The scene was reminiscent of the last financial crisis, nearly 15 years ago: Faced with a blossoming emergency in the banking sector, worried regulators and policymakers in Washington turned to Wall Street for help.
The anxiety this week centred on First Republic Bank in San Francisco, which was once the envy of the banking sector, with its wealthy and well-travelled clientele. Now the bank was reeling after some of those customers withdrew billions of dollars.
As early as Tuesday, it became clear to policymakers that the First Republic needed to be rescued or it could fail, two people briefed on the matter told The Associated Press, speaking anonymously because they were not authorized to discuss details.
The result was a swift agreement among the nation's leading banks to lay aside competitive instincts to come to First Republic's aid. With Washington greasing the wheels, a coalition of lenders put USD 30 billion in uninsured deposits into the California-based bank as a show of support.
The money gives First Republic a lifeline while it reportedly seeks a buyer. Regulators hope it also bolsters confidence in the health of the broader banking system.
The recent turmoil in the banking industry isn't on par with the crisis that sparked the Great Recession from 2007 to 2009. But after Silicon Valley Bank and Signature Bank failed and were seized by the federal government, the industry's overseers worried about more dominoes falling.
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Treasury Secretary Janet Yellen discussed the idea of supporting First Republic with other bank regulators the Federal Reserve, the Federal Deposit Insurance Corp. and the Comptroller of the Currency. Together they concluded that some sort of private rescue package was needed to prevent the crisis from worsening.
Among the first calls made by Yellen and other policymakers was to Jamie Dimon, the chairman and CEO of JPMorgan Chase & Co. There may have been a sense of dj vu: Back in 2008, Dimon was the go-to banker for Washington to find private solutions for that banking crisis.
"We have our marching orders," Dimon reportedly said after the call with Yellen. He then proceeded to build a coalition of banks willing to place deposits with First Republic.
This rescue would be simply compared with the 2008 crisis. First Republic needed money to replace any deposits that were being pulled out. The Wall Street banks have been flush for years, and deposits are one of the cheapest forms of capital a bank can get.
It was clear First Republic was struggling with short-term fears. Between March 10 and Wednesday, the bank borrowed USD 109 billion from the Federal Reserve's so-called "discount window," a mechanism that allows banks to get 90-day loans using high-quality bonds as collateral. The window is often used in times of crisis.
First Republic wasn't alone. As of Wednesday, the Fed had loaned USD 153 billion through the window, more than during the 2008 financial crisis.
A spokesman for First Republic did not respond to requests for comment on the package or the bank's financial health.
Such rescues are intended to protect the system against further bank runs. But they do not address banks' "vulnerability to excessive interest rate risk, which was the root cause of these banks' distress," analysts at the credit rating agency Moody's wrote this week as they put half a dozen midsize banks on a list for a potential downgrade.
Over the next 48 hours, the roster of institutions willing to come to the rescue grew to 11 banks, representing a broad swath of the U.S. banking industry. It was an effort to show that the banking industry would stand behind even its competition as a sign of confidence.
"We are deploying our financial strength and liquidity into the larger system, where it is needed the most," the banks said Thursday in a statement.
The coalition included some of the "super regional" banks such as Truist, US Bank and PNC. These were banks that had grown through mergers in recent years and constituted the second tier of large national banks, behind the "too big to fail" institutions like JPMorgan, Citi and Wells Fargo. Even the custodial banks normally quiet institutions such as BNY Mellon and State Street that hold assets for investors and don't have retail operations came to the rescue of First Republic.
But it's not clear yet that the bleeding has stopped, even at First Republic.
Shares of First Republic fell more than 30 per cent Friday after the bank cut its annual dividend as part of the rescue package. Its shares are down nearly 70 per cent this week alone. Analysts at Keefe, Bruyette & Woods said the rescue and dividend cut "paint a grim outlook for both the company and shareholders."
Investors sold off banking stocks this week with most of the damage focused on smaller regional banks such as Zions Bank, Fifth Third, Huntington Bank and Comerica. The broad worry is that smaller regional banks, which hold large amounts of Treasuries and mortgage-backed securities, may be forced by investors to revalue those bond portfolios.
The FDIC estimates that American banks have USD 620 billion in unrealized losses on their balance sheets. Many of those losses stem from bonds that have lost significant value as the Fed has raised interest rates to combat inflation. Banks don't have to account for the declining value since the bonds would be held to maturity and not traded at a loss.
But in the case of Silicon Valley Bank, the bank faced a growing number of withdrawals and had to sell its bond portfolio to free up cash for depositors. That required the bank to post a USD 1.8 billion loss on that USD 21 billion bond sale.
Smaller and mid-sized banks joined Republic in seeing their stocks fall again Friday.
"There's still a lot of unknowns," said Ross Mayfield, investment strategy analyst at Baird, describing the uncertainty surrounding the types of investments banks have and how easily they can be turned into cash.
"Most investors who have been in the business for a while, it's hard not to call back to memory 2008, 2009, even if it does look quite different," Mayfield said.