First Republic Bank Shares Plummet After Report That More Than 40% Of Depositors Pulled Their Funds

First Republic Bank Deposits Plummet 40.8% in Q1

The financial sector has been hit hard this year, and First Republic Bank is no exception. The bank, which caters to wealthy clients with account balances above $250,000, saw deposits drop from $176 billion to $104 billion in the first quarter of 2021. This represents a 40.8% decrease, and the company’s stock price has fallen by 94.4%.

Why Did Deposits Plummet?

Many customers withdrew their funds as unease gripped the financial sector last month. The implosion of Silicon Valley Bank and Signature Bank, where the vast majority of account balances exceeded the $250,000 deposit insurance threshold, prompted financial regulators to secure insured and uninsured accounts to prevent additional bank runs. This has led to concerns about increased consolidation in the sector.

What Is First Republic Bank Doing?

First Republic Bank is taking steps to strengthen its business and restructure its balance sheet. This includes increasing insured deposits, decreasing borrowed funds from the Federal Reserve, and reducing loan balances to correspond with the reduced reliance on uninsured deposits. The firm will also reduce employee headcount between 20% and 25% in the second quarter, reduce executive compensation, and consolidate corporate office space.

What Does the Future Hold?

Treasury Secretary Janet Yellen has been accused of offering mixed signals on whether the government will continue backing both insured and uninsured deposits. While she has vowed to protect smaller institutions from deposit runs that pose the risk of contagion, she has not discussed blanket insurance or guarantees of all deposits. Meanwhile, assets in the banking system are $2 trillion lower than their book value as a result of Federal Reserve efforts to implement a rollback in monetary stimulus.

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