Eleven of the biggest banks in the US came together on Thursday to form a $30 billion rescue plan for First Republic. This was done to prevent another Silicon Valley Bank moment.
The package is put together to keep the California bank from failing for the third time in less than a week and to stop a wider banking crisis. Notably, First Republic serves the same kind of customers as Silicon Valley Bank, which closed Friday after about $40 billion in deposits were withdrawn in just a few hours. The same thing happened to First Bank in the past few days.
As part of the aid package, JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo will put about $5 billion in uninsured deposits into First Republic. Morgan Stanley and Goldman Sachs would each put US$2.5 billion into the bank at the same time. The last five investors, BNY Mellon, State Street, PNC Bank, Truist, and US Bank, will put in a total of $5 billion.
In a statement, the group of banks said that other, unnamed banks had seen a lot of withdrawals of deposits that were not covered by the Federal Deposit Insurance Corporation and were over $250,000. Even though First Republic Bank told investors that JPMorgan and the Federal Reserve were giving it more money, the bank’s shares fell by more than 60% on Monday.
The rescue plan reminds us of the beginning of the 2008 financial crisis.
When eleven banks worked together to make a rescue plan, it reminded me of the 2008 financial crisis, when banks worked together to help weaker banks in the early days of the crisis. Then, in a rush, banks bought each other to stop the crisis from getting worse.
The $30 billion rescue package is a vote of confidence in the First Republic. On Monday, the bank’s shares dropped more than 60%, even though JPMorgan and the Federal Reserve said they would give it more money.
Source: Team CurrencyVeda