A group of large US banks put $30 billion (£24.8 billion) into First Republic bank, a smaller regional bank that was thought to be close to failing.
After several banks failed, US officials took this step to ease people’s fears about the health of the banking system.
Concerns about the sector have spread around the world, making people worry about a crisis.
US regulators said the move was “most welcome,” and the banks said it showed “confidence” on their parts.
They said that banks had a lot of money and were making a lot of money.
They said that recent events didn’t change this, and the actions of America’s biggest banks show that they have faith in the country’s banking system.
When news came out that the 11 banks, led by JP Morgan and Citigroup, were planning to help, the financial markets went up. At one point, shares of First Republic bank went up by more than 20%, which stopped trading.
But selling started again after the market closed, showing that worries still exist.
Investors worried that the San Francisco-based company could be the next bank that has a rush of customers pulling out their money. As a result, the price of the first republic bank shares dropped by almost 70% in the last week.
A US financial official said that the support shown by a group of large banks is very welcome and shows how strong the banking system is.
“Chance of spread”
In light of the attempt to rescue, First Republic Bank, the Silicon Valley Bank (SVB), the 16th largest bank in the US, went bankrupt last week. This was the biggest failure of a US bank since 2008.
Then, two days later, New York’s Signature Bank went out of business.
In an effort to stop more people from withdrawing their money from banks, the government stepped in to guarantee deposits above and beyond what is usually done. However, the financial markets have stayed nervous.
As a sign of stress in the system, the US central bank said that emergency bank loans have increased. As of Wednesday, $318 billion in loans were still out there, up from $15 billion a week before.
That included about $12 billion from a fund set up after the SVB went bankrupt.
Paul Ashworth, the chief North American economist at Capital Economics, said, “The size of the rise in the Fed’s emergency loans shows that this is a very critical crisis in the banking system that will have big effects on the real economy.”
US Treasury Secretary Janet Yellen told politicians in Washington that depositors should have faith in the system, but she also said that the situation was very bad.
Luis de Guindos, vice president of the European Central Bank (ECB), said that Europe’s banking industry was “resilient” and that European companies had “limited exposure to institutions in the US.”
He spoke as the ECB announced that interest rates would increase from 2.5% to 3%. The ECB stuck to its plan to raise rates, even though there were worries about how the move might affect the turmoil in the market.
First republic bank: Help for other banks
Over the past year, central banks worldwide have sharply raised borrowing costs to try to slow the inflation rate.
The changes had hurt the value of the large portfolios of bonds that banks bought when interest rates were lower. This change helped cause Silicon Valley Bank to fail and has raised questions about the situation at other banks like the First Republic Bank.
On Wednesday, the Swiss National Bank said it would give up to £44 billion in emergency funds to Credit Suisse. This large lending company was in trouble and was seen as vulnerable after many US banks failed.
After big drops the day before, its shares increased by more than 15%, and major European indexes also went up.
Sir John Gieve, a former Bank of England’s deputy governor, told the journalists that central banks were sending a “message” that these problems would stay in one place.
He also said that the Swiss National Bank’s action would be enough to stop the crisis from spreading to Credit Suisse.
He said he is still determining what will happen to Credit Suisse in the future, but so far, they are still standing, and it appears the Swiss central bank will make sure they stay standing long enough to make plans for the future.
Since it was founded in 1856, Credit Suisse has been involved in a number of scandals, such as accusations of money laundering and spying, and high-profile employees have left the company.
It lost money in 2021 and 2022, and the company has said it thinks it will make money again next year. Customers took millions of dollars from the business in the past few months.
Karine Jean-Pierre, a spokesperson for the White House, said that officials were keeping an eye on what was happening at Credit Suisse but that its problems were “different” from what was happening in the US with First Republic Bank, SVB and others.