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. After the latest plunge, the US Federal Deposit Insurance Corporation (FDIC) is preparing to place First Republic under receivership imminently, a person familiar with the matter was quoted as saying by Reuters on Friday.
The US banking regulator has decided that the troubled regional lender’s position has deteriorated and there is no more time to pursue a rescue through the private sector, a source cited by Reuters states.
According to the people briefed on the matter, the First Republic Bank and its advisers were preparing to launch a private-sector solution amid the likelihood of the bank being taken over by the Federal Deposit Insurance Corporation [FDIC].
But the First Republic’s proposal reportedly fell short of winning over both the private-sector US banks and the officials in Biden administration, Financial Times reported.
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?
Earlier, reports said that the Biden administration was 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.
But the latest developments suggest otherwise. After Friday’s fall at the Wall Street, the First Republic Bank may soon get taken over by the FDIC.
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Some 11 of the largest US lenders have pumped about $30 billion into First Republic Bank in an effort to stabilise it. But the bank could not attain stability despite tens of billions pumped to revive its financial health.
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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First Republic Bank loses $100 billion in deposits
A report in the Financial Times said 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
First Republic’s takeover by the Federal Deposit Insurance Corporation [FDIC] now appears to be imminent.
The Financial Times reported that one proposal floated for the First Republic’s stabilisation was for a group of banks to buy some of First Republic’s older assets at prices above their market value. That would have cleared some of its losses while the buyers could hold assets to maturity while avoiding to take a hit themselves.
But the latest developments suggest that the window for implementation of such proposals has closed as the First Republic may soon get taken over by the
Federal Deposit Insurance Corporation.