Behold, the most ambitious crossover event in banking history.
On Thursday, the country’s biggest banks banded together to prevent further contagion from the Silicon Valley Bank implosion, agreeing to collectively pour an unsecured credit loan of up to $30 billion into the next most likely victim of a bank run: First Republic Bank. In the process, they may just restore faith in America’s banking system… or create a financial Justice League that we never wanted to need.
Sharing the Load
How did First Republic Bank end up in such a pickle? Well, its executives might be asking themselves the same question. The bank, which caters to wealthy clientele, had a large share of deposits above the FDIC $250,000 insurance limit, but it was a mere 68%, compared to SVB’s 94%, according to S&P Global. In December, First Republic reported roughly $212 billion in assets, and on Sunday reassured depositors it had roughly $70 billion in liquidity.
But that was not enough to prevent a panic among its high-end clientele, who began maneuvering (presumably via various apps) to shift their money elsewhere. By Wednesday, both S&P Global Ratings and Fitch Ratings downgraded First Republic’s credit rating, exacerbating the company’s 70% share price dropoff since around Wednesday last week, creating more panic.
And so after reportedly meeting with officials at The Fed and Treasury Department, a group of nearly a dozen banks announced Thursday that they were moving to perform something closer to a bailout than a buyout:
- The big players — JPMorgan, BofA, Wells Fargo, and Citigroup — each pitched in $5 billion, while Goldman Sachs and Morgan Stanley deposited $2.5 billion each, and State Street, PNC, Truist, US Bancorp, and Bank of New York Mellon each added around $1 billion.
- In theory, the banks effectively shifted the money that fleeing First Republic clients took out and are bringing it back into First Republic. The deposits will remain at First Republic for at least 120 days, sources told CNBC.
“This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,” the banks said in a group statement.
Fool Me Twice: The big banks have reason enough not to chop up First Republic and buy it in pieces — or for one bank to buy it outright. Jamie Dimon, we assume, still wakes up in the occasional cold sweat remembering the fallout from purchasing Bear Stearns and Washington Mutual in 2008. We’ll see if banking’s all-for-one-and-one-for-all moment is enough to keep the next batch of high-end clientele of an overleveraged bank from panicking if things head south again.