Big banks step in with $30 billion to save San Francisco-based First Republic Bank
SAN FRANCISCO - San Francisco based First Republic is getting a boost from within the banking industry.
In a statement, First Republic announced it received $30 billion lifeline in uninsured deposits from a coalition of the United States' 11 largest banks.
As part of the aid package, JPMorgan Chase, Bank of America, Citigroup and Wells Fargo have agreed to each put $5 billion in uninsured deposits into First Republic. Morgan Stanley and Goldman Sachs will 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, Trust and US Bank.
"Their collective support strengthens our liquidity position, reflects the ongoing quality of our business, and is a vote of confidence for First Republic and the entire U.S Banking system," said Jim Herbet, Founder and Executive Chairman and Mike Roffler, CEO and President.
The news came as a relief to many clients and community members who'd worried it might have the same fate as Silicon Valley Bank that collapsed last Friday.
"It's very reassuring to see the steps taken to support First Republic Bank," said Bijan Mehryar, a Danville native.
"I have a lot of friends who work at both banks and hope they're both okay," said John Lane of Marin.
First Republic reported $176 billion in assets at the end of last year and acknowledged that this past week it had borrowed from the Federal Reserve to cover rapid withdrawals.
"From March 10 to March 15, 2023, Bank borrowings from the Federal Reserve varied from $20 billion to $109 billion at an overnight rate of 4.75%.," the FIrst Republic Bank statement said.
"I think they're successfully calming the situation," said Finance Professor Ross Levine at the UC Berkeley Haas School of Business, who wrote a book analyzing the role of regulators in the 2008 banking crisis.
Levine says while the short term calming measures seem effective, he says long-term, the failure of banks and regulators to recognize the changing interest rate risks is shockingly elementary.
"The question is how could such a basic problem be missed," said Levine.
He says he worries about even larger banks having similar risky investments, noting that a paper by a team of researchers led by a Stanford professor had some interesting insights.
"We have estimates there's about a $2 trillion loss in the overall banking system in the U.S. due to the mismatch between long-term assets and the short term liabilities," said Professor Levine.
Levine says one problem is that banking executives have incentives to take great risks without much downside, a big problem if companies' risk officers, shareholders, and regulators aren't watching over the books and putting on the brakes.
"The regulators by bailing out many, many investors in banks, have created an environment by which those investors in banks have fewer incentives to monitor those banks and constrain them from risk-taking," said Levine.