Record Low Levels for First Republic Bank as Regional Banks Face Financial Health Concerns
On Wednesday, First Republic Bank (FRC) tumbled to record low levels as the San Francisco-based bank is said to be exploring strategic options that include a sale. The pressure on the bank has been increasing after the collapse of Silicon Valley Bank, which has caused concerns over the financial health of regional banks.
First Republic Bank caters mostly to wealthy clients and has deposits far less concentrated in the tech industry than Silicon Valley Bank did. However, it is regional, prompting liquidity fears, as well as tech-linked: The firm made a notorious 1% interest mortgage loan to Mark Zuckerburg in 2012 and markets “Early,” “Growth” and “Mature” stage products for “innovators.”
The concern around First Republic came to a head on Wednesday when the credit rating was cut to junk status at S&P Global Ratings and Fitch Ratings. Ratings agencies cited risks that customers will withdraw funds from the San Francisco-based lender. Meanwhile, Moody’s Investors Service placed First Republic and five other US lenders on review for downgrade, the latest sign of concern over the health of regional financial firms.
On Sunday, First Republic said it had secured access to easy borrowing from the Federal Reserve and JPMorgan Chase & Co. and that the bank’s “available, unused liquidity to fund operations is now more than $70 billion.”
The Federal Reserve also unveiled a new lending program, the Bank Term Funding Program (BTFP), that aims to bolster confidence in the financial system by giving banks the option to borrow directly from the Fed to avoid having to rely on loss-making bond sales.
President Joe Biden has sought to provide assurance to the public that the issue is under control, reassuring them that, “Americans can have confidence that the banking system is safe.” Moody’s will be assessing ratings for First Republic Bank of San Francisco, Western Alliance Bancorporation of Phoenix, Comerica Bank of Dallas, UMB Financial of Kansas City, Zions Bank of Utah, and Intrust Financial of Wichita, Kansas.
Investors have set their sights on other regional banks, including PacWest, on concerns their balance sheets pointed to similar risks of deposit runs. Fitch on Wednesday placed PacWest on a negative rating watch, citing “the extremely volatile funding conditions for some U.S.
0. “First Republic Bank (NYSE:FRC) Share Price Falls Following Sale Option Report” Bloomberg, 16 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-16/first-republic-sinks-as-bank-said-to-explore-strategic-options
1. “SF-based First Republic Bank stock plunges after SVB fiasco” SFGATE, 13 Mar. 2023, https://www.sfgate.com/tech/article/first-republic-bank-silicon-valley-17836823.php
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