First Republic’s Future: Bank Rescue or FDIC receivership?

First Republic’s Future: Bank Rescue or FDIC receivership?

According to multiple media outlets, unnamed sources have reported that officials in the U.S. are working with financial firms to create a bank rescue solution for embattled First Republic Bank. Sources say that First Republic Bank could be taken into receivership by the FDIC if no private sector solution can be secured.

Reuters reported Friday that agencies like the Federal Reserve, Treasury Department, and the Federal Deposit Insurance Corporation are all involved in the effort to find a private sector solution that can prevent a First Republic collapse. Other recent reports suggest that there are no current plans for direct government intervention that could lead to a bailout of the bank.

A tumultuous week

First Republic became the focus of intense scrutiny this week, after the bank’s latest earnings report was released. That report confirmed that the bank’s deposits plummeted by 41% in the first three months of the year. Reports indicate that the firm’s wealthy customers were largely responsible for the deposit flight. In addition, around two-thirds of the bank’s deposits on hand in March were not insured by the FDIC.

First Republic CEO Michael Roffler offered assurances that the company’s available liquidity was double the amount of its uninsured deposits. Nevertheless, investors quickly began a massive sell-off of First Republic stock. Share prices plunged to record lows on Tuesday, as investors feared the bank could be on the verge of collapse.

Another private sector-fueled bank rescue?

Reuters’ sources claim that officials in the U.S. government would prefer to see the private sector succeed in a bank rescue for First Republic than have it go into receivership. The parties will need to overcome some major obstacles if such a solution is to be found. And the sources have apparently confirmed that none of the best options have garnered much support at this time.

Those options could include asset sales or moves to separate the bank’s problematic assets. A deal would also likely need to include protections to cover losses for First Republic or prospective buyers.

In the end, none of that may matter if the bank ultimately ends up in FDIC receivership. As of Friday afternoon, that outcome is rumored to be likelier than any successful bank rescue. The FDIC will assume any losses that cannot be mitigated through asset sales if the latter option occurs.

First Republic Bank shares are down roughly 97% since the beginning of 2023.

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