Global Banking Turmoil: First Republic Reaches Rescue Deal With Other Banks (2024)

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Here’s the latest on banks, stocks and interest rates.

Four of the country’s biggest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to contribute $5 billion each. Goldman Sachs and Morgan Stanley will contribute $2.5 billion each and BNY Mellon, PNC Bank, State Street, Truist and US Bank will each add $1 billion.

The deposits are uninsured, the banks said — effectively making them votes of confidence in First Republic’s future. In announcing the deposits, the banks said recent events did nothing to undermine the banking system but that they were deploying their financial strength “where it is needed the most.”

Top financial officials including Treasury Secretary Janet Yellen and the Federal Reserve chair, Jerome Powell, immediately backed the deal. The show of support for First Republic is “most welcome,” they said in a statement along with the Federal Deposit Insurance Corporation chairman, Martin J. Gruenberg, and Michael J. Hsu, the acting comptroller of the currency.

The rescue plan for San Francisco-based First Republic is the latest bid to ease the fears of consumers and investors that the banking industry was in the midst of a growing crisis following the announcement last week that a cryptocurrency-focused bank, Silvergate, was shutting its doors and the subsequent takeovers of Silicon Valley Bank and Signature Bank by regulators.

Earlier Thursday, Ms. Yellen told the Senate Finance Committee that the American banking system “remains sound” and sought to reassure lawmakers that regulators were taking necessary steps to protect the public.

Here’s what you need to know:

• Stocks in the United States swung from early losses to close 1.8 percent higher on Thursday, but U.S. regional banks remain a focus of investor worry after the failures of Silicon Valley Bank and Signature in recent days.

• On the other side of the Atlantic, the European Central Bank stayed the course by raising interest rates by half a percentage point, sticking to the plan policymakers had laid out. Christine Lagarde, the head of the bank, acknowledged that “severe financial market tensions” remained, but that the central bank would not wane in its commitment to fight inflation.

• Just hours before the European Central Bank’s announcement, the banking giant Credit Suisse grabbed a $54 billion lifeline from Switzerland’s central bank. Credit Suisse has been battered by years of mistakes and controversies that have cost it two chief executives over three years.

Andrés R. Martínez, Jason Karaian, Michael J. de la Merced Maureen Farrell and Jeanna Smialek contributed reporting.

How the First Republic rescue deal was forged.

The idea for the rescue deal was first proposed by Ms. Yellen, who believed that having banks inject money into First Republic would be a strong sign of private sector support and confidence in the banking system, this person said.

Shortly after Jamie Dimon, the chief executive of JPMorgan Chase, called Ms. Yellen to check in, she proposed the idea, the person said. Mr. Dimon started wrangling bank executives while Ms. Yellen called business leaders and regulators.

Over the next 48 hours, the group of interested banks grew. On Thursday morning, Ms. Yellen — before she was scheduled to testify before the Senate Finance Committee — convened a call with the regulators and bank chief executives to work out the deal.

After the hearing, Mr. Dimon came to meet Ms. Yellen in her office to finalize the details ahead of the announcement.

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A timeline of Silicon Valley Bank’s collapse and its aftermath.

MARCH 8

• Silvergate Capital, a cryptocurrency-focused bank, announced it would cease operations and liquidate its assets after a bank run forced the California lender to sell a chunk of its debt securities.

• Silicon Valley Bank concerned investors when it said it needed to shore up its balance sheet and raise $2 billion in capital. It was forced to sell a bond portfolio at a $1.8 billion loss.

• In a letter to customers, Greg Becker, the chief executive of Silicon Valley Bank, said the bank enjoyed the “financial position to weather sustained market pressures,” but he noted that customer deposits had come in lower than forecast in February. Moody’s, a credit ratings firm, downgraded the bank’s bond rating and slashed its outlook to negative, from stable.

MARCH 9

• During a conference call, Mr. Becker urged venture capital firms to stay calm. Panic spread on social media among investors. Bill Ackman, the billionaire investor, suggested that Silicon Valley Bank could fail and need a bailout. In a note sent to clients, a Silicon Valley Bank executive wrote that the bank was “actually quite sound, and it’s disappointing to see so many smart investors tweet otherwise.”

• Silicon Valley Bank’s announcement the day before prompted another wave of customer withdrawals, and its stock plummeted 60 percent.

