In what was a rather perplexing announcement yesterday, major US banks agreed to inject $30 billion worth of deposits into First Republic Bank (FRB) in a bid to try and arrest the banking crisis that is striking global markets in the past week. Here is the breakdown of that:
- BofA, Wells Fargo, Citigroup, JP Morgan - $5 billion each
- Goldman Sachs, Morgan Stanley - $2.5 billion each
- Truist, PNC, US Bancorp, State Street, BNY Mellon - $1 billion each
Now, all of this of course surely comes after some arm-twisting by Yellen and the Fed. However, it still begs a couple of key questions.
Why FRB and why had they not intervened during the SVB collapse? Personally, the way I see it is that this is just a line in the sand that is being drawn as markets are still in fright mode after the events in the past week.
Regulators tried to calm the nerves by offering reassurance on deposits but that has done little to ease the evident panic in regional bank shares since last week. Despite the 10% rally yesterday, FRB shares are still down by over 70% since before all the panic started.
As much as this looks to be a show of support, it may perhaps backfire considering how it is raising a question mark on how bad are things really behind the scenes and also, how deep do all these problems actually run.
This may end up just being a temporary lifeline for FRB, before being able to find enough time for a sale of the bank perhaps.
But either way, markets are still left with a lot of unanswered questions I would say. Think of it this way:
If all you see is a little smoke from a burning kitchen, but the entire city's fire brigade is instead dispatched to the scene. Now, is it just for precaution or is it actually because the whole house is burning?
