base, but also as a critical signal to financial markets regarding both the bank and the US financial system.
The Federal Reserve created a lending system designed to prevent regional banks from failing after the collapse of SVB. The facility will allow banks to pledge their Treasury bills to the Fed as collateral for one-year loans. In return, the Fed will give banks the value banks paid for Treasuries, which plunged last year as the Fed raised interest rates.
This extraordinary federal intervention appears to have been insufficient to satisfy investors.
The First Republic announced on Sunday deal with JPMorgan to quickly access cash if needed, and the bank then said it had $70 billion in idle assets that it could quickly use to pay out customer withdrawals if needed.
– CNN’s Phil Mattingly contributed to this report