MARCH 10

• Silicon Valley Bank failed after a run on deposits. It reportedly worked with financial advisers until the morning to find a buyer. By midday, regulators took over Silicon Valley Bank, the nation’s 16th-largest bank, and the Federal Deposit Insurance Corporation was named the receiver. The failure of the 40-year-old institution became the largest bank crash since the 2008 financial crisis, and it put nearly $175 billion in customer deposits under the regulator’s control.

• Shock from Silicon Valley’s woes reverberated through parts of the banking sector, and investors started to dump bank stocks, including those of First Republic, Signature Bank and Western Alliance. Many of those institutions cater to niche clients. The nation’s largest banks appeared insulated from the fallout.

• Treasury Secretary Janet L. Yellen reassured investors that the banking system was resilient.

• Signature Bank, a 24-year-old, New York-based institution that lent largely to real estate companies and law firms, saw a torrent of deposits leaving its coffers.

MARCH 12

• To prevent the spread of banking contagion, regulators seized Signature Bank. To some extent, the bank, which had 40 branches, was a victim of the panic surrounding Silicon Valley Bank.

• The Federal Reserve, the Treasury Department and the F.D.I.C. announced jointly that “depositors will have access to all of their money starting Monday, March 13” and that no losses from either bank’s failure “will be borne by the taxpayer.”

• The F.D.I.C. invoked a “systemic risk exception,” which allows the government to pay back uninsured depositors to prevent dire consequences for the economy or financial instability. And the Fed announced that it would set up an emergency lending program, with approval from the Treasury, to provide additional funding to eligible banks and help ensure that they were able to “meet the needs of all their depositors.”

MARCH 13

• President Biden, in a speech, said the U.S. banking system was safe and insisted taxpayers would not pay for any bailouts. “This is an important point,” Mr. Biden emphasized. “No losses will be borne by the taxpayers.”

• Regional bank stocks plunged, with First Republic taking the worst beating, dropping 60 percent.

• HSBC said it would buy Silicon Valley Bank’s British subsidiary. A buyer was being sought for Silicon Valley Bank’s holding company, which includes asset management and a securities division, and excludes the commercial bank now under F.D.I.C. control.

MARCH 14

• Bank stocks recovered some of their losses.

• The Justice Department and the Securities and Exchange Commission reportedly opened investigations into the collapse of Silicon Valley Bank.

MARCH 15

• Shares of Credit Suisse tumbled by 24 percent, a record low. The Swiss National Bank, Switzerland’s central bank, said it would step in to provide financial support to Credit Suisse if necessary.

• On Wall Street, the S&P was down by 0.6 percent at the close of trading, reversing some of the previous day’s rally as investors’ fears over the health of the banking industry resurfaced.

MARCH 16

• First Republic Bank received $30 billion in deposits from nearly a dozen of the United States’ biggest banks including JPMorgan Chase, Wells Fargo and Morgan Stanley. The beleaguered bank’s shares closed up 10 percent.

• Credit Suisse said it would borrow $54 billion from Switzerland’s central bank.

• The Federal Reserve announced that, as of Wednesday, banks had borrowed $11.9 billion from the emergency loan program it unveiled on Sunday to shore up the banking system.

• Janet L. Yellen testified before the Senate’s Finance Committee and sought to reassure the public that America’s banks remain “sound.”

As collateral for those loans and some possible future loans, the banks put up bonds with a value of $15.9 billion. That’s the value of the bonds at maturity, not their market value now — a key distinction the Fed is making in order to free up money to stabilize the banks.

“The shoring up of First Republic Bank by other financial institutions is welcome news,” McHenry said. “During a troubling week for banks, this should provide further confidence in the U.S. banking system. I’m glad to see this come together without government intervention. This is how our free market should operate.”

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The idea was first proposed by Yellen, who believed that bringing banks to inject money into First Republic would be a strong sign of private sector support and confidence in the banking system, this person said.

Shortly after Jamie Dimon, the chief executive of JPMorgan Chase, called Yellen to check in and she proposed the idea. He started wrangling bank executives while she called with business leaders and regulators

Over the next 48 hours, the group of interested banks grew. On Thursday morning, Yellen - before she was scheduled to testify before the Senate Finance Committee - convened a call with the regulators and bank CEOs to finalize the deal.

Following the hearing, Dimon came to meet Yellen in her office to finalize things ahead of the announcement.

It’s worth noting that despite the turmoil this week, the index remains up for the year and is on course to close out its second best week of 2023.

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Goldman Sachs and Morgan Stanley will contribute $2.5 billion each and BNY Mellon, PNC Bank, State Street, Truist and US Bank will each add $1 billion.

