https://www.wsj.com/articles/first-republic-gets-additional-funding-from-fed-jpmorgan-d11e68ca
First Republic Bank FRC -14.84%decrease; red down pointing triangle said it has shored up its finances with additional funding from the Federal Reserve and JPMorgan Chase JPM 2.54%increase; green up pointing triangle & Co.
The fresh funding gives the bank, which was under pressure following the collapse of SVB Financial Corp. SIVB -60.41%decrease; red down pointing triangle last week, $70 billion in unused liquidity. That doesn’t include money First Republic is eligible to borrow through a new Fed lending facility designed to help banks meet withdrawals.
“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” the bank’s executive chairman and its chief executive said in a joint statement.
The infusion is the first such lifeline announced for a collection of midsize banks that have run into trouble in the past week. Silvergate Capital Corp. SI -11.27%decrease; red down pointing triangle on Wednesday said it would shut down after its bet on crypto customers left it with huge losses. SVB was seized by the government on Friday after a bank run. New York-based Signature Bank met the same fate Sunday. Those two closures were the second- and third-largest bank failures in history.
Investors grew concerned last week that First Republic had a similar profile to SVB. Shares of First Republic had fallen about 30% since Wednesday, and some customers started to get skittish about leaving their deposits at the bank.
“You see your bank is down 30%, that’s a little worrying,” said Abraham Parangi, chief executive of AI startup Akkio. “Even more worrying is when they tell you ‘Hey, everything’s fine!’”
As SVB floundered on Friday, Mr. Parangi said he moved 90% of his company’s cash at First Republic into an insured cash sweep program that spreads the funds around to accounts at other banks to increase the amount covered by FDIC insurance.
Venture-capital firm Omega Venture Partners sent a note to portfolio companies encouraging them to open a cash brokerage account or make sure their bank deposit accounts are insured if they had money in regional banks such as First Republic. “A spillover risk to these institutions is more likely than not!”
First Republic, which has $213 billion in assets, tried to stem the panic. On Friday, the lender released a statement saying that it had a diversified group of depositors and “over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank.” On Sunday, bank executives emailed customers to reassure them about its finances.
JPMorgan officials had reached out to First Republic over the past week to tell them they were standing by to help the bank, an important client, if it needed access to funding, a person familiar with the matter said. It ultimately committed to putting up several billion dollars in a credit facility First Republic can tap, the person said.
The Federal Reserve on Sunday said it would make additional funding available to banks through a new “Bank Term Funding Program,” which will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral. Up to $25 billion from the Treasury’s exchange-stabilization fund will backstop the Fed lending program.
A joint move by the Fed and Treasury Department also took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, giving regulators flexibility to backstop uninsured deposits. Regulators hoped that and other moves to protect deposits would contain fallout elsewhere Monday morning.
First Republic’s business and stock-market valuation were long the envy of the banking industry. Its customers are wealthy individuals and businesses primarily on the coasts. Its lending business revolved around making huge mortgages to clients such as Mark Zuckerberg. Few of those loans ever went bad.
The bank’s profits rose in 2022, but the Fed’s aggressive rate increases took a toll. Its wealthy customers were no longer as content to leave huge sums of money in bank accounts that earned no interest.
While the bank’s deposits skewed more heavily toward wealthy individuals than SVB’s did, many of its deposits are uninsured. More than $140 billion of its deposits are in accounts that are over the limit for federal deposit insurance.
The new backing for the bank soothed Mr. Parangi’s anxiety, but he still plans on diversifying his company’s banking this week.
“But probably don’t need to be camping outside the bank at 5am now,” Mr. Parangi texted.
Submitted March 12, 2023 at 11:27PM by SDSunDiego https://ift.tt/DYiXbWl
