NEW YORK — While Treasury Secretary Janet Yellen offered firm, upbeat reassurances to rattled bank depositors and investors Thursday, 11 of the biggest banks in the country announced a $30 billion rescue package for First Republic Bank, in an effort to prevent the California-based institution from becoming the third bank to fail in less than a week.
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A television screen displaying financial news is seen inside one
of First Republic Bank's branches Thursday in the Financial
District of Manhattan.
Mary Altaffer, Associated Press
First Republic serves a similar clientele as Silicon Valley Bank, which failed Friday after depositors withdrew about $40 billion. It appears that First Republic, which had deposits totaling $176.4 billion as of Dec. 31, was facing a similar crisis.
In a statement, the group of banks confirmed that other unnamed banks had seen large amounts of withdrawals of uninsured deposits, which are those that exceed the $250,000 level insured by the Federal Deposit Insurance Corp. First Republic’s shares dropped more than 60% Monday, even after the bank said it had secured additional funding from JPMorgan and the Federal Reserve.
On Thursday, the bank’s shares were down as much as 36%, but rallied after reports that the rescue package was in the works, and closed up nearly 9%.
JPMorgan Chase, Bank of America, Citigroup and Wells Fargo agreed to each put $5 billion in uninsured deposits into First Republic. Morgan Stanley and Goldman Sachs would deposit $2.5 billion each into the bank. The remaining $5 billion would consist of $1 billion contributions from BNY Mellon, State Street, PNC Bank, Truist and US Bank.
“The actions of America’s largest banks reflect their confidence in the country’s banking system,” the banks said in their statement.
The nation’s banking regulators also issued a statement in support of the bank rescue package.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” said Treasury Secretary Janet Yellen, Acting Comptroller of the Currency Michael Hsu, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin Gruenberg.
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Yellen
Jacquelyn Martin, Associated Press
The news could help calm the nerves of bank investors after the collapse last week of Silicon Valley Bank, which was the second biggest bank failure in U.S. history after the demise of Washington Mutual in 2008.
The shuttering of Silicon Valley Bank Friday and of New York-based Signature Bank two days later has revived bad memories of the financial crisis that plunged the United States into the Great Recession of 2007-2009.
Over the weekend the federal government, determined to restore public confidence in the banking system, moved to protect all the banks’ deposits, even those that exceeded the FDIC’s $250,000 limit per individual account.
At a hearing Thursday on Capitol Hill, Yellen told senators that the U.S. banking system “remains sound” and Americans “can feel confident” about the safety of their deposits.
Her remarks came against the backdrop of deepening concerns about the health of the global financial system.
By the time her testimony was over, First Republic had received the emergency infusion of $30 billion in deposits from 11 banks. And in Europe hours earlier, Credit Suisse, Switzerland’s second-largest lender, got a promise from the Swiss central bank of a loan of up to $54 billion.
Republican senators laid a big part of the blame for the problems on Democratic President Joe Biden’s administration.
“The reckless tax and spend agenda that was forced through Congress” contributed to record high inflation that the Federal Reserve is having to compensate for through increasing interest rates, said Sen. Mike Crapo of Idaho. And those surging rates have caused banks — as well as regular citizens — problems.
The Republicans also questioned Biden’s assurances that taxpayers won’t bear the brunt of the commitment to make depositors whole.
Yellen resisted that scenario, though she said, “We certainly need to analyze carefully what happened to trigger these bank failures and examine our rules and supervision” to prevent them from happening again. She defended the government’s argument that taxpayers will not end up paying the cost of protecting uninsured money at Silicon Valley and Signature.
The Treasury secretary was the first administration official to face lawmakers over the decision to protect uninsured money at the two failed regional banks, a move some have criticized as a bank “bailout.”
“The government took decisive and forceful actions to strengthen public confidence” in the U.S. banking system, Yellen testified. “I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them.”
The week has been a whirlwind for markets globally on worries about banks that may be bending under the weight of the fastest hikes to interest rates in decades, increases intended to quell rising inflation on consumer goods.
The Justice Department and the Securities and Exchange Commission have launched investigations into the Silicon Valley Bank collapse, and President Joe Biden has called on Congress to strengthen rules on regional banks.
White House press secretary Karine Jean-Pierre said Thursday, “There are things that we can do in the administration, but in order to really deal with this issue we have to act. Congress needs to act.”
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