Banks including JPMorgan Chase, Bank of America and Goldman Sachs were in the late stages of agreeing to deposit between $25 billion and $30 billion in First Republic, two people briefed on the talks said.

JPMorgan and Bank of America, the two biggest U.S. banks, will deposit $5 billion each into First Republic, several people briefed on the matter said. Goldman and Morgan Stanley are expected to put in $2.5 billion each, if the deal is completed, one of the people said. A smaller group of regional banks could put up $1 billion each as part of the total, the person said.

The deal could be announced as soon as Thursday afternoon, two people briefed on the matter said.

The plan to inject between $25 billion and $30 billion into First Republic was organized by the U.S. government, two people briefed on the matter said.

Along with JPMorgan, Bank of America and Goldman, the money could also come from Citi, Wells Fargo, US Bank and PNC Bank, several people briefed on the matter said.

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Yellen defends regulators’ efforts to stabilize the banking system.

The comments were Ms. Yellen’s first since the Treasury secretary and other federal regulators moved to contain fallout from the collapse of Silicon Valley Bank. On Sunday, the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation announced that they would make sure that all depositors at Silicon Valley Bank and Signature Bank, which regulators also seized, were repaid in full.

“We wanted to make sure that the problems at Silicon Valley Bank and Signature Bank didn't undermine confidence in the soundness of banks around the country,” Ms. Yellen said. “We wanted to make sure that there wasn’t contagion that could affect other banks and their depositors.”

Ms. Yellen played a central role in the rescue effort that was undertaken in the last week, ultimately declaring that Silicon Valley Bank posed a “systemic” threat to the economy. That determination opened the door to the Federal Reserve and the Federal Deposit Insurance Corporation guaranteeing the uninsured deposits at the failing banks.

Her testimony came as she was working behind the scenes to broker a rescue of First Republic bank, which saw its shares plummet this week amid concerns that it could fail, by coordinating a $30 billion infusion from other financial institutions. Ahead of the hearing, Ms. Yellen spoke to regulators and top bank executives to finalize the deal that she devised on Tuesday and that was executed with the assistance of Jamie Dimon, the chief executive of J.P. Morgan, according to a person familiar with the conversation.

On Thursday, Ms. Yellen explained why the federal government intervened over the weekend, saying that because of the nature of the run on Silicon Valley Bank, she and other regulators feared that the unease could spread and cause other banks to face similar outflows of cash.

Despite those actions, Ms. Yellen said that the United States was not taking a step in the direction of nationalizing the banking system. Although there have been suggestions that all of the nation’s deposits are effectively being insured — rather than just those up to $250,000 — the Treasury secretary made clear that any such guarantees would have to be approved by federal regulators and the Biden administration.

For now, it remains to be seen whether the response will calm the upheaval. Data released by the Fed on Thursday suggested that its new lending program is getting some use in its early days: Banks had borrowed $11.9 billion from it as of yesterday. But banks borrowed far more heavily at the discount window — the Fed’s more traditional lending tool — amid last week’s tumult, tapping it for about $153 billion.

The banks’ collapse of the banks and the ensuing market turmoil have led to finger pointing over whether a recent rollback of some of post-crisis financial regulations contributed to the failures. Ms. Yellen said that the nation’s regulatory framework should be reviewed to determine what happened, but her first priority is restoring confidence in the banking system.

Senate Republicans on Thursday largely shied away from criticizing the rescue and instead sought to blame the administration for the troubles that plagued the banks. They argued that Mr. Biden’s spending policies fueled inflation and created the need for the Fed to rapidly raise interest rates. That, they argued, destabilized Silicon Valley Bank by causing the value of its long-dated Treasury bonds and mortgage bonds to be eroded.

“The Biden administration’s handling of the economy contributed to these bank failures,” said Senator Tim Scott, Republican of South Carolina. “The president’s budget is further evidence of reckless tax and spending that will only exacerbate the highest inflation we’ve seen in 40 years.”

Other Republican senators pressed Ms. Yellen about the additional fees that small banks might face as a result of the F.D.I.C. using its funds to backstop Silicon Valley Bank. The Biden administration has insisted that its actions did not constitute a bailout because the money was coming from bank fees rather than taxpayers.

In pointed response to Senator James Lankford, a Republican from Oklahoma, Ms. Yellen said that the fallout for banks in his state would have been far worse if the federal government did not act.

“If we had a collapse of the banking system and its economic consequences, that will have very severe effects on banks in Oklahoma,” Ms. Yellen said.

