After what felt on Wednesday like relative calm in the banking industry compared with the chaos of the five previous days, uncertainty returned early Thursday amid concerns about the stability of Swiss lender Credit Suisse and the future of First Republic Bank in San Francisco.

Despite the announcement of an emergency lifeline designed to support the troubled Credit Suisse, U.S. markets opened the day reeling, with shares of First Republic falling more than 30% in early morning trading and other declines in regional bank stocks. 

But by midafternoon, 11 of the nation’s largest banks rode to the rescue with a pledge of $30 billion of deposits to stabilize First Republic’s balance sheet after a depositor exodus. The move was also a bid to instill confidence in an industry that has endured two bank failures, a mountain of liquidity concerns and a whole lot of jitters in the past week.

Now the question is: Will it work?

“Our expectation is that calmer heads will prevail,” Michael Driscoll, head of North American financial institutions at DBRS Morningstar said in an interview just as the First Republic deal was announced. “Regulators are doing their jobs, and things will stabilize.”

The tactic — in which big banks band together to prop up another bank by injecting deposits — is an unusual strategy, experts said. The cash infusion is being made in the form of interest-bearing deposits from participating banks. The funds are the banks’ own and not those of their customers or of First Republic customers who have withdrawn money from their First Republic accounts in recent days and parked those deposits at the larger banks, sources said Thursday.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — the nation’s Big Four banks by assets — have each committed $5 billion of uninsured deposits to First Republic, while Goldman Sachs and Morgan Stanley have committed $2.5 billion, according to a joint statement released by the banks on Thursday afternoon. 

U.S. Bancorp, PNC Financial Services Group, Truist Financial, Bank of New York Mellon and State Street are each placing $1 billion of deposits, the statement said.

The additional liquidity comes five days after the $212.6 billion-asset First Republic, which specializes in private banking and wealth management, touted its financial position after announcing in a press release that it received more borrowing capacity from the Federal Reserve and the “ability to access additional financing through JPMorgan Chase.”

On Sunday night, around the same time the federal government said it would cover uninsured deposits at both Silicon Valley Bank in Santa Clara, California, and New York-based Signature Bank — which had failed within two days of each other — First Republic issued a statement saying that it had more than $70 billion of unused liquidity. The $70 billion figure excluded any additional liquidity that the company could receive under the Bank Term Funding Program, or BTFP, also announced Sunday night.

By the end of Wednesday, First Republic reported a $34 billion cash position in a regulatory filing.

“I personally thought [those measures] would fix some of the issues with First Republic, but obviously they continued to have significant pressure this week,” Driscoll said. 

Regulators lauded the cash infusion Thursday afternoon. In a joint statement, Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen, Federal Deposit Insurance Corp. Chair Martin Gruenberg and acting Comptroller of the Currency Michael Hsu called it a sign of strength for the banking sector as a whole.

“Today, 11 banks announced $30 billion in deposits into First Republic Bank,” the regulators said in a written statement. “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”

The Fed issued a separate statement encouraging any banks in need of liquidity to turn to the BTFP, which allows banks, credit unions and other depositories to pledge assets as collateral for penalty-rate loans. Through Wednesday, the central bank disclosed that banks had taken nearly $12 billion of advances from the emergency liquidity vehicle and had pledged nearly $15.9 billion of government-backed bonds — including Treasury securities, U.S. agency mortgage-backed securities and U.S. agency debt securities.

At least one analyst expressed some skepticism about whether the deposit injection at First Republic will make a difference as more problems might lurk under its hood.

In a research note, Autonomous Research analyst David Smith said First Republic’s stock has “been on a roller coaster over the past week” following the demise of Silicon Valley Bank and Signature Bank, both of which experienced significant deposit withdrawals after customers became spooked about their financial well-being.

First Republic “was also seeing rapid deposit outflows,” so much so that S&P Global on Wednesday downgraded the company’s credit to below investment grade, Smith noted.

Two other credit ratings agencies, Moody’s Investors Service and Fitch Ratings, also made changes to the company’s ratings. Fitch downgraded the company’s ratings, while Moody’s placed the ratings under review for a downgrade.

“It remains to be seen what will happen to core client deposit flows at [First Republic Bank] from here and indeed what has happened to date this quarter, which will ultimately drive the company’s fate,” Smith wrote. 

Earnings could suffer if many of the deposits drained from the bank were lower-cost and the big banks’ market-rate deposits are costlier, according to Smith. A need to steeply mark down liabilities could scare off a potential buyer, too.

“First Republic’s situation remains challenged, in our view, although today’s actions seem to have bought the company time at the least,” Smith wrote.

Big banks — often criticized for receiving government bailouts, as they did in the 2008 financial crisis — positioned themselves Thursday as being part of the solution to the crisis that has hit regional banks in the past week. 

The plan is an “unprecedented private sector collaboration … to bolster liquidity and reflects our confidence in the critical role of regional banks in our economy,” Truist CEO Bill Rogers said in a statement.

The markets seemed to like it. The Dow Jones Industrial Average, which at one point in the day was off more than 250 points from its open, finished at 32,246.55, up 1.17% from a day earlier. First Republic rose more than 10% by day’s end, though it began losing ground in after-hours trading Thursday night.

Most regional stocks that had drawn scrutiny lately finished in the green, though some closed stronger than others.

What’s unclear is whether Thursday was a turning point in a crisis that has taken down Silicon Valley, Signature and Silvergate banks or was another positive blip in a more protracted period of volatility.

The condition of other regionals will be watched closely. For instance, Reuters reported Thursday that PacWest Corp. in Los Angeles was in talks with Atlas SP Partners and other investment firms about a liquidity boost.

Kyle Campbell contributed to this story.

Allissa Kline

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