First Republic Bank's credit rating was downgraded on Wednesday by both Fitch Ratings and S&P Global Ratings on concerns that depositors could pull their cash despite the federal intervention.
"This not only drives a high proportion of uninsured deposits as a percentage of total deposits but also results in deposits that can be less sticky in times of crisis or severe stress," Fitch said."Fitch believes this feature of the business model has resulted in franchise erosion following the high profile failures of SVB Financial and Signature Bank, despite the deposit base being more diversified from a sector/industry standpoint.
From a practical standpoint, a credit ratings downgrade can make it more expensive for banks to borrow.First Republic announced fresh funding from the Federal Reserve and JPMorgan Chase on Sunday designed to strengthen its balance sheet. The funding means First Republic now has $70 billion in unused liquidity, cash it can use to respond to potential customer withdrawals.
"First Republic's capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks," Jim Herbert, First Republic's founder and executive chairman, and CEO Mike Roffler said in a statement on Sunday. Moody's Investors Service on Tuesday cut its outlook for the entire US banking sector and placed six US banks on review for potential credit rating downgrades, including First Republic.© 2023 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. CNN contributed to this report.Please enter email address to continue
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