US authorities have reached out to several financial institutions asking them to make bids on the assets of troubled First Republic Bank, a source familiar with the matter said.
First Republic has been under heavy pressure after the bankruptcies in early March of fellow regional banks Silicon Valley Bank (SVB) and Signature Bank sparked fears of contagion.
However, First Republic has failed to come up with a workable rescue plan and on Monday last week it disclosed that it had lost more than US$100 billion in deposits in the first quarter, causing its shares to plummet.
Photo: Bloomberg
The federal government finally stepped in with the Federal Deposit Insurance Corp (FDIC), an agency in charge of guaranteeing bank deposits, and the US Department of the Treasury approaching six banks last week to gauge their interest in buying First Republic assets, according to the source, who spoke on condition of anonymity.
The person said four of those six were likely to submit bids.
Several US news outlets reported that the FDIC would initially take control of First Republic as part of the rescue plan. The agency would then quickly sell some or all of the bank’s assets to another institution.
If the deal goes through, it could be announced early today to placate First Republic customers, CNBC reported.
With its assets standing at US$233 billion at the end of March, First Republic would be the second-largest bank to fall in US history — excluding investment banks such as Lehman Brothers Holdings Inc — after Washington Mutual Inc’s bankruptcy in 2008.
Meanwhile, the US Federal Reserve called for greater banking oversight while admitting to its own failures in a widely anticipated report published on Friday into the collapse of SVB.
“Following Silicon Valley Bank’s failure, we must strengthen the Federal Reserve’s supervision and regulation based on what we have learned,” Fed Vice Chair for Supervision Michael Barr wrote in a statement accompanying the report.
SVB’s management failed to adequately manage risk prior to the bank’s swift collapse, while Fed supervisors “failed to take forceful enough action” after identifying issues at the California-based high-tech lender, he said.
Barr’s report said that the Fed “did not appreciate the seriousness of critical deficiencies in the firm’s governance, liquidity, and interest rate risk management,” as SVB’s assets more than doubled in size from 2019 to 2021 in the middle of a high-tech boom.
Barr said the Fed would look at strengthening banking supervision to ensure it can more quickly identify risks and vulnerabilities such as those that arose at SVB.
The Fed would also strengthen the regulatory framework for banks, and consider toughening the rules around interest rate risk, liquidity and capital requirements, and stress testing.
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