A group of Wall Street’s largest lenders were on Wednesday night preparing to prop up crisis-hit Californian lender First Republic in a $30bn deal as the fallout from the collapse of Silicon Valley Bank continued.
Major lenders were close to agreeing a deal to deposit $30bn into First Republic following crunch talks convened by Washington.
Some of Wall Street’s biggest banks were involved in negotiations, including JP Morgan, Morgan Stanley, Citigroup and Bank of America, according to Bloomberg, which first reported details of the rescue deal.
Emergency talks were convened by the US government after a collapse in First Republic’s share price. Shares have plunged by two-thirds since last Friday and dropped more than 30pc on Thursday.
The stock subsequently surged on news of the possible bailout before trading was stopped due to the wild price swings. US stock markets, which had been lower, also rallied on reports of the possible rescue deal.
First Republic has been caught up in the fallout from the collapse of Silicon Valley Bank (SVB), which failed last week.
Concerns have been raised about withdrawals at the bank, which caters to wealthy individuals and had $271bn of assets under management as of December.
Federal insurance only protects individual balances of up to $250,000 and there are worries that wealthier clients may be withdrawing their funds.
Christopher McGratty, an analyst at Keefe, Bruyette and Woods, said: “The potentially significant deposit outflows post-SVB failure likely leave [First Republic] in a tough spot.”
On Wednesday, First Republic’s credit rating was slashed to junk by rating agencies S&P Global and Fitch. The company’s share price has plunged by more than 80pc in the last month.
First Republic said on Sunday that it had more than $70bn (£58bn) in unused liquidity to fund its operations, from agreements that included the US Federal Reserve and JP Morgan.
Treasury Secretary Janet Yellen sought to reassure investors and customers about the overall health of the US financial system when she appeared before Congress on Thursday.
Ms Yellen said: “I can reassure the members of the committee that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them.
“This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”
The Federal Reserve on Sunday guaranteed all SVB deposits and launched an emergency lending facility for all banks in a bid to calm fears.
Explaining the actions, Ms Yellen told Congress: “We felt that there was a serious risk of contagion that could have brought down and triggered runs on many banks.”
Peter Thiel, one of the best known venture capitalists in the US, told the Financial Times he had $50m deposited at SVB at the time of its collapse.
Larry Fink, the chief executive of BlackRock, warned earlier this week that SVB’s collapse could be the start of a “slow, rolling crisis” in US banking.
New York-based Signature Bank has already failed in the wake of SVB’s collapse and Credit Suisse was this week forced to tap the Swiss central bank for billions in emergency funds.
US bank shares swung wildly on Thursday as investors remained nervous. PacWest Bancorp fell 12pc before rebounding to a gain of more than 6pc on the day.
President Biden said earlier this week that he would do “whatever is needed” to protect bank deposits in an attempt to reassure Americans.