The biggest banks in the U.S. swooped in to rescue
with a flood of cash totaling $30 billion, in an effort to stop a spreading panic following a pair of recent bank failures.
The bank’s executives came together in recent days to formulate the plan, discussing it with Treasury Secretary
and other officials and regulators in Washington, D.C., people familiar with the matter said.
Bank of America Corp.
& Co. are each making a $5 billion uninsured deposit into First Republic, the banks said in a statement, confirming an earlier report by The Wall Street Journal.
Goldman Sachs Group Inc.
are kicking in $2.5 billion apiece, while five other banks are contributing $1 billion each.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the Treasury Department, Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency said in a joint statement.
Big banks received an influx of billions of deposits from midsize lenders including First Republic over the past week in the wake of the collapse of Silicon Valley Bank and Signature Bank. JPMorgan and the others are now effectively giving back some of the money they have raked in.
The deposits don’t carry any special deal and earn a rate in line with those of the bank’s other depositors, according to people familiar with the matter.
The cash infusion could solve First Republic’s immediate issues of a falling stock price and fleeing depositors. The bank will still have to grapple with a tougher business environment in a world of higher interest rates and depositors suddenly aware of the pitfalls of large uninsured balances.
Ms. Yellen sought to reassure jittery depositors in congressional testimony Thursday. “Americans can feel confident that their deposits will be there when they need them,” she said.
She spoke with JPMorgan Chief Executive
on Tuesday, kicking off the effort to get funds to First Republic, according to a person familiar with the matter. Ms. Yellen also spoke with other bank chief executives and met with Mr. Dimon in her office at the Treasury on Thursday afternoon, the person said.
The pact is an extraordinary effort to protect the entire banking system from widespread panic by turning First Republic into a firewall. After the failures of Silicon Valley Bank and Signature, fears had grown that First Republic could be next.
The jitters have spread around the world.
, beset by a series of missteps and customer departures, was forced to secure a $50 billion-plus lifeline Wednesday from its own central bank after the Swiss firm’s share price fell to record lows.
First Republic’s stock rose 10% on Thursday, reversing declines from earlier in the day on the news. The stock had been down more than 60% this week, while its market capitalization had fallen from $21 billion on March 8, when the
crisis began, to below $5 billion.
Silicon Valley Bank’s collapse last week sparked concern about other regional banks with large collections of uninsured deposits. First Republic catered to a similar Bay Area clientele as the failed bank.
Customers yanked billions of deposits out of First Republic, and the bank sought to stem the tide Sunday, announcing additional funding from the Fed and JPMorgan that gave the bank a total of $70 billion in available liquidity.
That funding included using the Fed’s discount window, a short-term borrowing program banks can use for quick funds, people familiar with the matter said. Banks have been wary of the stigma of tapping into the program, often dubbed the industry’s lender of last resort.
First Republic said Thursday that it had borrowed as much as $109 billion from the Fed one night within the past week. It said that insured deposits have remained stable over the past week and that deposit outflows have “slowed considerably.”
But S&P Global Ratings on Wednesday downgraded the bank’s bonds to junk status, and investors continued selling, adding more uncertainty.
The fast-moving situation is reminiscent of the drama in the banking system in the 2008 financial crisis, when Mr. Dimon played the role of white knight, purchasing Bear Stearns and then Washington Mutual. Lawsuits, losses and political pressure followed. Mr. Dimon has said he would never do a government-led rescue deal again.
First Republic’s business and stock-market valuation were long the envy of the banking industry. Its customers are wealthy individuals and businesses, primarily on the coasts. Its lending business revolves around making huge mortgages to such clients as
Few of those loans ever went bad. The bank had about $213 billion in assets and $176 billion in deposits as of the end of 2022.
Its profits rose in 2022, but the Fed’s aggressive rate increases took a toll. First Republic’s wealthy customers were no longer as content to leave huge sums of money in bank accounts that earned no interest.
The industry has tried to come together before in times of crises, but with mixed results. In 1998, the hedge fund Long-Term Capital Management suffered steep losses, and most of the biggest banks agreed to bail it out for fear of their own exposures. In 2008, their chief executives tried a similar approach to bail out Lehman Brothers but failed to reach agreement.
They have also taken less dramatic steps to shore up confidence in the financial system. In early 2020, as the pandemic was gripping markets, the biggest banks announced they would all borrow from the Fed’s discount window. They didn’t need the funds, but wanted to reduce the borrowing stigma.
The other banks contributing to the First Republic rescue package are U.S. Bancorp,
Truist Financial Corp.
Bank of New York Mellon Corp.
State Street Corp.
—Laura Cooper, Lauren Thomas, Rebecca Ballhaus and Andrew Duehren contributed to this article.
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