First Republic Bank's shares took a steep nosedive of over 60% during premarket trading on March 13, even though the bank's executives, Jim Herbert and Mike Roffler, had sent an email to clients reassuring them that their deposits were secure, despite the collapse of Silicon Valley Bank (SVB) and Signature Bank. The email highlighted that First Republic's capital remained strong and significantly exceeded regulatory requirements for being considered well-capitalized.
In addition, the bank has access to more than $60 billion in unused borrowing capacity following support from the Federal Home Loan Bank and the Federal Reserve Bank. The executives also emphasized that First Republic stands ready to assist clients with their financial needs.
The bank also issued a press release that sought to allay investor concerns, stating that it had enhanced and diversified its financial position through additional liquidity from the Central Bank and JPMorgan Chase & Co. The release pointed out that the total unused liquidity to fund operations was now more than $70 billion, excluding additional liquidity that First Republic may be eligible to receive under the new Bank Term Funding Program.
Despite the reassurances, shares of First Republic Bank fell by 62%, bringing the total drop to 33% for the week. Other financial institutions were also affected by Silicon Valley Bank's collapse, with PacWest Bancorp's shares tumbling over 43% in premarket trading, Western Alliance Bancorp falling 63%, and Charles Schwab losing 8%. The Central Bank responded to the crisis by announcing an emergency lending program that would make additional funding available to eligible depository institutions, ensuring that all their depositors' needs are met.
On Friday, Silicon Valley Bank was closed down by federal regulators due to its recent failure, marking the largest banking failure in the United States since the 2008 financial crisis. Factors that contributed to the bank's collapse included rising interest rates, a lack of venture capital, and a high percentage of customer deposits invested in Treasury bonds, which are highly sensitive to interest rates.
Reports indicate that after news broke that the bank needed $2.25 billion to improve its balance sheet, venture capital firms advised their clients to withdraw their funds from the bank, resulting in plummeting stocks and regulatory intervention.
Prior to its shutdown, Silicon Valley Bank held $209 billion in assets as of December 31, 2022, according to the Federal Reserve. Its collapse created a ripple effect that impacted other small and regional banks in the country, including Signature Bank, one of the main banks in the cryptocurrency industry. This caused customers to withdraw their deposits from the bank, which had already faced scrutiny over its involvement with the now-defunct crypto firm FTX. As a result, New York state financial regulators closed Signature Bank on Sunday.
US financial regulators also announced that all depositors at Silicon Valley Bank would receive their money back from March 13 onwards. In a statement, Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said that the US banking system remains resilient and on a solid foundation thanks to reforms made after the financial crisis. These reforms, combined with the recent actions, demonstrate the regulators' commitment to ensuring that depositors' savings remain safe.