By
Godfrey Benjamin
April 22nd, 2024
In case of a scenario where the First Republic Bank fails, the FDIC will likely want to avoid systemic risk and offer insurance to all the bank’s depositors, even those not covered by insurance.
The banking crisis unfolds further, with the US officials trying to coordinate with the private sector to reach an agreement on the future of First Republic Bank (NYSE: FRC) which is under scrutiny as a result of a loss of almost $72 billion in deposits within three months. Currently, representatives of the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Treasury Department are running urgent talks to rescue First Republic Bank.
What Happened to First Republic Bank?
The events at San Francisco-based First Republic Bank followed the collapse of Silicon Valley Bank and Signature Bank. In the period from December 31, 2022, to March 31, 2023, First Republic Bank lost almost $72 billion in deposits. Major deposit outflows were followed by a number of credit rating downgrades, which led to the bank’s share price dropping by nearly 90% of its value over March. Besides, during the first quarter of this year, First Republic Bank reported revenue of $1.2 billion, down 13.4% compared to last year. The company’s diluted earnings per share for the quarter came in at $1.23, down about 39% in contrast with the first quarter of 2022.
Since January, the shares of First Republic Bank have lost as much as 95% of their value, a market loss of more than $21 billion. The New York Stock Exchange (NYSE) has even halted trading its stock a few times because of volatility.
There have been fears that First Republic Bank could have the same destiny as Silicon Valley Bank and Signature Bank. Therefore, rapid action from the government is expected.
US Government’s Response
Wall Street banks have been trying to find a solution for the First Republic Bank. Now, the private sector and the government need to coordinate in rescuing the San Francisco-based lender. According to one of the sources, the participation of the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury Department is fostering the involvement of more parties in the negotiations.
First Republic Bank said:
“We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients.”
The possible way out could be either selling the bank’s assets or the creation of a so-called “bad bank” that would isolate the underwater assets of First Republic Bank.
Meanwhile, another source noted that the bank’s executives are willing to find a solution that would avoid a takeover by the US regulators.
In case of a scenario where the First Republic Bank fails, the FDIC will likely want to avoid systemic risk and offer insurance to all the bank’s depositors, even those not covered by insurance. That will cost quite a lot and will be funded mostly by large banks that will bear tens of billions of dollars in losses.