On a Thursday in mid-March, six of the largest banks in America chose to lean their own weight against a neighbor in trouble, placing $30 billion into First Republic so that a single struggling lender would not become the next casualty of a banking scare. The fear had been seeded by the sudden collapse of Silicon Valley Bank, whose losses on bonds grew heavy as interest rates climbed, and it had spread through the quiet trust that holds the financial system together. What the moment reveals is an old human truth: confidence is a shared possession, and when it wavers, the strong must sometimes
Major US Banks Pour $30 Billion Into First Republic as Banking Contagion Spreads
On a Thursday in mid-March, six of the largest banks in America chose to lean their own weight against a neighbor in trouble, placing $30 billion into First Republic so that a single struggling lender would not become the next casualty of a banking scare. The fear had been seeded by the sudden collapse of Silicon Valley Bank, whose losses on bonds grew heavy as interest rates climbed, and it had spread through the quiet trust that holds the financial system together. What the moment reveals is an old human truth: confidence is a shared possession, and when it wavers, the strong must sometimes stand beside the weak for the whole structure to hold.
On Thursday, March 16, six of America's largest banks, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley, each put money into First Republic Bank. The sum was $30 billion in deposits, offered to steady a regional lender that had been caught in the wreckage of two midsize bank failures in a single week.
The pressure on First Republic had been building fast. Its shares had lost 70% over nine trading sessions, and a financing round arranged through JPMorgan days earlier, worth $70 billion in access to funds, had not calmed anyone. Depositors were moving their cash toward bigger institutions, and every outflow made the next day more frightening.
Behind the rescue stood a quiet circle of decision-makers. According to a source familiar with the talks, Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan chief Jamie Dimon had discussed the package on Tuesday. Regulators called the show of support a sign of the banking system's resilience.
Markets answered with a mixed reply. First Republic rose 10% on the news, then fell 18% after hours once it suspended its dividend, and its shares remained far below where they had been a week earlier. Larger banks and smaller regional lenders edged upward, a small sign of relief.
The unease reached beyond America. Credit Suisse, a 167-year-old Swiss lender, became the first major global bank to take an emergency lifeline since 2008, borrowing up to about $54 billion from the Swiss National Bank. European banks had lost roughly $165 billion in value since March 8. Meanwhile the European Central Bank raised rates as expected, and the Federal Reserve was still expected to add a quarter-point increase, even as banks drew record emergency liquidity. Officials insist this is an isolated problem, not a repeat of 2008, and the coming weeks will show whether depositors stop running and whether the Fed holds its course.
On Thursday, March 16, six of the largest names in American banking put $30 billion in deposits into First Republic Bank. JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, Goldman Sachs and Morgan Stanley all took part, according to a statement from the banks. The move was meant to steady a regional lender caught in a crisis that began with the failure of two other midsize US banks within the past week.
First Republic's shares had fallen 70% over the previous nine trading sessions. The bank had already received a round of financing on Sunday, March 12, arranged through JPMorgan, which gave it access to $70 billion in funds. That did not calm investors. Signature Bank had failed after Silicon Valley Bank, and depositors had begun shifting their cash to larger lenders.
According to a source familiar with the situation, the new package was put together by US Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan chief executive Jamie Dimon, who discussed it on Tuesday, March 14. US regulators said the show of support was welcome and demonstrated the resilience of the banking system.
The market reaction was mixed. First Republic's stock closed up 10% on news of the rescue, then dropped 18% in after-hours trading once the bank said it would suspend its dividend. The shares remain down more than 70% since March 6. Elsewhere on Wall Street, JPMorgan, Morgan Stanley and Bank of America each rose more than 1%, and the S&P 500 Banks Index recovered 2.2%. Smaller lenders Fifth Third Bancorp, PNC Financial Services Group and KeyCorp each gained more than 4%.
The trouble began when Silicon Valley Bank collapsed last week under bond-related losses that built up as interest rates surged last year. Banking stocks worldwide have been battered since, as investors asked what else might be hiding in the system. Since March 8, European banks have lost about $165 billion in market value, according to Refinitiv data.
Earlier on Thursday, Credit Suisse became the first major global bank to take an emergency lifeline since the 2008 financial crisis. After its largest investor said regulatory constraints kept it from providing more funds, the 167-year-old Swiss lender said it would use an option to borrow up to 50 billion Swiss francs, about $54 billion, from the Swiss National Bank. The central bank confirmed it would provide liquidity against sufficient collateral. Credit Suisse shares closed 19% higher after a 25% fall on Wednesday, March 15. Its market value, about $8.66 billion, is down 90% from a peak of around $91 billion in February 2007. Analysts said the measures buy time for a planned restructuring and possibly further steps to shrink the bank.
Central banks are trying to reassure markets. The European Central Bank raised rates by 50 basis points on Thursday, as it had signaled, while stressing the resilience of euro area banks and its tools for supporting liquidity. The Federal Reserve is expected to follow with a quarter-point hike at its next meeting, a move that looked derailed only days ago. Policymakers insist the situation differs from the crisis 15 years ago because banks are better capitalized and funds more readily available.
Yet Fed data released Thursday showed banks borrowed record amounts of emergency liquidity in recent days, enlarging the central bank's balance sheet after months of shrinkage. Thomas Simons, a money market economist at Jefferies, said the numbers fit the idea of an idiosyncratic problem at a handful of banks. Yellen said the US system remains sound thanks to "decisive and forceful" action after SVB's failure. What to watch next is whether the Fed holds to its quarter-point increase and whether depositors keep moving money out of smaller banks.
Quieres la nota completa?
Lee el original en Rappler ↗
Economy & Finance