A group of Wall Street’s biggest lenders was preparing to bail out troubled California lender First Republic in a $30 billion deal on Wednesday night. Consequences of the collapse of Silicon Valley Bank to continue.
Major lenders were close to agreeing a deal to deposit $30bn in First Republic after crunch talks called by Washington.
Some of Wall Street’s biggest banks were involved in the talks, including JPMorgan, Morgan Stanley, Citigroup and Bank of America, according to Bloomberg, which first reported details of the rescue deal.
Emergency talks were called by the US government following a drop in First Republic’s share price. Shares have fallen by two-thirds since last Friday and have dropped more than 30pc on Thursday.
The stock rallied later on news of a possible bailout before trading was closed due to wild price volatility. The US stock market, which was down, was also buoyed by news of a possible rescue deal.
The collapse of Silicon Valley Bank (SVB) has plunged the First Republic into decline, which failed last week.
Concerns have been raised about withdrawals at the bank, which caters to wealthy individuals and had $271 billion in assets under management as of December.
Federal insurance only protects personal balances up to $250,000 and there is concern that wealthy customers could withdraw their funds.
Christopher McGratty, an analyst at Keefe, Bruyette & Woods, said: “There is potential for a potentially significant deposit outflow following an SVB failure. [First Republic] in a tough spot.
Ratings agencies S&P Global and Fitch on Wednesday downgraded First Republic’s credit rating to junk. The company’s share price has fallen by more than 80 per cent in the last month.
First Republic said on Sunday it had more than $70bn (£58bn) in untapped liquidity to fund its operations from agreements with the US Federal Reserve and JP Morgan.
Treasury Secretary Janet Yellen sought to reassure investors and customers about Overall health of the US financial system When she appeared before the Congress on Thursday.
Ms Yellen said: “I can assure committee members that our banking system remains strong, and Americans can feel confident that their deposits will be there when they need them.
“This week’s action demonstrates our unwavering commitment to ensuring that depositors’ savings are protected.”
The Federal Reserve on Sunday guaranteed all SVB deposits and launched an emergency credit facility for all banks to calm fears.
Explaining the action, Ms Yellen told Congress: “We realized there was a serious risk of contagion that could bring many banks down and start over.”
Peter Thiel, one of the best-known venture capitalists in America, told the Financial Times that he had $50 million in deposits at the time of SVB’s collapse.
BlackRock CEO Larry Fink warned earlier this week SVB’s collapse could be the beginning of a “slow, rolling crisis”. in American Banking.
New York-based Signature Bank has already failed following the collapse of SVB and Credit Suisse was forced this week to tap the Swiss central bank for billions in emergency funds.
US bank stocks jumped sharply on Thursday as investors remained nervous. PacWest Bancorp fell 12pc and gained more than 6pc on the day.
President Biden said earlier this week that he would do “whatever is necessary” to protect bank deposits in an effort to reassure Americans.