First Republic Gets $30 Billion Bailout From Nation's Largest Banks

SAN FRANCISCO, CA — Eleven of America's biggest banks gave First Republic Bank $30 billion Thursday following a week of turmoil for First Republic and the U.S. banking sector as a whole.

"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," said a joint statement from the contributing banks. "Regional, midsize and small banks are critical to the health and functioning of our financial system."

Bank of America, Citigroup, JPMorgan Chase and Wells Fargo are each making a $5 billion uninsured deposit. Goldman Sachs and Morgan Stanley are each making an uninsured deposit of $2.5 billion, and BNY Mellon, PNC Bank, State Street, Truist and U.S. Bank are each making an uninsured deposit of $1 billion.

“Their collective support strengthens our liquidity position, reflects the ongoing quality of our business, and is a vote of confidence for First Republic and the entire U.S. banking system,”First Republic Founder and Executive Chairman Jim Herbert and CEO and President Mike Roffler said in a news release.

The 11 banks acknowledged outflows of uninsured deposits at some banks after Santa Clara-based Silicon Valley Bank closed Friday and New York City-based Signature Bank folded Sunday, marking the second- and third-largest bank failures in U.S. history, respectively. However, the 11 banks defended the country's banking system.

"The banking system has strong credit, plenty of liquidity, strong capital and strong profitability," their statement said. "Recent events did nothing to change this."

"... Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most."

First Republic said Sunday that it had increased its liquidity to over $70 billion via the Federal Reserve Bank and JPMorgan Chase, but its stock dropped in the intervening days, falling an additional 23 percent Thursday, according to The Wall Street Journal. On Wednesday, the bank had a cash position of about $34 billion.

Customers pulled billions out of First Republic in recent days and the bank’s bonds were downgraded to junk status Wednesday by S&P Global Ratings, according to the Journal, which reported First Republic’s market capitalization was down from $21 billion just over a week ago to under $5 billion.

Between Friday and Wednesday, the bank's borrowings from the Federal Reserve varied from $20 billion to $109 billion at an overnight rate of 4.75 percent, according to the news release. Since close of business March 9, First Republic has increased short-term borrowings from the Federal Home Loan Bank by $10 billion at a rate of 5.09 percent.

"This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system," federal authorities said in a joint statement, attributed to Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, FDIC Chairman Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu.

Yellen told the Senate Finance Committee on Thursday that the nation's banking system "remains sound" and Americans "can feel confident" about their deposits.

Much of the damage for banks is seen as the result of the Federal Reserve's fastest barrage of hikes to interest rates in decades. They've shocked the system following years of historically easy conditions in hopes of driving down painfully high inflation.

Higher rates can tame inflation by slowing the economy, but they raise the risk of a recession later on. They also hurt prices for stocks, bonds and other investments. That latter factor was one of the issues hurting Silicon Valley Bank because high rates forced down the value of its bond investments.

Wall Street increasingly expects banks' struggles to push the Federal Reserve to hike interest rates next week by only a quarter of a percentage point. That would be the same sized increase as last month's, and it would be counter to expectations from earlier this month that it could hike by 0.50 points as it had been potentially signaling.

Some traders are also betting on the possibility the Fed could take a pause on rate hikes next week.

All the stress in the banking system is raising worries about a potential recession because of how important smaller and mid-sized banks are to making loans to businesses across the country.

Economists at Goldman Sachs said all the near-term uncertainty surrounding small banks mean they see a 35 percent probability of a recession in the next 12 months. That's up from their prior forecast of 25 percent.

The Associated Press contributed to this story.