Big banks create $30B rescue package
First Republic had similar clientele, faced similar issues of failed bank
NEW YORK — Eleven of the biggest banks in the country announced a $30 billion rescue package for First Republic Bank on Thursday, in an effort to prevent the Californiabased bank from becoming the third bank to fail in less than a week and head off a broader crisis in the banking sector.
First Republic serves a similar clientele as Silicon Valley Bank, which failed Friday after depositors withdrew about $40 billion in a matter of hours. It appears that First Republic, which had deposits totaling $176.4 billion as of Dec. 31, was facing similar issues.
In a statement, the group of banks confirmed that other unnamed banks had seen large amounts of withdrawals of uninsured deposits, which are those that exceed the $250,000 level insured by the Federal Deposit Insurance Corp. First Republic’s shares dropped more than 60% Monday, even after the bank said it had secured additional funding from JPMorgan and the Federal Reserve.
The rescue package brought back memories of the 2008 financial crisis, when banks collectively came to the aid of weaker banks in the early days of the crisis. Banks then bought each other in hurried deals in order to keep the crisis from spreading further.
The $30 billion in uninsured deposits is seen as a vote of confidence in First Republic, whose banking franchise before the past week was often the envy of the industry. The bank catered to wealthy clients, many of them billionaires, and offered them generous financial terms.
First Republic shares had been down as much 36% earlier Thursday, but rallied after reports the rescue package was in the works. The stock closed up 10%.
“The actions of America’s largest banks reflect their confidence in the country’s banking system,” the banks said in their statement.