“Competitive” banks save First Republic


Published 17 March 2023 at 07.33

Economy. American major banks such as Bank of America, Goldman Sachs and JP Morgan have agreed to save the bank First Republic by jointly injecting the equivalent of 288 billion kroner (30 billion dollars) into the struggling competitor, the Guardian reports.< /p>

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The crisis for First Republic began when Silicon Valley Bank (SVB) collapsed, raising fears that First Republic would be the next bank to suffer. Customers then withdrew their deposits from First Republic in a frenzy.

The big banks have received billions in deposits from customers of smaller, regional banks after the banking crisis scared off the customers of small banks.

< p>The share price of First Republic, which is a San Francisco-based bank that mainly serves high-net-worth clients, fell 70 percent after the news of SVB's collapse. Stocks fell another 22 percent on Thursday before the bailout was announced, but closed the day nearly 10 percent up from the bottom.

In a joint statement, U.S. Treasury Secretary Janet Yellen, Federal Reserve Chairman Jay Powell and senior regulators:

“This support from a group of major banks is very welcome and demonstrates the resilience of the banking system”.

Before the news, Yellen assured Congress on Thursday that the US banking system was “stable”.

A high percentage of SVB's deposits were non-guaranteed, i.e. exceeding the US deposit guarantee of the equivalent of SEK 2.4 million ($250,000).

As a bank for Silicon Valley's richest, SVB constituted: s non-guaranteed deposits 94 percent of its total account balances.

For First Republic, the percentage of non-guaranteed deposits was significantly lower, at 68 percent according to S&P Global, but high enough to cause concern among investors and depositors with more than the equivalent of 2.4 million kroner in their accounts.

The unprecedented rescue plan will cause most of the largest US banks to make non-guaranteed deposits in First Republic.

The news came after the Swiss National Bank issued a $53.7 billion loan to Credit Suisse to stem that bank's crisis of confidence.

The long-shaky bank's share price had collapsed after its biggest shareholder, Saudi National Bank, said that it did not intend to provide more funding to Credit Suisse.