Despite the fact that America’s largest banks stepped in to help First Republic last Thursday, the imperiled regional bank saw its share price tumble nearly 50 percent on Monday. A group of 11 banking heavyweights, including Bank of America, Citigroup and JPMorgan Chase had transferred $30 billion in uninsured deposits to First Republic on March 16 in an effort to demonstrate and restore confidence in the ailing bank, only to have that confidence shattered by ratings agencies over the weekend.
On Friday, Moody’s said it was downgrading First Republic due to its reliance on short-term borrowing, which would likely have a large negative impact on the bank’s profitablility in coming quarters. And on Sunday, Standard & Poor’s did the same, saying that First Republic continued to face “substantial business, liquidity, funding and profitability challenges.”
According to a person cited by the New York Times, First Republic lost roughly $70 billion in deposits following the collapse of Silicon Valley Bank and its shares have fallen more than 90 percent in March. Like other regional banks, it has become a victim of distrust in the banking system, as many clients withdrew their money from smaller banks and moved it to bigger banks that are considered “too big to fail”.
As the following chart shows, First Republic is the hardest-hit among regional banks, many of which experienced a rollercoaster ride on the stock market over the past 10 days. Regional banking shares, including First Republic, rebounded in early trading on Tuesday, after Treasury Secretary Janet Yellen promised further protection to smaller financial institutions. “Our intervention was necessary to protect the broader U.S. banking system,” Ms. Yellen said. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.” As opposed to the banking crisis of 2008, which was a “solvency crisis” according to Yellen, the current crisis is rooted in “contagious bank runs”, suggesting that restoring confidence is key to stabilizing the situation.
