The last couple of weeks have seen moral panics fester in the banking industry. Banks and investors in the financial service and banking sector have been quite ruffled in the recent financial crisis. Following the fall of the Silicon Valley Bank last Friday, and Signature Bank on Sunday, the Federal Republic Bank earlier this week had been fretted with crestfallen liquidity, plummeting shares and panic over deposit outflows.
However, on Thursday, after the announcement of its pact with 11 other banks for a $30billion bailout fund, FRB reported reviving shares. Banks enlisted in this rescue mission include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley, Truist, PNC, U.S. Bancorp, State Street and Bank of New York Mellon.
The top four financiers, Bank of America, Wells Fargo, JP Morgan Chase and Citigroup pledge $5billion each. Goldman Sachs and Morgan Stanley will contribute $2.5billion each and the remaining banks in the group will raise $1billion each for the mission.
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New York Times gathered that since the announcement, banks that were not part of the 11 have asked to join the consortium with a perception that being in the group identifies you as one of the strong banks.
In an extraordinary effort to stave off financial contagion and reassure the world that the American financial system was stable, 11 of the largest U.S. banks came together on Thursday to inject $30 billion into First Republic Bank, a smaller peer on the brink of collapse after the implosion of Silicon Valley Bank last week.
Hatched on Tuesday during a call between Treasury Secretary Janet L. Yellen and Jamie Dimon, the chief executive of JPMorgan Chase, the plan has each bank depositing at least $1 billion into First Republic. It is meant as a show of support for First Republic and a signal to the market that the San Francisco lender’s woes do not reflect deeper trouble at the bank.
Ms. Yellen believed that such a move by the private sector would underscore confidence in the health of banks. Mr. Dimon, whose bank saved several rivals during the 2008 financial crisis, was on board.
In 48 hours, the deal was done.
The arrangement was without precedent in decades, and an indication of how dire the banking sector’s predicament had become within a week. With its echoes of the 2008 financial crisis, the collapses of Silicon Valley Bank on Friday and Signature Bank on Sunday sparked a panic that appears unlikely to subside immediately.