mark zandi
Economist weighs in on the health of large US financial institutions
02:14 - Source: CNN

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Janet Yellen met with JPMorgan CEO Jamie Dimon in quiet effort to organize First Republic lifeline

Treasury Secretary Janet Yellen testifies during the Senate Finance Committee hearing on the The Presidents Fiscal Year 2024 Budget, in Dirksen Building on Thursday, March 16.

Treasury Secretary Janet Yellen on Thursday met privately in Washington with JPMorgan CEO Jamie Dimon before 11 banks agreed to deposit $30 billion in First Republic Bank to stabilize the teetering lender, according to two people familiar with the matter. 

The meeting served as a culmination of what had been a series of conversations over the last two days between Yellen and other US officials and leaders from some of the country’s largest banks as they sought a private sector lifeline for the battered California bank. 

Yellen had driven the effort from the government side, while Dimon led the effort to organize the bank executives that would eventually get behind the dramatic infusion of deposits. 

Yellen first conceived of the idea of the largest US banks coming together to direct deposits toward First Republic, according to a separate source familiar with the matter. The move was seen as critical to stabilizing the bank’s deposit base – but also a critical signal to financial markets about both the bank and the US financial system. 

Banks borrowed heavily from the Fed's new lending program in a last-resort search for cash

The Marriner S. Eccles Federal Reserve building is seen in Washington, DC, in 2022.

The Federal Reserve loaned out $12 billion to banks this week from its new emergency lending facility, the Bank Term Lending Program, the Fed reported Thursday.

The new program was designed to prevent banks from failing like Silicon Valley Bank last week and Signature Bank on Sunday. As part of the facility, the Fed will loan banks money for up to a year in exchange for Treasury bonds or other high-quality assets that have crumbled in value during the Fed’s historic rate-hiking campaign.

The Fed will lend the banks the original value of their Treasury bonds, preventing them from selling assets at a loss (like SVB did) — a last-resort tactic to raise cash to pay customers’ withdrawals. That ignited SVB’s bank run last week.

America’s banks are sitting on more than $600 billion of unrealized losses from Treasury debt, according to the FDIC. So the Fed’s facility essentially negates that debt.

Although $12 billion is a lot, it pales in comparison to the nearly $152.8 billion banks borrowed from the Fed’s “discount window,” its more traditional lending facility, over the past week. Discount window loans absolutely ballooned from just over $4.5 billion in the prior week.

The Fed has steadily shrunk its balance sheet over the past year to fight inflation, but it added $300 billion to it over the past week. That demonstrates the seriousness of some bank’s cash concerns and the resolve of the Fed to alleviate them.

Stocks close in the green as big bank intervention cheers investors

First Republic Bank is displayed on a monitor on the floor of the New York Stock Exchange on Thursday in New York City.

Stocks closed higher Thursday after a consortium of big banks said they would lend a hand in the regional bank crisis.

A group of big banks including JP Morgan Chase, Citigroup and Bank of America will provide $30 billion in deposits to First Republic after the bank’s shares plunged on the back of several bank collapses.

The news helped lift up big bank stocks, which have fallen in recent days.

Also alleviating investors’ fears was Credit Suisse’s announcement late Wednesday that it accepted a $53 billion lifeline from the Swiss National Bank for its own crisis, after shares of the Swiss lender tumbled.

The VIX, known as Wall Street’s fear gauge, was at about 23.1 after steadily ticking down throughout the trading session.

Investors are now positioning themselves for the Federal Reserve’s policy meeting next week. The European Central Bank raised its interest rate Thursday morning by half a point despite the banking turmoil, a decision the Fed will face on March 21-22. The CME FedWatch Tool shows a roughly 82% probability that the central bank will raise rates by a quarter point.

The Dow rose roughly 373 points, or 1.2%.

The S&P 500 gained about 1.8%.

The Nasdaq Composite climbed about 2.5%.

Large banks swoop in to rescue First Republic

The exterior of a First Republic Bank building is pictured Thursday in San Francisco.

First Republic Bank, facing a crisis of confidence from investors and customers, is set to receive a $30 billion lifeline from a group of 11 large banks.

The major banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.

The infusion will give the struggling San Francisco lender much-needed cash to meet customer withdrawals and buttress confidence in the US banking system during a tumultuous moment for lenders.

First Republic’s stock, which was halted several times for volatility on Thursday, ended the session up 10%.

America's largest banks are in talks to rescue First Republic

A First Republic Bank branch is pictured in Manhattan on Monday.

First Republic Bank, facing a crisis of confidence from investors and customers, is actively discussing options for a lifeline, people familiar with the matter said.

Some of America’s largest banks are in talks to inject billions of dollars into the struggling San Francisco lender, giving it additional financial firepower to meet customer withdrawals and boost confidence.

The consortium of big banks involved in providing the lifeline includes JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist, the people told CNN.

The lifeline is expected to total roughly $30 billion, one of the people said.

A First Republic spokesman declined to comment. 

US officials appear to be pleased with the prospect of an industry-led rescue of First Republic. The fact that America’s largest banks are discussing a lifeline for the San Francisco-based lender is a welcome sign of confidence in the strength of the banking system, a US official told CNN.

