In a remarkable show of solidarity, a consortium of America’s biggest banks has injected a multi-billion dollar recovery fund deal into the struggling First Republic Bank. The move comes as the banking industry faces unprecedented challenges, with many banks closed and others struggling to stay afloat amidst the financial markets crisis.
First Republic Bank Receives Massive Rescue Package Worth Billions
A consortium of leading American banks has infused $30 billion into the First Republic bank. This bank had been perceived to be in danger of going under.
This is part of an effort to calm the markets following bank failures. Concerns about the financial system have grown worldwide, raising the specter of a crisis.
US authorities have labeled the move as “most welcome,” and the banks have expressed their “confidence” in the decision.
In the face of the recent tumult, a coalition of eleven major banks, headed by JP Morgan and Citigroup, declared a move to lend aid. Their move provoked a jump in shares of First Republic, soaring over 20% and consequently prompting trading to cease.
However, the market proceeded to sell off again during the late-night trading session, indicating that apprehensions remain. US economic officials responded to the display of support from these prominent banks, noting that it is a most desirable occurrence and manifests the strength of the banking system.
Financial Crisis Looms: Federal Reserve Steps In To Stabilize Markets
Last week, the banking system in the USA suffered a huge breakdown when Silicon Valley Bank (SVB), the 16th-largest in the nation, went under. The bank’s collapse was the most significant US bank collapse since 2008.
Two days after that, Signature Bank in New York failed as well. The US government has ensured deposits beyond the usual maximums to stop any more runs on the banks.
However, the financial markets are still very on edge. The Federal Reserve’s decision to significantly increase emergency credit to banks was an indication of the difficulties in the financial system. At the time of writing, there are now $318 billion in outstanding loans.
This is a sharp rise from the $15 billion in the previous week. This amount also includes around $12 billion through a newly-created fund in the aftermath of the bankruptcy of SVB.
Paul Ashworth, a chiefly North American economist of Capital Economics, commented on the issue. He said that “the sharp rise in emergency lending from the Federal Reserve shows that there is an extreme crisis in the banking sector that will have a notable influence on the real economy.”
At a gathering of lawmakers in the nation’s capital, Secretary of the Treasury Janet Yellen stated that depositors must remain sure of the system, despite the situation’s intensity. She indicated a potential for contagion that could have caused withdrawal rushes at multiple banks.
Yellen declared that, in their assessment, the banking system is healthy and secure.
Meanwhile, Luis de Guindos, the Vice President of the European Central Bank (ECB), declared that European banking systems are “resilient” and have “limited exposure to the institutions of the US.”
Guindos’ statement follows ECB’s decision to increase the interest rate from 2.5% to 3%.