First Republic shares rebound as Yellen to signal backing for smaller lenders

First Republic bank shares rebounded on Tuesday after Janet Yellen was expected to signal a government backstop for smaller banks was at the ready if required.

First Republic bank shares surged more 30 per cent in opening trade on Tuesday, paring some of the New York-based bank’s recent losses.

First Republic is the hardest hit among the regional banks which have suffered massive outflows of deposits following the collapse of Silicon Valley Bank. It’s shares have fallen more than 90 per cent in March, including a 47 per cent drop on Monday.

The moves come as US Treasury secretary Yellen is expected to tell the American Bankers Association on Tuesday that guarantees offered to all depositors at the failed Silicon Valley Bank could be replicated at other institutions if needed.

While such a guarantee would only apply to First Republic deposits were it to fail and be taken over by the Federal Deposit Insurance Corporation, the comments could help alleviate customer concerns about the safety of their deposits and stem outflows. Before a bank fails, deposits are only guaranteed by the FDIC up to $250,000.

Shares in other regional lenders were also up in early trading on Tuesday. PacWest Bank Corp and Western Alliance Bank were up 12 per cent and 11 per cent, respectively.

Shares in the four largest US banks by assets — JPMorgan Chase, Citigroup, Bank of America and Wells Fargo — were up between 2.4 and 3.1 per cent.

Wall Street bank chief executives are also evaluating further options for First Republic after 11 of the biggest US banks deposited $30bn with the lenders. The executives will discuss if anything more can be done on the sidelines of a pre-planned gathering in Washington on Tuesday, the Financial Times reported on Monday.

First Republic’s credit rating was downgraded for the second time in a week by S&P Global over the weekend. S&P analysts said the $30bn deposit infusion, which has an initial maturity of 120 days, was not a “longer-term solution” to the bank’s funding issues.