The turmoil in the banking sector comes as Democrats and Republicans have been grappling with how to raise the nation’s statutory borrowing cap. The $31.4 debt limit was breached earlier this year, forcing the Treasury Department to use accounting maneuvers known as extraordinary measures to delay a default.

The Treasury secretary indicated that the current volatility in financial markets is a small taste of what would come if the United States fails to pay its bills on time. She described such a scenario as “beyond contemplation" and warned that it could lead to more runs on American banks.

Ms. Yellen called for a re-examination of bank rules and supervision to “make sure they are appropriate to address the risks that banks face.” However, she suggested that regardless of current regulations, banks can be at risk.

“No matter how strong capital and liquidity supervision are, if a bank has an overwhelming run that’s spurred by social media so that it’s seeing deposits flee at that pace, a bank can be put in danger of failing,” Ms. Yellen said.

Although Ms. Yellen expressed confidence about the banking system’s resilience, she made clear that she is watching for new signs of weakness.

If banks are under stress and concerned about their liquidity, she said, they might become reluctant to lend and make credit more expensive. Ms. Yellen said she is monitoring loan officer surveys for indications of a potential credit crunch.

“That could turn this into a source of significant downside risk,” Ms. Yellen said.

Following the hearing, which ended around 1 p.m., Ms. Yellen returned to her office at the Treasury Department. She was met with Mr. Dimon, where they discussed the last details of the First Republic deal before it was publicly announced.

“Even if the banking sector problems are quickly brought under control, however, there could be a hit to business and consumer confidence, which remain fragile worldwide,” he said.

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Stocks rally as First Republic receives a rescue.

First Republic’s stock price swung from a deep loss to a gain of more than 10 percent, a swift recovery but one that erased only a small amount of the damage from a bruising week. Even after the rally on Thursday, First Republic has lost more than 70 percent of its market value this month, wiping roughly $16 billion from its valuation.

A slew of other small banks, like Western Alliance and PacWest, were also lifted by the news of the intervention.

Despite the broad rally on Thursday, the destabilizing volatility this week has investors braced for further stress in the financial system, stemming from the substantial shift away from a decade of low interest rates. Goldman Sachs, for example, has raised its odds that the U.S. economy could slip into recession over the next 12 months, “reflecting increased near-term uncertainty around the economic effects of small bank stress.”

Seema Shah, the chief global strategist at Principal Asset Management, said the recent bout of turmoil had served as a warning. “Until this week, markets had broadly ignored the threats that tightening policy was starting to uncover,” she said.

The broader recovery in the market on Thursday also lifted shares of energy companies, which had come under pressure following a swift slide in the price of oil on Wednesday. Oil prices, which are sensitive to the prospect of a global downturn sapping demand for the commodity, also rose slightly, but a barrel of West Texas Intermediate crude, the American benchmark, remained close to its lowest level since the end of 2021.

Broader markets had appeared more settled even before the news of the First Republic rescue. The S&P 500 remains up for the year and is on course to close out its second-best week of 2023, absent another reversal on Friday.

Investors had largely shrugged off a 0.5 percentage point rate increase from the European Central Bank, taking solace from a rebound in the share price of Credit Suisse, the embattled European bank, after it said it would tap a lifeline from the Swiss central bank and borrow up to $54 billion.

The Stoxx 600 index, which tracks shares of the biggest companies in Europe, finished 1.2 percent higher, and shares of Credit Suisse jumped almost 20 percent, recovering some of the steep loss from the day before that stoked fear about the lender’s financial health.

Central banks have been raising interest rates to try to rein in inflation, but higher rates also mean higher costs for companies, contributing to the pain experienced by some banks in recent days.

Policymakers must now balance the desire to continue slowing inflation with the potential for it to risk further instability in financial markets. Analysts noted that the E.C.B.’s decision took on heightened importance ahead of the Federal Reserve’s meeting next week, and yields on U.S. government bonds rose, as investors leaned toward bets that the Fed would follow the E.C.B. in raising its benchmark rate next week.

Still, traders in futures markets continued to bet that the Fed will cut interest rates later this year as inflation continues to fall and the economy continues to deteriorate, even though the central bank and its chair, Jerome H. Powell, have so far said that there are no plans to do so.

“The balance of risks has undoubtedly shifted,” noted Daleep Singh, the chief global economist at PGIM Fixed Income. “The risks from too much tightening are now at least equal to, and likely larger than, the risks of doing too little. We expect Fed Chair Powell to pair a final rate hike next week with a message that Fed policy will then go on an extended pause, with the possibility of resuming rate hikes later — or initiating rate cuts — in the second half of the year.”

