US authorities said a deal by the nation’s biggest lenders to deposit $30 billion with First Republic Bank demonstrated the resilience of the nation’s banking system, seeking to reinforce a message that the sector is on firm footing and united in its efforts.
(Bloomberg) — US authorities said a deal by the nation’s biggest lenders to deposit $30 billion with First Republic Bank demonstrated the resilience of the nation’s banking system, seeking to reinforce a message that the sector is on firm footing and united in its efforts.
“This show of support by a group of large banks is most welcome,” the Federal Reserve, Treasury, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency said in a joint statement Thursday.
Read more: First Republic Gets $30 Billion of Bank Deposits in Rescue
Treasury Secretary Janet Yellen proposed the idea of a group effort on Tuesday during a call with officials, including Jerome Powell, head of the Federal Reserve, and Martin Gruenberg, chairman of the Federal Deposit Insurance Corp., according to people familiar with the situation.
Yellen later that day then pitched it to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon during a previously scheduled call, both agreeing that the step would demonstrate confidence in the banking system, a crucial step to calm investor nerves. The two then reached out to other banks, with Dimon taking the lead, said the people, who asked not to be identified given the sensitivity of the discussions.
The group of lenders grew to 11 over the next two days, building to a call Thursday morning with regulators and bank chiefs to finalize details. After spending three hours giving testimony in the Senate on Thursday, Yellen again met Dimon in her Washington office before the deal was announced.
The move by the US’s largest banks marked an effort to stem the turmoil that’s sent depositors fleeing from regional banks and shaken the country’s financial system. It came after a week of tumult in global markets and worries over financial stability after the rapid-fire collapse of three regional US banks and troubles at Credit Suisse Group AG.
As part of the agreement, JPMorgan, Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. will contribute $5 billion of deposits each, while Goldman Sachs Group Inc. and Morgan Stanley will kick in $2.5 billion apiece, the banks said in a statement.
Their statement gave no terms for the commitments. The banks’ initial commitments will extend for at least 120 days, though could extend beyond that, according to people familiar with the matter. A representative for the San Francisco-based First Republic didn’t immediately respond to a request for comment.
First Republic has been exploring strategic options including a possible sale, Bloomberg News reported late Wednesday. The lender’s shares have plummeted in the aftermath of regulators’ seizure of fellow regional lenders Silicon Valley Bank and Signature Bank over the past week, as well as the earlier collapse of Silvergate Capital Corp.
Earlier Thursday, appearing before the Senate Finance Committee, Yellen told lawmakers the Treasury is monitoring for a potential contraction in credit in the US following the recent banking developments. She also reiterated that America’s banking system remains sound and deposits in the country’s banks are safe. She gave no indication that any deal was in the works.
–With assistance from Saleha Mohsin.
(Updates to add more details of Yellen, Dimon discussions from third paragraph.)
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