U.S. Banking System in Crisis as Bank Stocks Tumble After $30 Billion Lifeline
By Bank stocks tumbled on Friday, a day after America's biggest banks united to provide a $30 billion lifeline to First Republic Bank.[0] The move comes amid fears of a depositor-driven panic that could slow the economy later this year.[1] Shares of First Republic sank as much as 23% Friday, triggering at least one volatility halt and bringing its losses for the week to a record 68%.[2] This was in response to the bank's reported borrowings from the US Federal Reserve and dwindling cash position.
Executives at First Republic Bank and Silicon Valley Bank had sold stock right before the banking crisis.[3] At the start of 2020, First Republic had approximately $180 billion in deposits, with 68% of those deposits surpassing the Federal Deposit Insurance Corp.'s insurance limit of $250,000.[2] Estimates from Evercore ISI reveal that $90 billion has been pulled from First Republic and Signature Bank in light of the Silicon Valley Bank's failures, leaving depositors feeling nervous.[2]
The $30 billion deposit infusion from 11 banks, led by JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, is designed to stabilize the lender and boost confidence in the U.S. banking system as a whole.[4] Goldman Sachs and Morgan Stanley are contributing $2.5 billion each, and Bank of New York Mellon, PNC Financial, State Street, Truist, and U.S. Bancorp are each making an uninsured deposit of $1 billion.[4]
The U.S. Treasury Secretary Janet Yellen told the Senate Finance Committee Thursday that the U.S. banking system “remains sound” and Americans “can feel confident” about their deposits.[5] The Federal Reserve is expected to approve a quarter-point, or 25 basis point, hike to interest rates at its meeting next week, however, the central bank's next decision on interest rates has been made less certain over the past week amid the bank crisis.[6]
On Friday, U.S. stocks fell across the board, with financial stocks at the center of selling pressure.[0] Futures of the Dow Jones Industrial Average decreased by 11 points, representing a 0.03% dip.[6] Futures for the S&P 500 and Nasdaq 100 decreased by 0.07% and 0.11[7] Major money center banks like JPMorgan, Wells Fargo, and Bank of America all fell more than 3%.[0]
0. “Stock market news today: Stocks lower as First Republic weighs on banks” Yahoo News, 17 Mar. 2023, https://news.yahoo.com/stock-market-news-today-march-17-2023-123151709.html
1. “Nasdaq, S&P, Dow slide as regional banks resume decline amid financial jitters” Seeking Alpha, 17 Mar. 2023, https://seekingalpha.com/news/3948511-nasdaq-sp500-dow-jones-stock-market-bank-crisis
2. “First Republic sees ‘gob-smacking' deposit outflows; shares plummet after rescue package” Crain's New York Business, 17 Mar. 2023, https://www.crainsnewyork.com/finance/first-republic-sees-gob-smacking-deposit-outflows-shares-plummet-after-rescue-package
3. “First Republic Bank executives sold stock right before the crash” Markets Insider, 17 Mar. 2023, https://markets.businessinsider.com/news/stocks/first-republic-bank-executives-sold-stock-right-before-svb-crash-2023-3
4. “Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon, PNC Bank …” Business Wire, 16 Mar. 2023, https://www.businesswire.com/news/home/20230316005695/en/Bank-of-America-Citigroup-JPMorgan-Chase-Wells-Fargo-Goldman-Sachs-Morgan-Stanley-BNY-Mellon-PNC-Bank-State-Street-Truist-and-U.S.-Bank-to-Make-Uninsured-Deposits-Totaling-30-Billion-Into-First-Republic-Bank
5. “Credit Suisse shares hit as investor fears reignite” BBC, 17 Mar. 2023, https://www.bbc.com/news/business-64986520
6. “Dow closes nearly 400 points lower on Friday as First Republic and regional banks resume slide: Live updates” CNBC, 17 Mar. 2023, https://www.cnbc.com/2023/03/16/stock-market-today-live-updates.html
7. “Futures: Market Must Do This; FedEx Soars Past Buy Point” Investor's Business Daily, 17 Mar. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-market-rally-needs-to-this-fedex-soars-past-buy-point/
