11 Big Banks Unite to Support First Republic Bank and the U.S. Economy
This week, 11 of the nation’s largest banks, including Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley, announced that they are joining forces to funnel $30 billion worth of uninsured deposits into First Republic Bank (FRC).[0] The move is in response to the failed banks Silicon Valley Bank and Signature Bank, and the resulting panic from depositors of other regional banks, including First Republic.[1]
First Republic’s stock plummeted more than 50 percent this week, as the market reacted to the news.[1] On Thursday, First Republic's stock rose nearly 60% as a result of the deposit pledge, but Friday, the stock fell again, down 33%, to about $23 a share.
The attitudes of America's biggest banks indicate their trust in the nation's banking structure.[2] In a joint statement, they said: “Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most. Smaller- and medium-sized banks support their local customers and businesses, create millions of jobs and help uplift communities. America’s larger banks stand united with all banks to support our economy and all of those around us.”[3]
In March, the University of Michigan's consumer sentiment index dropped to 63.4 from 67 the previous month as inflation expectations stayed high.[4]
Meanwhile, the S&P 500 lost about 5%, while the SPDR S&P Regional Banking ETF (KRE) slumped 24.5% in the past seven trading days since March 9.[5]
Our largest banks are now shouldering the risk of defaulting on FRB loans. Billionaire investor Bill Ackman criticized the move, saying: “Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy.”
San Francisco-based First Republic is the 14th-largest bank in the New York market, with $17 billion in deposits.[6] Outflows of deposits have now “slowed considerably,” the bank said, but the bank also borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank over the past week.[7] Jefferies analyst Ken Usdin estimated “total deposit outflows could have been up to $89B” in a note to clients on Friday.[8]
0. “Here's why the banking crisis is over, says top long-term sector analyst” Yahoo News, 17 Mar. 2023, https://news.yahoo.com/heres-why-the-banking-crisis-is-over-says-top-long-term-sector-analyst-101647794.html
1. “Banking executives sold millions in stock before crash: WSJ” The Hill, 17 Mar. 2023, https://thehill.com/business/3904602-first-republic-execs-sold-millions-in-stock-before-crash-wsj/
2. “US banks launch $30bn rescue of First Republic to stem spiraling crisis” The Guardian, 16 Mar. 2023, https://www.theguardian.com/business/2023/mar/16/first-republic-bank-rescued-latest
3. “First Republic Gets $30 Billion Lifeline from JPMorgan, Citi, Bank of America, Wells Fargo” Investopedia, 16 Mar. 2023, https://www.investopedia.com/first-republic-s-usd30b-rescue-by-jp-morgan-citi-and-bank-of-america-7367932
4. “Markets Dip, Signaling Pause In Rally As Focus Shifts To Next Week's Fed Decision: Analyst Says Brace For” Benzinga, 17 Mar. 2023, https://www.benzinga.com/news/earnings/23/03/31394507/nasdaq-s-p-futures-dip-signaling-pause-in-rally-as-focus-shifts-to-next-weeks-fed-decision-analyst-
5. “From SVB’s sudden collapse to Credit Suisse’s fallout: 8 charts show turbulence in financial markets” MarketWatch, 17 Mar. 2023, https://www.marketwatch.com/story/from-svbs-sudden-collapse-to-credit-suisses-fallout-8-charts-show-turbulence-in-financial-markets-48caa0f3
6. “First Republic is a hot mess. The reason has a lot to do with its wealthy clientele” CNN, 17 Mar. 2023, https://www.cnn.com/2023/03/17/business/first-republic-bank-rescue/index.html
7. “Analyst says banking crisis is ‘over.' Is it too soon to invest in bank stocks?” MarketWatch, 18 Mar. 2023, https://www.marketwatch.com/story/analyst-says-banking-crisis-is-over-is-it-too-soon-to-invest-in-bank-stocks-e37e432
8. “Moody's downgrades First Republic Bank to B2 from Baa1” ForexLive, 18 Mar. 2023, https://www.forexlive.com/news/moodys-downgrades-first-republic-bank-to-b2-from-baa1-20230318