The official said such a rescue would complement actions that regulators have taken in recent days to safeguard deposits across the country.

First Republic stock surges as it talks with major banks about a rescue plan

The exterior of a First Republic Bank branch is seen on Broadway on the Upper West Side in New York City, on March 13.

First Republic Bank, facing a crisis of confidence from investors and customers, is actively discussing options for a lifeline, a person familiar with the matter told CNN.

Participating in the discussions Thursday are massive Wall Street banks, including JPMorgan Chase, Bank of America, Wells Fargo and Citigroup, the source said. A deal to prop up First Republic with much-needed access to cash could be announced as soon as Thursday.

A First Republic spokesman declined to comment to CNN. The talks were first reported by the Wall Street Journal.

First Republic’s shares were halted several times for volatility Thursday. The stock was last up 22% after plunging more than 30% earlier in the day.

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Europe’s markets close on a high after volatile day

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, on March 16.

European stocks rebounded strongly Thursday afternoon, after falling back earlier in the day following an announcement by Europe’s central bank that it would hike its main interest rate by half a percentage point.

Europe’s benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, closed 1.2% up, while London’s bank-heavy FTSE 100 index finished the day 0.9% higher.

Both indexes had fallen back almost 1% and 0.16% respectively following the European Central Bank’s decision to press ahead with rate hikes to help bring down inflation.

Germany’s DAX also closed up 1.6%, and France’s CAC 40 finished 2% higher.

The increases tracked a similar rebound across the pond. The S&P 500 bounced 1.7% by early afternoon ET following reports that ailing regional bank First Republic is considering a takeover by larger lenders.

US Tech Investor calls on social media firms to help prevent bank runs

 Customers line up at Silicon Valley Bank headquarters in Santa Clara, California, on March 13.

US tech investor Bradley Tusk told CNN that financial regulators are unprepared for bank runs in the age of social media.

Tusk, who was an early investor in Uber and Coinbase, says social media companies should work with regulators if they see sudden surges in online posts and mentions of banks. He told Julia Chatterley that this was a “no brainer.”

“Perhaps by finding out a little sooner, they can act faster, and that may help save a bank run,” he said.

Speaking more broadly about the impact of SVB’s collapse, Tusk said his venture capital business had its money stored at SVB, but insisted it was crucial to save the tech focused bank for wider economic reasons.

“If the Fed had let Silicon Valley Bank go down, half the start-ups in this country might have gone out of business,” he said. “Talk about a hit to the innovation economy.”

He added that his firm “had not written a check to a start-up since all of this happened” because they were dealing with the SVB crisis.

Yellen grilled on whether smaller banks could get the same government help as SVB

Sen. James Lankford, R-Okla., speaks with Treasury Secretary Janet Yellen during her testimony about the Biden Administration's 2024 federal budget proposal before the Senate Finance Committee on Capitol Hill today.

Republican Senator James Lankford grilled Treasury Secretary Janet Yellen Thursday on how the US government’s intervention in Silicon Valley Bank’s and Signature Bank’s collapses could encourage depositors to move their funds into large banks.

“What is your plan to keep large depositors from moving their funds out of community banks into the big banks? We have seen the mergers of banks over the past decade. I’m concerned you’re about to accelerate that,” the senator from Oklahoma said.

“That’s certainly not something that we’re encouraging,” Yellen responded.

Lankford also said smaller, community banks likely won’t receive the same help as SVB. The US government moved to insure deposits at SVB after the bank fell, sparking backlash from those who saw that intervention as a bailout.

“Will the deposits in every community bank in Oklahoma, regardless of their size, be fully insured now?” Lankford said. “Will they get the same treatment that SVB just got, or Signature Bank just got?”

“The bank only gets that treatment if a majority of the FDIC board, a super majority of the Fed board and I in consultation with the president determine that the failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences,” Yellen responded.

Banking meltdown means it could get tougher to buy a home

Single family homes are seen in a residential neighborhood in Miramar, Florida, on October 27, 2022.

The current turmoil in the financial market means it could get tougher to purchase a home, particularly if government regulators like the Federal Reserve crack down on banks in the wake of SVB’s collapse. The Fed has also been on a historic rate-hiking regime to keep inflation in check, and most economists expect that to continue.

“If banks are under stress, they might be reluctant to lend,” Treasury Secretary Janet Yellen said Thursday in testimony to the Senate Finance Committee. “We could see credit become more expensive and less available.”

“That could turn this into a source of significant downside economic risk,” she added.

The banking meltdown over the past week leaves more questions than answers. The stunning collapse of two American banks and the loss of investor confidence in Credit Suisse led to wild market swings and put Wall Street on edge.

During CNN’s primetime special, “Bank Bust: Inside the Collapse of SVB,” experts weighed in on how to best understand what’s happening in a rapidly developing and confusing environment for financial institutions.

“On top of that, I think a lot of folks are feeling very concerned about, ‘Hey, if I’m saving up for a down payment, is a bank a safe place to put that money?’”

The 30-year fixed-rate mortgage averaged 6.73% in the week ending March 9. A year ago, it was 3.85%.

Freddie Mac is set to release its average weekly mortgage rates at 12 p.m. ET on Thursday.