The largest US banks have banded together to deposit $30bn into First Republic Bank in an attempt to bolster its finances and contain the fallout from the collapse of two big lenders in the past week.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5bn into First Republic, a California-based lender. Goldman Sachs and Morgan Stanley will put in $2.5bn apiece while BNY Mellon, PNC Bank, State Street, Truist and US Bank are depositing $1bn each.

“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a statement on Thursday.

But there is still some question as to whether the move will shore up investor confidence in First Republic, as well as the health of the banking sector in general. Shares of First Republic, after rebounding on Thursday, tumbled more than 20 per cent in after-hours trading.

The drop came after the bank announced it was suspending its dividend “during this period of uncertainty”. The bank also said it would look to shrink its borrowing, as well as the size and composition of its overall operations.

Hedge fund manager Bill Ackman wrote on Twitter that the co-ordinated action to bolster First Republic was a “fictional vote of confidence” and that “FRB default risk is now being spread to our largest banks”.

In a sign of broader stress in the banking sector, US lenders flocked to the Fed for support in the aftermath of SVB’s implosion, with the US central bank lending out $160bn during the week ending March 15 across its discount window and new emergency facility.

Data released by the Fed on Thursday showed usage for the discount window had swelled to a record high of $152.85bn, a surge of $148.3bn in the five days ending Wednesday. The terms of the facility were loosened as part of the emergency measures for banks announced on Sunday.

Lenders also borrowed $11.9bn from the Fed’s Bank Term Funding Program, a new scheme launched on Sunday. Separately, the central bank also disbursed $142.8bn to guarantee all deposits at SVB and Signature Bank.

Michael Feroli, chief US economist at JPMorgan, said the more than $300bn of loans extended by the Fed to financial institutions was “about half of what was being extended in the” great financial crisis of 2008.

“But it is still a big number,” he added. “The glass half-empty view is that banks need a lot of money. The glass half-full take is that the system is working as intended.”

JPMorgan, an adviser to First Republic, had been sounding out rival lenders about assembling an industry-backed solution for First Republic. The lender made calls on Wednesday night to several Wall Street banks to find funding, said two people familiar with the matter.

The banks had been encouraged by the government to help First Republic, after its shares plunged and its debt rating was downgraded following the failure of Silicon Valley Bank, said a person involved in the talks.

The lifeline for First Republic had echoes of the rescue of Long-Term Capital Management in 1998, when the New York Federal Reserve put together a $3.6bn bailout for the hedge fund with contributions from its major Wall Street creditors.

In a statement, US Treasury secretary Janet Yellen, Federal Reserve chair Jay Powell and senior regulators said: “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”

The Fed added that “as always . . . it stands ready to provide liquidity through the discount window to all eligible institutions”.

First Republic shares rose more than 10 per cent following the announcement. Its shares have fallen 64 per cent in the past week since the Federal Deposit Insurance Corporation stepped in to take over SVB, sparking fears that contagion would spread to other regional lenders.

To strengthen its financial position the bank took funding from the Fed and JPMorgan on Sunday, which gave it $70bn of unused liquidity, excluding funds available from the new federal Bank Term Funding Program.

First Republic has struggled to restore confidence among investors after the collapse of SVB on Friday, followed by Signature Bank on Sunday.

On Tuesday, Moody’s placed all its long-term ratings for First Republic on watch for a downgrade, saying they reflected the bank’s reliance on uninsured deposits and unrealised losses on held-to-maturity securities. Fitch and S&P Global slashed First Republic’s credit rating on Wednesday.

First Republic’s difficulties come despite reassurance from President Joe Biden that regulators would do “whatever is needed” to protect depositors and emergency funding measures from the US government to boost liquidity.