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Large U.S. Incumbent Financial Institutions Inject $30-billion in First Republic Bank to Avert Crisis

The Globe and Mail | Tim Kiladze and Stefanie Marotta | March 17, 2023

Unsplash Alexander Grey counting money - Large U.S. Incumbent Financial Institutions Inject $30-billion in First Republic Bank to Avert Crisis

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The United States’ largest financial institutions have agreed to deposit US$30-billion in First Republic Bank, an unconventional private-sector rescue designed to shore up confidence in the financial system and contain an emerging crisis.

  • The agreement was brokered by the U.S. government, but is funded by 11 of the country’s largest lenders and investment banks. Bank of America, Citigroup, JP Morgan Chase and Wells Fargo, known as the Big Four U.S. banks, are leading the effort with US$5-billion each.
    • It is an unusual approach. The banks appear keen on testing mechanisms that aren’t as extreme as full-blown takeovers.
  • San Francisco-based First Republic is caught in the fallout from Silicon Valley Bank’s collapse last Friday. Its shares have plummeted as much as 70 per cent over the past week. Much like SVB, First Republic has not reported any sudden loan losses or writedowns. But clients nervous about its stability have been pulling deposits and transferring them to larger institutions, something known as a flight to quality.

See:  European Regulators Condemn US ‘incompetence’ in SVB Collapse

  • The U.S. government has already insured all deposits at SVB and Silvergate Bank, which also failed last week. And the U.S. Federal Reserve has provided fresh liquidity for banks that need to swap bonds for cash at full value. Early Thursday in Switzerland, the Swiss National Bank offered up to 50 billion Swiss francs in liquidity to support the ailing Credit Suisse.
  • Borrowing Facility: Thursday, First Republic disclosed that over the past week it had borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank at rates ranging from 4.75 per cent to 5.09 per cent.
    • New data released from the Fed late Thursday showed a major jump in borrowing from the central bank over the past five days, as multiple lenders struggled with fleeing deposits and an uncertain market.
    • The amount borrowed from the Fed through its regular line of credit jumped US$148-billion, to US$153-billion, in one week, and lenders also borrowed $US12-billion under the Fed’s newly created Bank Term Funding Program, which was set up on Sunday.

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