Jin Yu Young and Vivek Shankar contributed reporting.

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My colleague Jason Karaian and I have recently written about the global push to keep profit margins from shrinking in a higher-rate world, here.

It’s worth noting that her concern that services prices are still climbing too quickly is very much shared across the Atlantic: similarly stubborn service price increases are a big worry in the United States.

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First Republic is said to be exploring a potential sale.

Ms. Yellen believed that such a move by the private sector would underscore confidence in the health of banks. Mr. Dimon, whose bank saved several rivals during the 2008 financial crisis, was on board.

In 48 hours, the deal was done.

The arrangement was without precedent in decades, and an indication of how dire the banking sector’s predicament had become within a week. With its echoes of the 2008 financial crisis, the collapses of Silicon Valley Bank on Friday and Signature Bank on Sunday sparked a panic that appears unlikely to subside immediately.

The four banks that put the most money into the effort — JPMorgan Chase, Bank of America, Wells Fargo and Citigroup — said in a joint statement that the action “demonstrates their overall commitment to helping banks serve their customers and communities.”

The four banks will each deposit $5 billion. Goldman Sachs and Morgan Stanley are putting in $2.5 billion each. PNC Financial, Truist, BNY Mellon, State Street and U.S. Bank are each depositing $1 billion.

Shares of First Republic, which had lost three-quarters of their value in recent days, rallied on the announcement, which was made during market hours. But numerous other bank stocks, mainly those of small and regional banks, continued to be pummeled. The banking sector has also been under pressure from Credit Suisse, which was fighting for its life before Switzerland’s central bank stepped in to provide a backstop early Thursday.

Before Thursday’s announcement, First Republic had hired advisers to explore options to save the bank, including a possible sale to a larger rival or a rescue that could include a quick injection of cash to ensure that it had enough to pay out customer withdrawals.

The lender had also tried to shore up its finances last weekend with up to $70 billion in emergency loans from the Federal Reserve and JPMorgan.

As recently as Monday, James H. Herbert II, the chairman of First Republic, told CNBC that the bank was not seeing an unusual number of depositors flee. On Thursday, however, the bank admitted in a news release that it had been suffering daily deposit outflows. It didn’t specify a figure or a time frame, and said the pace was “slowing considerably.”

Mr. Herbert and the chief executive, Mike Roffler, signed a statement calling the rescue from the larger banks “a vote of confidence for First Republic and the entire U.S. banking system.”

Founded in 1985, First Republic was owned by Merrill Lynch for a brief period in 2007 but was spun off after another firm absorbed Merrill during the 2008 financial crisis. The bank offers money management services to wealthy clients and is a big player in mortgages. Its customer deposits totaled $176 billion in January, up from $90 billion just three years ago.

The bank’s troubles started roughly a week ago when Silicon Valley Bank teetered. First Republic attracted particular scrutiny from worried investors because of its high number of wealthy clients, whose deposits were not insured by the Federal Deposit Insurance Corporation in the event of a bank failure. The F.D.I.C. insures customer deposits up to $250,000.

The bank’s large book of real estate loans was also a concern. Many analysts suggested that First Republic didn’t have enough assets that it could liquidate easily to cover deposit withdrawals should there be a run on the bank. As major ratings agencies downgraded the bank’s credit, there were fears that it, too, would topple.

On Tuesday, Ms. Yellen brought up the idea of involving the private sector during a call with Jerome H. Powell, the Fed chair; Martin Gruenberg, the chair of the F.D.I.C.; and Michael Barr, the Fed’s vice chair for supervision, a person familiar with discussions said.

Shortly afterward, Ms. Yellen proposed the idea to Mr. Dimon. Although he had been bruised by JPMorgan’s fraught takeover of Washington Mutual when it collapsed during the 2008 financial crisis, he agreed, according to people with knowledge of the discussions.

The nation’s largest bank, JPMorgan had already been working with First Republic, extending it a line of credit earlier in the week, so it had more at stake than some competitors. Mr. Dimon began wrangling bank executives in private calls, while Ms. Yellen called other business leaders and regulators, some of the people said.

Some top executives at other banks initially resisted the plan. Some of them asked why they should bail out First Republic when they hadn’t done so for Silicon Valley Bank and Signature Bank. Others thought that the F.D.I.C. should take over the struggling bank, or didn’t agree that there was an acute risk to the financial system.

Things remained in flux through Wednesday. By that night, the banks, advised by the law firm Davis Polk, had agreed to commit up to $24 billion. But Mr. Dimon kept working the phones, calling small banks to see if they would pitch in, the people with knowledge of the discussions said.

