The U.S. “First Republic Bank,” which had been embroiled in rumors of bankruptcy, has taken a breather with emergency liquidity support from large banks. However, market jitters toward small and medium-sized U.S. banks remain. This is because trust, which has already run out of funds, is difficult to recover quickly due to a one-off fund transfusion, and the liquidity crisis caused by the key interest rate hike is widely expected to continue for a while.
After 11 large U.S. banks, including Bank of America (BOA), announced on the 16th (local time) that they would deposit a total of USD 30 billion in First Republic, the bank’s shares closed at USD 34.27, up 9.98% from the previous day. Stock prices plunged nearly 36% as rumors of bank bankruptcy emerged early in the market, but rebounded sharply on news of emergency liquidity support.
However, the market is still unstable. After the market closed, First Republic’s stock plunged 20% again in after-hours trading. Analysts say that the roller coaster market, which saw its stock price soar and fall for just one day, reflects the market’s anxiety over the bank.
The main cause is a lack of confidence in small and medium-sized banks. Although the $30 billion liquidity transfusion immediately extinguished the urgent fire, it is difficult to be sure whether it will prevent a bank run (large-scale withdrawal of deposits) caused by distrust in banks. Moreover, as the liquidity crisis of U.S. small and medium-sized banks is a side effect of the Fed’s high-intensity tightening, concerns are growing that additional insolvency of other small and medium-sized banks could occur at any time.
The Wall Street Journal (WSJ) also pointed out that emergency liquidity support from large U.S. banks cannot be a fundamental solution to the situation. Given that most of the financial resources supported by large banks are deposits withdrawn from small and medium-sized banks, it is actually only a temporary measure of “taking out the bottom stone and putting the top stone on top.”
