First Republic Bank’s shares plunged nearly 40 per cent on Friday as the California-based bank closed on to yet another week of the loss of the financial heft it once bossed over.
According to the people briefed on the matter, the First Republic Bank and its advisers have been preparing to launch a private-sector solution amid the likelihood of the bank being taken over by the Federal Deposit Insurance Corporation [FDIC], Financial Times reported.
However, so far, the proposal reportedly falls short of winning over both the private-sector US banks and the officials in Biden administration, the report added.
The bank is now “engaged in discussions with multiple parties about [its] strategic options while continuing to serve [its] clients.”
Will Biden administration take over the First Republic Bank?
Reports say that the Biden administration is looking to avoid another FDIC takeover, weeks after it took over Silicon Valley Bank. This is because frequent takeovers of crisis-ridden banks may lead to a chain reaction of crises within the financial institutions with unhinged balance sheets.
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At the same time, 11 of the largest US lenders have pumped about $30 billion into First Republic Bank in an effort to stabilise it.
First Republic Bank crisis: How bad is the situation?
The First Republic Bank’s shares have fallen 97 per cent this year. Earlier this week, on Monday, the bank revealed that it went through more than $100bn in deposit outflows in the first quarter of 2023.
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A report in the Financial Times says that the bank may face more hits to its prospects of profitability due to rising interest rates that have hammered the paper value of its mortgage book.
First Republic Bank crisis: The options forward
While the takeover by the Federal Deposit Insurance Corporation [FDIC] is not imminent, as yet, a prolonged disarray in the bank’s mortgage-asset disbalance may not keep it so in the immediate future.
Financial Times reported that one proposal floated for the First Republic’s stabilisation is for a group of banks to buy some of First Republic’s older assets at prices above their market value. That would clear some of its losses while the buyers could hold assets to maturity and avoid taking a hit themselves.
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