When First Republic’s stock plunged 36 percent after the market opened on Thursday, the holdouts quickly agreed to participate. That brought the commitments up to $30 billion.

The hope was that the new funding would stem a run on First Republic, and ensure that any depositors who wanted to withdraw money could do so seamlessly. There’s also the chance of a small profit: First Republic will pay the banks interest at market rates.

On Thursday morning, Ms. Yellen — before she was scheduled to testify before the Senate Finance Committee — convened a call with regulators and bank chief executives. Once the hearing ended, Mr. Dimon met Ms. Yellen in her office to finish the deal ahead of the banks’ joint statement.

Since the announcement, banks that were not part of the group of 11 have asked if they can join, a person with knowledge of the deal said. There’s a perception that being in the group “identifies you as one of the strong banks,” the person said.

Stacy Cowley and Jeanna Smialek contributed reporting.

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Lagarde also gives a shoutout to the ECB staff, who are presumably hustling right now in response to the Credit Suisse situation.

This is the problem that is going to be facing all of the big central banks in the coming weeks. In case this bank turmoil blows over, they don’t want to signal that they’re done with fighting inflation. If it turns into a full-blown financial crisis, they may well have to reassess. But it’s just too early to know.

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U.S. regional banks like First Republic remain a source of worry.

Shares of First Republic Bank, whose credit rating was downgraded on Tuesday because of fears it could suffer the same fate as Silicon Valley Bank, fell more than 20 percent in premarket trading. It set up the San Francisco-based bank for a fifth double-digit-percentage decline in six trading days.

The steep decline in market value has raised the possibility of the bank’s takeover, and “any potential sale would likely be a tough outcome for existing shareholders,” analysts at Keefe, Bruyette & Woods wrote in a research note.

Other regional banks saw their shares slide in premarket trading on Thursday: PacWest Bancorp and East West Bancorp both dropped over 10 percent. By contrast, the biggest banks, like JPMorgan Chase and Bank of America, were set to post small gains when markets open.

The turmoil was set in motion by the collapse on Friday of Silicon Valley Bank, a 40-year-old institution based in Santa Clara, Calif. The bank’s failure was the second-largest in U.S. history, and the largest since the financial crisis of 2008.

On Sunday, regulators shut down Signature Bank, a New York financial institution with a big real estate lending business, worried that a bank run could spread and threaten the stability of the entire financial system.

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Yellen Says U.S. Banking System ‘Remains Sound’ Amid Market Turmoil

On Sunday, the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation announced that they would make sure that all depositors at Silicon Valley Bank and Signature Bank, which regulators also seized, were repaid in full.

In an attempt to forestall a broader liquidity crisis, the Fed also announced on Sunday that it would offer loans to banks and accept their Treasury securities and other holdings as collateral, even if rising interest rates had impaired the value of those assets.

“I can reassure the members of the committee that our banking system remains sound and that Americans can feel confident that their deposits will be there when they need them,” Ms. Yellen said in prepared remarks. “This week’s actions demonstrate our resolute commitment to ensure that depositors’ savings remain safe.”

The bank’s failure has prompted questions about why federal regulators failed to spot risks at Silicon Valley Bank, which grew rapidly and took on a large number of depositors from the tech industry. And the government’s rescue has fueled accusations that the Biden administration is bailing out rich investors.

Ms. Yellen said the rescue was intended to make sure that bank customers could access their money, pay bills and make payroll. She noted that shareholders and debt holders were not protected from losses.

“Importantly, no taxpayer money is being used or put at risk with this action,” Ms. Yellen said, adding that the money being used to repay depositors came from fees imposed on banks.

The Treasury secretary described the Federal Reserve’s lending facility as an effort to provide additional support to the banking system and “help financial institutions meet the needs of all of their depositors.”

Officials continue to worry about volatility in the banking sector around the world. On Wednesday, the large Swiss bank Credit Suisse was fighting for its life amid investors’ concern that it could run out of money.

Treasury officials were monitoring the situation on Wednesday in coordination with their global counterparts.

The European Central Bank sticks to its plan with a half-percent rate increase.

Policymakers were “monitoring current market tensions closely,” Christine Lagarde, the president of the bank, said in a news conference on Thursday. The bank “stands ready to respond as necessary to preserve price stability and financial stability in the euro area,” she added.

