First Republic Bank gets rescue deal

Eleven of the largest banks in the United States, including JP Morgan and Citigroup, have contributed $30bn to the smaller regional bank First Republic, which has been seen as at risk of failure. The move comes as US regulators seek to calm panic over the health of the banking system after a series of bank collapses, with concerns over the sector spreading globally. The banks said their action reflected their confidence in the banking system, adding that it had plenty of cash and made big profits, with recent events doing nothing to change this.

Reports of the aid from the banks caused a surge in financial markets and sent shares in First Republic up more than 20%, triggering trading halts. However, a sell-off resumed in after-hours trade, indicating that concerns remain. The San Francisco-based firm saw its share price drop by nearly 70% over the last week as investors worried it was the next bank at risk of a rush of customers withdrawing their deposits. US financial officials welcomed the move, stating that it demonstrated the resilience of the banking system.

Problems in the banking sector in the US surfaced when Silicon Valley Bank (SVB), the country’s 16th-largest lender, collapsed in the biggest failure of a US bank since 2008. This was followed two days later by the failure of New York’s Signature Bank. Authorities stepped in to guarantee deposits beyond typical limits in an effort to head off further runs on bank deposits, but financial markets remained volatile. The US central bank reported a surge in emergency lending to banks, with $318bn in outstanding loans as of Wednesday, up from $15bn a week earlier.

Central banks around the world have raised borrowing costs sharply over the past year to curb overall price rises, or inflation. These moves have hurt the values of the large portfolios of bonds bought by banks when rates were lower, which contributed to the collapse of Silicon Valley Bank and has raised questions about the situation at other firms. The Swiss National Bank announced it was extending up to £44bn in emergency funds to Credit Suisse, which was seen as vulnerable in the wake of the US bank failures. Its shares rebounded more than 15% after significant losses a day earlier, while major indexes across Europe also gained.

Former Deputy Governor at the Bank of England Sir John Gieve said central banks were sending a “message” that such problems would be contained locally, adding that the Swiss National Bank’s action was likely to be enough to stop the crisis spreading. White House spokesperson Karine Jean-Pierre said officials had been monitoring developments at Credit Suisse, but its troubles were “distinct” from events in the US, as its problems were not related to the current economic situation.