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The Rescue of First Republic

How some of the US’s biggest banks stepped in to prevent a third bank failure this month

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  • Written by  Banking Exchange staff
The Rescue of First Republic

At the same time as state and federal agencies were taking control of Signature Bank in New York and Silicon Valley Bank in California, in San Francisco efforts were under way to save a third major regional bank.

First Republic Bank — one of the biggest banks in the country — sought to borrow money from the Federal Reserve and Federal Home Loan Bank to meet withdrawal demands, at one point borrowing more than $100 billion from the Fed. It has also suspended dividend payments to shareholders.

A group of 11 major US banks then stepped in to deposit a total of $30 billion on 16 March to shore up First Republic’s liquidity position and avert any further issues for the bank.

The group is made up of Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, PNC Bank, State Street, Truist, and US Bank. Together they have made the uninsured deposits into First Republic to give the San Francisco bank more breathing space to review its balance sheet and reduce borrowings.

In a statement, Jim Herbert, founder and executive chairman, and Mike Roffler, CEO and president of First Republic, expressed their “deep appreciation” for the joint effort, describing it as “a vote of confidence for First Republic and the entire US banking system”.

In a brief statement, the leaders of the US Treasury, Federal Reserve, FDIC and OCC welcomed the move and said it “demonstrates the resilience of the banking system”.

Speaking to the Senate Finance Committee on March 16, Treasury secretary Janet Yellen said the “banking system was sound” and bank customers could “feel confident that their deposits will be there when they need them”.

However, she emphasized that the measures taken with Signature Bank and Silicon Valley Bank to protect uninsured deposits were one-off measures that would only be repeated if federal regulators, the Treasury, and the president were unanimous in deciding that a failure would create “significant economic and financial consequences”.

Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo have each deposited $5 billion. Goldman Sachs and Morgan Stanley have contributed $2.5 billion each, while BNY Mellon, PNC Bank, State Street, Truist and US Bank have each made an uninsured deposit of $1 billion.

First Republic said daily deposit outflows had “slowed considerably” in recent days.

Meanwhile, other banks have been experiencing significant inflows as customers review their banking relationships in light of recent turmoil. Farmers & Merchants Bank of Long Beach, also based in California, said it was “experiencing a steady flow of new deposits from existing and new clients in response to the recent turbulence in the banking industry”.

Rhode Island-headquartered Citizens Bank extended its business hours from March 14 for “select branches” amid “higher than normal interest” from new customers.

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