Financial Turmoil: $30B Rescue Package for First Republic Bank Fails to Calm Jittery Investors
The banking sector has been in turmoil in recent days, with two banks – Silicon Valley Bank and Signature Bank – failing after experiencing sudden cash crunches. This has caused a series of events leading to a $30 billion rescue package for First Republic Bank (FRC) from 11 of the nation’s largest lenders, including JPMorgan (JPM), Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC).
The rescue package has done little to calm jittery investors, and First Republic’s stock has dropped 32.8% since the announcement on Thursday. Shares of the SPDR S&P Regional Banking ETF (KRE) have also plummeted 24.5% in the past seven trading days, as analysts fear the depositor-driven panic could slow the economy later this year.
As depositors have withdrawn an estimated $90 billion from First Republic, the bank also announced it borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank over the past week. First Republic had about $180 billion in deposits heading into this year, 68% of which exceeded the Federal Deposit Insurance Corporation’s (FDIC) insurance cap of $250,000.
The University of Michigan’s consumer sentiment index also fell to 63.4 in March, from 67 last month as inflation expectations remained elevated. Credit Suisse (CS) shares have had a volatile week after its largest investor announced it would not provide additional funding to the bank. On Thursday, the stock market had a brief surge after Credit Suisse revealed that it would obtain up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
On the data front, bitcoin has gained over 20% in the past nine sessions, to trade at $26,750.50 on Friday, according to CoinDesk data. On Friday, Bitcoin experienced a 4% increase, bringing its value up to $26,860 and staying near its
Bill Ackman of Pershing Square has been vocal about his concern for a financial contagion risk spiraling out of control. He tweeted that spreading the risk of financial contagion to achieve “a false sense of confidence” in First Republic Bank is “bad policy”. He also said that “hours matter” and “half measures” don’t work in a crisis of confidence.
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6. “Bank Stock Crash Deepens: Dow Sinks 400 Points As Top Banks Shed Another $54 Billion” Forbes, 17 Mar. 2023, https://www.forbes.com/sites/dereksaul/2023/03/17/bank-stock-crash-deepens-dow-sinks-400-points-as-top-banks-shed-another-54-billion/
7. “US banks launch $30bn rescue of First Republic to stem spiraling crisis” The Guardian, 16 Mar. 2023, https://www.theguardian.com/business/2023/mar/16/first-republic-bank-rescued-latest
8. “Bill Ackman is ‘extremely concerned’ about financial contagion risk ‘spiraling out of control’ after First Republic rescue” Fortune, 17 Mar. 2023, https://fortune.com/2023/03/17/bill-ackman-extremely-concerned-financial-contagion-risk-spiraling-out-of-control-first-republic-rescue
9. “Ackman says plan to deposit $30B into First Republic is bad policy” Business Insider, 17 Mar. 2023, https://www.businessinsider.com/bill-ackman-first-republic-deposit-plan-false-confidence-bad-policy-2023-3