Despite the added uncertainty, policymakers did not divert from the half-percentage-point rate increase that they first said in early Februarywas coming. The bank said it would raise its deposit rate to 3 percent on Thursday, the highest since October 2008.

“Inflation is projected to remain too high for too long,” Ms. Lagarde said, adding that the move was needed to ensure the “timely” return of inflation to the bank’s 2 percent target. The bank’s staff hasforecast that inflation will average 5.3 percent this year and still be slightly above the 2 percent target in 2025.

What follows in coming monthsis less clear. If the bank’s economic forecastsplay out after the current market uncertainty subsides, Ms. Lagarde said, policymakers still have “a lot more ground to cover” on tightening monetary policy. But that’s a big if.

And that wasa sharp change from the past few months, when the central bank had been lighting the way ahead for investors, committing to its next interest rate movein advance.

The data used to make the projections were final at the beginning of March, before the recent market turmoil, so policymakers were faced with even higher levels of uncertainty in their decision-making, Ms. Lagarde said.

There was “a degree of uncertainty that pre-existed, but that has certainly been amplified by the most recent financial tensions that we have observed in the last few days,” Ms. Lagarde said. “It’s obviously difficult for a group of 26 members of the Governing Council to come to a decision in the face of” incoming the economic and financial data, she added.

“We were certainly confident that this 50-basis-points rate increase was a robust decision considering the ground that needs to be covered,” she said, but later noted a few policymakers wanted more time to see how the situation unfolded.

As financial markets convulsed this week, traders reduced their bets on how high major central banks will raise interest rates this year amid the fallout of the collapse of the California-based Silicon Valley Bank and worries about Credit Suisse. Analysts have started to speculate that the U.S. Federal Reserve won’t be able to proceed as expected with higher interest rates as markets remain jittery about the health of many banks, particularly U.S. regional ones, and their ability to withstand higher rates.

The Fed and the Bank of England are both scheduled to meet next week to set interest rates.

The eurozone has little direct exposure to Silicon Valley Bank, but banking worries got much closer to home on Wednesday when Credit Suisse’s share price plunged to a record low after the Swiss bank said it found “material weakness” in its financial reporting controls, and its largest shareholder balked at injecting more funds for regulatory reasons.

Early on Thursday, Credit Suisse said it would borrow up to 50 billion Swiss francs, or about $54 billion, from Switzerland’s central bank and buy back some of its debt. Hours later, shares in Credit Suisse jumped when trading began and ended the day nearly 20 percent higher.

The European Central Bank stressed on Thursday that it had tools to protect financial stability in the region but said the banking system was “resilient, with strong capital and liquidity positions.”

It also highlighted a new tool, the transmission protection instrument, which was created in the summer and could be used to counter “unwarranted, disorderly market dynamics” that threatened the central bank’s ability to carry out its monetary policy decisions.

The central bank is “combating the two problems of price stability and financial stability with two separate instruments in order to avoid a conflict of objectives,” Jörg Krämer, the chief economist at Commerzbank, wrote in a note. He added there were good reasons for this because “the deep-seated inflation problem has not changed so far.”

He expects the bank to raise rates a quarter-point at each of its next two meetings, taking the deposit rate to 3.5 percent, lower than a previous prediction of 4 percent. The market turmoil could “dampen bank lending — and thus growth and ultimately inflation,” Mr. Krämer added.

Ms. Lagarde emphasized that future rate decisions would be “data dependent,” which included financial data. The bank would be particularly alert to lendingto households and companies, and if restrictions appear and the extent of tightening of financial conditions on the economy.

Last month, policymakers at the E.C.B. said they expected to raise rates by half a point at this week’s meeting because they were committed to stamping out persistent inflationary pressures even as the inflation rate appeared to have peaked. Consumer prices in the 20 countries that use the euro as their currency rose at an annual rate of 8.5 percent in February, down slightly from January, and down from a peak of 10.6 percent in October.

Beyond the headline rate of inflation for the eurozone as a whole, the details were more concerning to some policymakers. Some major economies, including France and Spain, were reporting higher inflation. Core inflation, which strips out volatile energy and food prices and is used to measure how embedded inflation is in an economy, also rose last month.

Lower wholesale energy prices in Europe will help push inflation toward the central bank’s 2 percent target. But policymakers are focused on so-called underlying inflation, which will show whether inflationary pressures are still building and making it hard to meet the inflation target on a sustainable basis. Measures such as wage inflation and services inflation are being watched closely, and current underlying inflation trends don’t confirm that inflation is heading toward thetarget.

On inflation, “we are seeing some slight improvement in certain areas but frankly not a lot,” Ms. Lagarde said.

