On Friday, news broke that First Republic Bank (NYSE:FRC) had received a $30 billion lifeline from several large U.S. banks to rescue the troubled lender. JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C), Bank of America Corp (NYSE:BAC), Wells Fargo (NYSE:WFC), Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS), and others were involved in the rescue package.
Despite the news of the rescue, investors remained concerned about the cracks in the sector, as the troubled lender’s shares tumbled 17% in extended trading on Thursday after suspending its dividend. The recent collapse of two other mid-sized U.S. lenders, Silicon Valley Bank and Signature Bank (NASDAQ:SBNY), has led to a widening crisis, and banks sought record amounts of emergency liquidity from the Federal Reserve in recent days. This has undone months of central bank efforts to shrink the size of its balance sheet, according to Fed data.
However, U.S. Treasury Secretary Janet Yellen sought to reassure Americans, stating that the U.S. banking system remains sound and that their deposits are safe. Meanwhile, Credit Suisse announced that it was taking “decisive action” to strengthen its liquidity by borrowing up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.
The European Central Bank also acknowledged market strains and pledged liquidity support if needed, raising rates by 50 basis points as promised but underscoring the eurozone banking sector’s resilience.
Credit Suisse’s average liquidity coverage ratio did not change between March 8 and March 14, despite the global banking crisis. CEO Ulrich Koerner urged staff to focus on facts and pledged to rapidly move forward with a plan to streamline operations. JPMorgan predicted that Credit Suisse’s most likely scenario was a takeover by another lender, likely its Swiss rival UBS.
In the markets, Asian markets extended a risk rally on Wall Street to end a tumultuous week that saw the banking crisis send bond yields plunging while market participants sharply lowered expectations of future interest rate hikes in Western economies. The U.S. dollar slipped on Friday after authorities and banks moved to ease stress on the financial system, taking the heat off most major currencies that tumbled this week in the wake of bank turmoil.