Eleven major banks are offering a bailout to First Republic Bank, a smaller lender that has been under pressure since the collapse of Silicon Valley Bank a week ago.
STEVE INSKIPP, host.
Some of the biggest banks in this country are sending money to a bank in trouble.
SACHA PFEIFFER, host.
First Republic Bank is headquartered in San Francisco. It is not far from the headquarters of Silicon Valley Bank, which failed a week ago. And while the First Republic appears healthier, it has faced the same pressures and great anxiety. So the other banks went through the cap, and it’s a pretty big cap, $30 billion.
INSKEEP. NPR’s David Gura joins us now.
David, good morning.
DAVID GURA, BYLINE. Good morning, Steve.
INSKEEP. How did their fellow bankers come to save the First Republic?
Gura: Well, that’s a pretty unusual deal, and it’s been put together in just 48 hours as a result of the incredible volatility we’ve seen on Wall Street in the stocks of some US small and mid-sized lenders since regulators shut down Silicon. Valley Bank and also Signature Bank.
INSKEEP: Yes.
Gura: “First Republican Bank” appeared in it. It faced an exodus of customers as they moved their money to other, bigger banks. And while that happened, the lender’s stock tanked. Steve was worried that First Republic might end up in the same boat as those two failed lenders, and that it might also be in banking trouble. The way it will work is that four major banks, including Citigroup and JPMorgan Chase, are set to put up $5 billion each, with seven other lenders putting up the rest.
And in fact, what they do here is they open a bank account or bank accounts at First Republic, and they put their money in, just like you or I, Steve, except for $30 billion. And that money is going to replenish the coffers that were emptied during the last week. And it is hoped that this will both strengthen confidence in First Republic and confidence in banking more broadly.
INSKEEP. Just so I know, David, if they open a new account and put $30 billion in, will they get a free check with it?
Gura: (Laughter) I think it can be arranged.
INSKEEP: Hopefully this can be arranged. Okay, so you said some customers were cashing out, and that was part of the pressure here. Why should they panic?
Gura: This is a lender similar in some ways to Silicon Valley Bank and Signature Bank. It has very wealthy individuals as clients and businesses as clients. The point here, Steve, is that, like many lenders that have come under pressure this week, it wasn’t known to have any serious problems, but it was caught up in the selloff. Tim Coffey is a bank analyst at Janney Brokerage.
TIM COFFEE: It is a very safe institution from a credit point of view. They do not give very risky loans. Single-family mortgages make up the majority of the portfolio. And these loans are for high net worth individuals who invest a lot of money.
Gura: You know, what First Republic has, Steve, is a lot of deposits that are big, too big to be insured by the FDIC. And like many other banks, it is invested in government bonds, which are now worth less because the Federal Reserve has been aggressively raising interest rates over the past year. Because of this, the First Republic faces potential losses.
INSKEEP: OK. So their investments lose money. They have fewer resources. The depositors say that I am not fully insured, so they start withdrawing money. And suddenly I guess it’s going to be like that scene in It’s a Wonderful Life. You have to pay every deposit or every dollar they ask for or you close.
Gura: Yes, and the failures of these two banks also made Wall Street very nervous. There is widespread concern that regardless of a bank’s profile, how healthy its balance sheet is, another bank could suffer a similar implosion. And Janney analyst Tim Coffey says much of this fear is driven by emotion, not data.
COFFEE: What we have in banking right now is a crisis of confidence.
Gura: And this new deal, Steve, is designed to solve that problem.
INSKEEP: So will it succeed?
GOURA: Well, the hope is, but things are so volatile right now, we don’t know for sure. We don’t know how many customers left First Republic in the last week or how much money they took with them when they left. Tim Coffey told me he thought $30 billion, as he put it, would be an adequate amount. Regulators certainly say they appreciate the deal. In a joint statement that lasted just two sentences, the Treasury secretary and the Federal Reserve chairman, along with some other agency heads, said that the show of support for the banks, they say, is most welcome, Steve, and that, quote: , “shows the flexibility of the banking system”.
INSKEEP. NPR’s David Gura.
Thank you very much.
GURA: Thanks, Steve.
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