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Another U.S. bank verging on collapse, urgent rescue talks ongoing

U.S. officials are coordinating urgent talks to rescue First Republic Bank as private-sector efforts led by the bank’s advisers have yet to reach a deal, according to three sources familiar with the situation, Reuters reported.

The Federal Deposit Insurance Corporation (FDIC), the Treasury Department, and the Federal Reserve are among government bodies that have in recent days started to orchestrate meetings with financial companies about putting together a solution for the troubled lender, the sources said.

While the government has been in contact with First Republic and its advisers for weeks, its new involvement is helping bring more parties, including banks and private equity firms, to the negotiating table, one of the sources added.

Possible outcomes

It is unclear whether the U.S. government is considering participating in a private-sector rescue of First Republic. The government’s engagement, however, has emboldened First Republic executives as they scramble to put together a deal that would avoid a takeover by U.S. regulators, one of the sources said.

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United States officials believe that it would be better for a private-sector agreement to take place rather than the First Republic to be taken over by the FDIC, two of the sources said.

The deal structure that stands the best chance of rescuing the First Republic is a special-purpose vehicle that would carve out some of the lender’s assets for other banks to buy, two sources familiar with the discussions said.

Banks have been reluctant to purchase these assets at a market discount, and First Republic is hoping that U.S. officials can convince them to participate or provide some kind of government backstop for a deal, one of the sources said.

CNBC reported on Friday, citing sources, that the government talks are now focused on preparing to put First Republic into FDIC receivership, and that such an outcome was likely. In receivership, an FDIC fund would assume any losses incurred through taking over First
Republic’s underwater assets. The FDIC would then recoup those losses from all the banks contributing to its insurance scheme, without a hit on U.S. taxpayers.

First Republic crisis

In March, First Republic – a bank that grew rapidly by attracting wealthy clients – became the center of a banking crisis in the United States. This happened because wealthy clients started taking their money out of the bank, causing it to struggle.

First Republic shares have lost 95 percent of their value since the regional banking crisis started on March 8.

First Republic shares were trading down 50 percent to approximately USD 3.09 on Friday.

NOW: First Republic halted for volatility after sinking 50%

— Bloomberg (@business) April 28, 2023

Wall Street banks have been trying to find a solution for First Republic since 11 of the biggest U.S. lenders deposited USD 30 billion at the bank on March 16 to stanch a regional banking crisis that led to the failure of Silicon Valley Bank and Signature Bank.

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