A $30 billion rescue of San Francisco’s First Republic Bank was revealed Thursday, which should put the company’s recent liquidity problems in the rear-view mirror, at least for a while.
But questions remain.
Not least: What are some of the country’s biggest banks and financial firms getting in return for helping out their smaller cousin?
While some details of the rescue plan are still being worked out, what we know at this point is that Chase, Citi, Bank of America and Wells Fargo are each ponying up about $5 billion and depositing the funds in First Republic.
They’re joined on a slightly smaller scale by Goldman Sachs, Morgan Stanley, U.S. Bancorp and others.
The deposited funds apparently have no strings attached and are intended to provide First Republic with sufficient cash on hand to assure depositors that the cupboard isn’t bare.
The heads of the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency issued a joint statement aimed at calming the financial turmoil of recent days.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” they said.
The statement ran all of two sentences, suggesting monetary authorities don’t want to make things worse with any easily misinterpreted remarks.
What’s still unsaid is how the rescue package came together.
According to reports, government officials brought the 11 big banks together and presumably laid out the contours of the plan.
What are the banks getting in return for playing white knight? Are they doing this out of the goodness of their hearts (yeah, right), or is there a promise of preferential treatment from the government down the road?
Maybe a further rollback of banking regulations?
The infusion of cash at First Republic followed an announcement from beleaguered Credit Suisse that it had secured more than $50 billion in new borrowing from the Swiss National Bank.
These international moves strongly suggest the threat to the global financial situation was more dire than reported, and that global monetary authorities, having learned lessons from the 2008 financial meltdown, wasted no time in addressing the problem.
Whatever else, liquidity is what the doctor ordered, and liquidity is what the struggling banks received.
First Republic’s stock was down about 30% earlier in the day. It closed Thursday up 10%.