America’s largest banks moved Thursday to shore up First Republic, easing fears that the regional lender could be the next domino to fall after two collapses including Silicon Valley Bank (SVB).
Shares of the crippled Californian bank pared earlier losses to trade higher on Wall Street Thursday, following reports it could receive an infusion of funds from some of the country’s most prominent financial institutions.
A group of 11 US private banks, including Bank of America, Citigroup and JPMorgan Chase, have since announced they would deposit $30 billion into First Republic.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” said leaders of the Treasury Department, US Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency in a joint statement.
The bank is known for private banking and wealth management. As a result of its clientele, it has a large percentage of uninsured deposits that has kept it under scrutiny after the failures of SVB, Signature and Silvergate.
“Where there is no vision, the people perish.” Proverbs 29:18
‘Elevated’ risk of outflows
Although First Republic’s customers come from a wide range of sectors, there have been concerns that many of them might look to flee to the relative safety of big, well-capitalized Wall Street banks in light of the ongoing turbulence in financial markets.
According to S&P Global Ratings, 68 percent of the bank’s accounts hold deposits of more than $250,000, the level automatically guaranteed by US regulators.
“We believe the risk of deposit outflows is elevated at First Republic Bank despite the actions of federal banking regulators and the bank actively increasing its borrowing availability to mitigate risk associated with the bank failures over the last week,” S&P said Wednesday as it moved to downgrade First Republic.