Will First Republic Bank Survive the Storm?

Shares of First Republic Bank continued their free-fall despite a rare move by the biggest U.S. banks to pump $30 billion into the regional lender.

The company’s stock plunged more than 47% on Monday, while trading was halted numerous times because of volatility. The shares, which have dropped around 88% in the past two weeks, closed at $12.18 after hitting an all-time low of $11.52 last week.

The sudden collapse of Silicon Valley Bank (SVB) on March 10, along with New York’s Signature Bank two days later, has shaken investor confidence in regional lenders like the $213 billion First Republic.

In particular, concern has focused on such lenders’ uninsured deposits, or account funds exceeding the Federal Deposit Insurance Corp.’s $250,000 cap.

First Republic Bank received a $30 billion rescue package from 11 of the biggest U.S. banks last week in an effort to prevent its collapse.

Over the weekend, the bank’s credit rating was downgraded by S&P Global Ratings, which said the rescue package should ease short-term liquidity pressures, but “may not solve the substantial business, liquidity, funding and profitability challenges” that it believes the San Francisco-based bank is now likely facing.

A flurry of withdrawals at small banks like First Republic

“People are doing something that probably is not rational but totally understandable, which is them moving deposits,” Mohamed El-Erian, an economist and president of Queens’ College at the University of Cambridge, told Bloomberg on Sunday about the flurry of withdrawals at small banks like First Republic.

“Where are they moving deposits out of? The smaller and regional-sized banks into the larger banks,” he added.

Large banks have indeed had a huge influx of customer deposits in the past week as people grew nervous about small banks’ ability to safeguard their money.

Bank of America added more than $15 billion in deposits last week following the collapse of SVB. JPMorgan and Citi also began expediting their normal sign-up process to accommodate a deluge of new account holders, the Financial Times reported last week.

The shuttering of Silicon Valley Bank and of New York-based Signature Bank has revived bad memories of the financial crisis that plunged the United States into the Great Recession of 2007-2009.

Bank turmoil spreads to Europe

The turmoil in the banking industry spread to Europe and forced a deal under which UBS will acquire troubled rival Credit Suisse for almost $3.25 billion. The deal was orchestrated by Swiss regulators. Shares of UBS rose 4.4%.

Central banks around the globe attempted to reassure investors after the emergency rescue of Credit Suisse, saying their banks were safe and well-capitalized.

Six central banks, including the US Federal Reserve, also announced they would boost the flow of dollars in the global financial system to make sure banks had easy access to cash.

The 167-year-old institution is one of around 30 banks worldwide deemed too big to fail because they are of such importance to the banking system.