The crisis at First Republic Bank comes after the collapse of Silicon Valley Bank last week and Signature Bank on Sunday. (Photo: Reuters)
First Republic Bank serves the similar clientele as Silicon Valley Bank, and has wealth management affiliates that offer investment and wealth management services
After two lenders in the US, Silicon Valley Bank (SVB) and Signature Bank, have already collapsed, another lender First Republic Bank is also facing the same fate as its share have tumbled more than 70 per cent in the past five trading sessions. Rating agencies S&P and Fitch have also cited risks in First Republic Bank’s funding and liquidity.
What Is First Republic Bank?
First Republic Bank, which is headquartered in San Francisco, is the 14th largest bank in the US in terms of assets, with $212 billion at the end of 2022. Established in 1985, the bank is known for its private banking and private business banking services. It serves the similar clientele as Silicon Valley Bank (SVB), and has wealth management affiliates that offer investment and wealth management services.
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Though the lender is also present on the East Coast including in New York and Florida, as well as in western states such as Washington and Wyoming; the majority of the bank’s “affluent” client base is concentrated in coastal urban areas.
About 70 per cent of First Republic Bank’s deposits are uninsured, above the median of 55 per cent for medium-sized banks and the third highest in the group after Silicon Valley Bank and Signature Bank, according to a note by Bank of America.
According to S&P Global Ratings, 68 percent of the bank’s accounts hold deposits of more than $250,000, the level automatically guaranteed by US regulators.
The First Republic Bank Crisis
Rating agencies, including S&P and Fitch, have flagged risks to First Republic Bank’s funding and liquidity. On fear of a bank contagion following the collapse of SVB and Signature Bank, First Republic’s shares saw a massive sell off declining over 70 per cent in just five days.
Fitch downgraded First Republic Bank to ‘BB’ and placed it on the negative watch. It said that First Republic’s deposit concentrations were viewed as a rating weakness. The rating agency said that First Republic’s funding and liquidity profile has changed and represents a “weakest link” relative to other rating factors.
The agency said that its rating action reflects its revised view of First Republic’s funding and liquidity profile in the current environment. It also added that a negative watch indicates the probability of further ratings downgrade for First Republic.
Similarly, ratings agency S&P Global Ratings also placed First Republic’s ratings on CreditWatch negative, reflecting lower confidence in the lender’s financial strength.
The Relief Measures
Even as the third America’s bank is on the verge of a collapse within a week, the country’s largest banks have come together to shore up First Republic. A group of 11 US private banks, including Citigroup, Bank of America and JPMorgan Chase, have announced they would deposit $30 billion into First Republic.
After the relief measure, the bank’s shares saw a boost rising by around 10 per cent on Friday during the day. However, the First Republic Bank’s shares are still 50 per cent lower in the past five days, and around 73 per cent lower in a month.
The crisis at First Republic Bank comes after the collapse of Silicon Valley Bank last week and Signature Bank on Sunday. The FDIC, or Federal Deposit Insurance Corporation, insures bank deposits up $250,000 for individual accounts.
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