On Thursday, the Treasury, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement saying that they had saved First Republic Bank by transferring $30 billion in deposits from 11 other financial institutions. Stock in First Republic Bank was dropping and customers were pulling their money out, putting the bank in a precarious position.
The $30 billion initial payment is far more than was discussed during negotiations. According to the Wall Street Journal, four major banks—JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo—have discussed investing $5 billion of their capital into the company. The final strategy to prevent the bank’s failure involved 11 other financial institutions and $30 billion in funding.
The savings banks are Bank of America, Wells Fargo, Citigroup, and JPMorgan Chase, and they will all invest around $5 billion. There will be around $2.5 billion deposited into the account, per a press release from the two financial institutions. Around $1 billion will be contributed by Trust, PNC, US Bancorp, State Street, and Bank of New York Mellon. According to CNBC, these massive investments are required to remain in the First Republic for at least 120 days.
The bank’s shares have been progressively declining over the past several days due to the failure of Silicon Valley Bank and Signature Bank over the weekend. As a result of President Joe Biden’s growing inflation, the Federal Reserve (FED) raised interest rates, which triggered the first bank run in Silicon Valley. As a result of the rise in interest rates necessary to combat inflation, many customers withdrew their funds from banks, forcing numerous businesses to raise prices and drive away customers.
Due to the widespread confusion in the banking industry, First Republic Bank needed assistance from other financial institutions. According to CNBC, First Republic’s stock price dropped below $20 on Thursday. They ended the day on March 8 at $115. The share price was repeatedly frozen during the day. By the close of trading, a share was valued at $34.27, a gain of roughly 10% from the opening price.
On Sunday, the bank said that it had more than $70 billion in cash on hand. This amount does not include the potential for more cash through the Federal Reserve’s Bank Term Financing Program. Shares were sold off despite this, though.
Larger banks will be able to deposit more money, increasing the total amount.