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The Unprecedented Rescue of First Republic Bank: What It Means for the Banking Industry

First Republic Bank has been in the news recently due to concerns raised by customers and investors after the collapse of Silicon Valley Bank. The bank’s share price has collapsed over the last seven days, and it has been frantically trying to shore up its balance sheet with facilities. To address these concerns, a consortium of 11 U.S. banks has provided a deposit facility of $30 billion to First Republic Bank, an unprecedented and highly unusual structure.

However, the concerns surrounding the bank’s viability have caused significant volatility in its share price. The bank has a low percentage of retail deposits, making it more vulnerable to corporate clients who can move all their funds out very quickly using online banking facilities. In addition, the bank has a high percentage of assets tied up in loans and bonds, which are now out of the money due to a rapid increase in interest rates over the last 12 months.

The banking problems started on March 8 when Silvergate Bank, which provided facilities to cryptocurrency corporates, announced its liquidation after many corporates removed all their cash. This triggered a run on Silicon Valley Bank, which specialized in providing banking facilities to venture capital businesses, and Signature Bank, a traditional bank with a small exposure to the crypto markets. As a result, First Republic Bank’s management has been working quickly to put facilities in place to shore up its balance sheet.

The bank secured a $70 billion loan facility from JP Morgan, a $109 billion facility from the FED, a $10 billion facility from the Federal Home Loan Bank, and a $30 billion deposit facility from the consortium of 11 U.S. banks. While the bank’s management team has done an impressive job of pulling together $229 billion in the space of a week, the bank’s share price and market sentiment remain concerning. Furthermore, the fact that the bank only has $34 billion in cash available, compared to $175 billion in customer deposits as of December, suggests that there are still major problems at First Republic Bank.

In conclusion, the banking industry is highly vulnerable to sudden shifts in market sentiment and the collapse of key players. While the rescue package offered by the consortium of 11 U.S. banks has helped First Republic Bank, it remains to be seen whether the bank will be able to weather the ongoing concerns about its viability in the long term.