Competitors commit US$30 billion emergency fund to avoid another bank collapse

NEW YORK, 17 March 2023:

The US banking sector has closed ranks to prevent further closures after the collapse of Silicon Valley Bank (SVB) and Signature Bank in recent days.

In an unprecedented move, 11 major American banks came together to commit US$30 billion in emergency deposits to shore up First Republic Bank – which had been identified by regulators as having the third-highest rate of uninsured deposits among US banks, behind SVB and Signature Bank.

The deposits will stay for at least 120 days in First Republic Bank, bolstering its cashflow of over US$70 billion in liquidity that this beleaguered bank had announced on Sunday after the two earlier collapses. Further, First Republic Bank has yet to take advantage of the latest US Federal Reserve’s crisis response of Bank Term Funding Programme – where banks can take one-year loans under favourable terms.

Shoring up consumer confidence in the US banking system underpinned why competitors lined up to help First Republic – with US$5 billion each from Bank of America, Wells Fargo, Citigroup and JPMorgan Chase, US$2.5 billion from Goldman Sachs and Morgan Stanley plus US$1 billion each from Truist, PNC, US Bancorp, State Street and Bank of New York Mellon.

“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,” the group said in a statement.

Ironically, Truist is among the top five banks seen – as being at high risk – identified by influential analyst firm Morningstar. The other three are Comerica, Huntington Bancshares and KeyCorp.

Following the First Republic rescue announcement, Wall Street saw a rebound in banking stocks – especially smaller ones which had been earlier pummelled – like SPDR S&P Regional Bank ETF, Western Alliance and Zion Bankcorp.

Also read: Silvergate is 3rd sunk US bank, Credit Suisse also tanking