While markets remain jittery and the extent of the impact on the banking sector is still unknown, there is a risk that central banks could appear sidetracked from goals in bringing down inflation, having spent months warning that high prices could be more persistent than expected.

But Ms. Lagarde tried to push back against suggestions that the European Central Bank would declare victory on the fight against inflation prematurely. “We are not waning on our commitment to fight inflation,” she said. “ That should not be doubted. The determination is intact.”

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Stocks drop again as worry about regional banks continues.

First Republic, a regional lender that has come into investors’ cross-hairs, lost a third of its value in early morning trading, on course to record its fifth double-digit percentage decline in six days. PacWest and East West Bancorp also suffered steep drops.

Energy stocks have also come under pressure following a swift slide in the price of oil on Wednesday, which is sensitive to the prospect of a global downturn sapping demand for the commodity.

However, broader markets appeared more settled, largely shrugging off a 0.5 percentage point rate increase from the European Central Bank, and taking solace from a rebound in the share price of Credit Suisse, the embattled European bank, after it said it would tap a lifeline from the Swiss central bank and borrow up to $54 billion dollars.

Shares of Credit Suisse jumped more than 20 percent, recovering some of the steep loss from the day before that stoked fear about the lender’s financial health. Other banks in the region, which were also hit hard yesterday, regained some ground, with BNP Paribas, Barclays, Deutsche Bank, Société Générale and others posting small gains.

The E.C.B. stuck to earlier plans to raise interest rates by half a percentage point despite investors expecting the central bank to flinch in the face of sustained pressure on banks on both sides of the Atlantic over the past week.

Central banks have been raising interest rates to try to rein in inflation, but higher rates also mean higher costs for companies, contributing to the pain experienced by some banks in recent days. Central bankers must now balance the desire to continue slowing inflation with the potential for it to risk further instability in financial markets.

“With the emergence of companies and financial institutions unable to withstand the rapid rise in interest rates, the E.C.B. now faces the same situation confronting U.S. authorities, and must choose between tackling inflation and stabilizing the financial system,” Yunosuke Ikeda, an analyst at Nomura, a Japanese bank, wrote in a report on Thursday.

The Stoxx 600 index, which tracks shares of the biggest companies in Europe, slipped 0.2 percent, having traded up as much as 1.4 percent earlier in the day.

The issues plaguing Silicon Valley Bank and Credit Suisse, which has been reeling from years of mismanagement, are very different. Their struggles, though, have raised fears that there are more unseen risks in the financial industry.

Government bond yields, which tumbled on Wednesday as investors sought safety amid volatility, were little changed, with traders continuing to bet that the Federal Reserve would cut interest rates later this year.

The E.C.B.’s decision today will set the tone for the Fed meeting next week, said analysts at BMO Capital Markets.

“As a barometer of central bank angst regarding the banking struggles, Lagarde’s decision and messaging will set the tone for U.S. rates in the very near term,” noted the analysts.

Jin Yu Young and Vivek Shankar contributed reporting.

Credit Suisse says it will borrow about $54 billion from the Swiss central bank.

Credit Suisse, a 166-year-old institution, ended Wednesday fighting for its life. Its shares tumbled 24 percent on the SIX Swiss Exchange, hitting a new low, and the price of its bonds dropped sharply as well. The cost of financial contracts that insure against a default by the bank spiked to their highest levels on record.

After European markets closed on Wednesday, the Swiss National Bank and Finma, the country’s financial regulator, issued a joint statement certifying Credit Suisse’s financial health and saying the central bank would backstop the bank if needed. Hours later, Credit Suisse said it planned to borrow 50 billion Swiss francs from the Swiss National Bank.

The immediate catalyst for a perilous drop in the bank’s stock price was a comment by Ammar al-Khudairy, the chairman of the Saudi National Bank, which is the bank’s largest shareholder. In a televised interview with Bloomberg News, Mr. al-Khudairy said that the state-owned bank would not put more money into Credit Suisse.

Credit Suisse has been battered by years of mistakes and controversies that have cost it two chief executives over three years. These include huge trading losses tied to the implosions of the investment firm Archegos and the lender Greensill Capital; they also include an array of scandals, from involvement in money laundering to spying on former employees.

The firm has embarked on a sweeping turnaround plan, which includes thousands of layoffs and the spinoff of its Wall Street investment bank. But investors have questioned whether continuing losses and client departures — the firm lost about $147 billion worth of customer deposits in the last three months of 2022 — have endangered that effort.