Firstly, a bit of background on First Republic.
It’s another one of those US banks that has a large amount of deposits that are over US$250,000.
That’s the cut-off point for deposits to be insured against losses.
About 70% of First Republic’s deposits are uninsured, above the median of 55% for medium-sized banks, and the third highest in the group after Silicon Valley Bank and Signature Bank.
After Silicon Valley and Signature Bank’s collapse, contagion was was spreading to First Republic about its deposits.
Its shares lost two-thirds of their value in the past week. And it had to be put into a trading halt several times.
The bank had said on Sunday that it had more than US$70 billion in availability liquidity, but that wasn’t enough to keep investors from spooking.
So now we have a bunch of bankers stepping in.
The announcement from some of the biggest names in finance, including some you may remember from the GFC, is meant to be another reassurance to depositers that there’s enough cash going around.
They are pledging to put US$30 billion (AU$45 billion) into First Republic.
Here’s part of the statement from the likes of Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs and Morgan Stanley, among others:
Following the receiverships of Silicon Valley Bank and Signature Bank, there were outflows of uninsured deposits at a small number of banks. America’s financial system is among the best in the world, and America’s banks – large, midsize and community banks – do an extraordinary job serving the banking needs of their unique customers and communities.
The banking system has strong credit, plenty of liquidity, strong capital and strong profitability. Recent events did nothing to change this.
The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most.
So far, First Republic has gained 10%. So clearly investors are feeling a bit more optimistic.
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