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First Republic becomes the latest bank to be rescued, this time by its rivals

A customer exits a First Republic Bank branch in Manhattan Beach, Calif., on March 13, 2023. The midsized lender was rescued by a group of top banks after suffering an exodus of depositors following the collapse of two U.S. banks.
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A customer exits a First Republic Bank branch in Manhattan Beach, Calif., on March 13, 2023. The midsized lender was rescued by a group of top banks after suffering an exodus of depositors following the collapse of two U.S. banks.

Updated March 16, 2023 at 6:39 PM ET

The biggest banks in the U.S. are stepping in to save First Republic Bank.

A group of 11 lenders says they will deposit $30 billion in the beleaguered midsized lender in an effort to prop it up.

Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo will deposit $5 billion each. Goldman Sachs and Morgan Stanley will deposit $2.5 billion each. An additional $5 billion will come from five other banks.

The rescue comes after confidence in smaller lenders cratered following the collapse of Silicon Valley Bank and Signature Bank, in what has been an extraordinary week.

The lenders said in a statement that the action was intended to showcase their commitment to lenders like First Republic Bank.

"Regional, midsize and small banks are critical to the health and functioning of our financial system," they said.

In a separate statement, Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, FDIC Chairman Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu praised the banks' decision.

"This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system," they said.

First Republic faced waning confidence about its health

California-based First Republic has experienced an exodus of depositors since the failures of those two banks, as many of its customers moved their money to larger rivals.

That happened even after the lender said it had lined up $70 billion in new financing from both the Federal Reserve and the world's largest bank, J.P. Morgan Chase. First Republic also noted it was eligible to seek additional funding from the Fed if there were heightened demand for withdrawals.

The bank has also said its balance sheet is sound and that depositors are safe, but investors have still worried they were vulnerable to a similar run on deposits as Silicon Valley Bank.

A slogan is written on the sidewalk in front of the global headquarters of Swiss bank Credit Suisse on March 16, 2023. Shares in Credit Suisse slumped earlier this week but recovered after receiving a lifeline from Switzerland's central bank.
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A slogan is written on the sidewalk in front of the global headquarters of Swiss bank Credit Suisse on March 16, 2023. Shares in Credit Suisse slumped earlier this week but recovered after receiving a lifeline from Switzerland's central bank.

Timothy Coffey, a managing director at the brokerage Janney, said First Republic was known as being relatively conservative.

"From a credit perspective, it's a very safe institution," he said. "They don't do a lot of risky loans."

First Republic had a lot of unsecured deposits

Like SVB, First Republic was founded in California, and it caters to wealthy individuals and businesses.

On Wednesday, Fitch Ratings and S&P Global Ratings both downgraded First Republic's credit rating.

Explaining its decision, Fitch said the bank's "focus on wealthy and financially sophisticated customers in select urban coastal markets in the U.S." has led to "a high proportion of uninsured deposits."

The agency also suggested it is likely First Republic's customers would take their money elsewhere if the lender were to find itself under more pressure Their deposits "can be less sticky in times of crisis or severe stress," Fitch wrote.

According to analysis by S&P Global Market Intelligence, at the end of last year, 67.7% of First Republic's domestic deposits were uninsured by the F.D.I.C — meaning they exceeded the regulator's $250,000 limit.

A shock to the banking system

In the days since regulators shut down Silicon Valley Bank and Signature Bank, anxiety about the health and safety of the banking system has grown.

Shares of U.S. small, regional banks have been hit hard, as investors worried other lenders could also collapse — even though there has been no indication there are system-wide problems.

And fears spread to other parts of the world.

On Wednesday, shares of Credit Suisse sank after its largest investor said it wouldn't commit any more money to the lender, which is facing a completely different set of problems and is in the midst of a massive restructuring.

Shares in Switzerland's second-largest lender recovered after the lender said it would borrow up to $50 billion from the country's central bank.

Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on March 16. The Treasury Department and other regulators welcomed the private rescue.
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Treasury Secretary Janet Yellen testifies before the Senate Finance Committee on March 16. The Treasury Department and other regulators welcomed the private rescue.

"What what we have right now in the banking industry is a crisis of confidence," Coffey said.

Treasury Secretary Yellen sought to reassure markets during testimony before the Senate Finance Committee on Thursday.

"I can reassure the members of this committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them," she said.

Yellen defended the government's response to the failures of SVB and Signature Bank, and blamed the collapse of SVB on a bank run that was accelerated by panic on social media.

"There will be a careful look at what happened in the bank, and what initiated the problem," she said. "But clearly the downfall of the bank, the reason it had to be closed, was that it couldn't meet depositors' withdrawal requests."

Copyright 2023 NPR. To see more, visit https://www.npr.org.

David Gura
Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.