As the California-based bank ended yet another week of losing the financial heft it once controlled, shares of First Republic Bank fell by close to 40% on Friday. According to a person familiar with the situation, the US Federal Deposit Insurance Corporation (FDIC) is getting ready to put First Republic under receivership soon following the most recent decline, according to Reuters on Friday.
According to a source cited by Reuters, the US banking regulator has determined that there is no longer time to attempt a private sector rescue of the ailing regional institution because of the way its situation has deteriorated.
The First Republic Bank and its advisers were getting ready to start a private-sector solution, according to the sources briefed on the situation, in anticipation of the bank being taken over by the Federal Deposit Insurance Corporation [FDIC].
However, according to the Financial Times, the First Republic’s proposal was unsuccessful in gaining support from both US banks in the private sector and from Biden administration officials.
The bank is currently “engaged in discussions with multiple parties about [its] strategic options while continuing to serve [its] clients.”
FDIC may soon take over the First Republic Bank
A few weeks after the FDIC acquired Silicon Valley Bank, reports earlier this year claimed that the Biden administration was attempting to prevent another takeover. This is due to the possibility that repeated takeovers of financially troubled banks could trigger a series of crises inside financial institutions with unstable balance sheets.
However, recent events seem to indicate otherwise. Following Friday’s Wall Street collapse, the FDIC may soon take over the First Republic Bank.
About $30 billion has been invested in First Republic Bank by 11 of the biggest US lenders in an effort to stabilize it. However, despite spending tens of billions to restore the bank’s financial health, it was unable to achieve stability.
The bank may experience further setbacks
Shares of The First Republic Bank have decreased 97% so far this year. On Monday of this week, the bank said that it lost more than $100 billion in deposits during the first three months of 2023.
According to a Financial Times article, the bank may experience further setbacks to its chances of becoming profitable as a result of higher interest rates that have severely impacted the paper value of its mortgage portfolio.
It now seems likely that the Federal Deposit Insurance Corporation [FDIC] will acquire First Republic.
According to The Financial Times, one idea put out for the stabilization of First Republic was for a group of banks to purchase some of First Republic’s older assets at prices over their market value. That would have reduced some of its losses and allowed the buyers to hold assets until they were fully repaid without taking a financial hit themselves.