Fed facilities attract lenders, who borrow record $153bn through discount windowIn an effort to boost its finances and limit the damage caused by the collapse of two major lenders, the largest US banks joined forces to deposit $30bn in First Republic Bank.
JPMorgan Chase and Bank of America, Citigroup, Wells Fargo, and Bank of America will all deposit $5bn each into First Republic, a California-based lender. Morgan Stanley and Goldman Sachs will each deposit $2.5bn, while BNY Mellon and PNC Bank, State Street and Truist, and US Bank will each deposit $1bn.
“The confidence of America’s largest banks reflects their trust in the banking system. “We are working together to deploy our financial strength, liquidity, and capital into the larger system, when it is most needed,” the banks stated in a statement Thursday.
It is not clear if the move will boost investor confidence in First Republic or the overall health of the banking industry. After rebounding on Thursday, shares of First Republic plunged over 20% in after-hours trade.
After the bank said it would suspend its dividend during this period of uncertainty, the bank saw the drop. The bank stated that it will look to reduce its borrowing and increase the size and composition its overall operations.
Bill Ackman , a hedge fund manager, wrote on Twitter that the coordinated action to support First Republic was a “fictionalvote of confidence” and that FRB default risk is being spread to our biggest banks.
As a sign that the banking sector is experiencing greater stress, US lenders turned to the Fed for assistance after SVB’s collapse. The Fed lent $160bn over the week ended March 15, across its emergency facility and discount window, as well as $160bn in total.
The Fed released data on Thursday showing that the use of the discount window grew to $152.85bn. This is a record increase of $148.3bn over the five days ended Wednesday. As part of emergency measures announced by banks on Sunday, the terms of the facility were relaxed.
The Fed’s Bank Term Funding Program was also launched Sunday, and Lenders borrowed $11.9bn. Separately, $142.8bn was also distributed by the central bank to guarantee deposits at Signature Bank and SVB.
Michael Feroli, JPMorgan’s chief US economist, stated that the Fed loan to financial institutions of more than $300bn was only half of the loans made during the 2008 financial crisis.
He said, “But it’s still a large number.” “Banks need lots of money to be half full,” he said. The system works as it is intended.
JPMorgan was an advisor to First Republic. They were looking for rival lenders regarding assembling, an industry-backed solution, for First Republic. Two people familiar with the matter said that the lender called several Wall Street banks Wednesday night to seek funding.
According to a source familiar with the discussions, the government encouraged the banks to assist First Republic after its shares plummeted and its debt rating was reduced following the collapse of Silicon Valley Bank.
First Republic was saved by the 1998 rescue of Long-Term Capital Management. The New York Federal Reserve provided a $3.6 billion bailout to the hedge fund, with contributions from major Wall Street creditors.
Janet Yellen, US Treasury secretary, Jay Powell, Federal Reserve chair, and other regulators stated in a statement: “This support from a group large banks is most welcomed and demonstrates resilience of the banking sector.
The Fed stated that the Fed had added “as always. . . It is available to provide liquidity through the discount windows to all eligible institutions.
First Republic shares increased more than 10% after the announcement. Since the Federal Deposit Insurance Corporation took over SVB, its shares have fallen 64% in the last week. This has sparked fears that contagion could spread to other regional lenders.
The bank borrowed funds from JPMorgan and the Fed on Sunday to strengthen its financial position. This gave the bank $70bn in unused liquidity. It did not include the federal Bank Term Funding Program.Get the most recent news and analysis about the fallout of the collapse of Silicon Valley Bank, a lender to start-ups that was the second-largest US bank collapse.
After Friday’s collapse of SVB, First Republic and Signature Bank have struggled to restore investor confidence.
Moody’s placed all long-term ratings of First Republic under watch. They said they reflect the bank’s dependence on uninsured deposits, and unrealised losses on hold-to-maturity security securities. Fitch and S&P Global reduced First Republic’s credit rating Wednesday.
First Republic’s problems are despite assurances from President Joe Biden, that regulators would do whatever is necessary to protect depositors, and to provide emergency funding from the US government in order to increase liquidity.