(Bloomberg) — U.S. authorities are considering expanding banks’ emergency lending facilities in ways that would give First Republic Bank more time to shore up its balance sheet, according to people familiar with the situation.
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Officials have yet to decide what, if any, support they can provide First Republic, and expanding the Fed’s offering is one of many options being evaluated at this early stage. Regulators are still grappling with two other failed lenders — Silicon Valley Bank and Signature Bank — that require more immediate attention.
Even after the move, the people, who asked not to be named discussing confidential talks, said observers see First Republic as stable enough to operate without any immediate involvement as the company and its advisors try to strike a deal to shore up its balance sheet. .
First Republic stock is down more than 90% this month on concerns that the San Francisco-based lender could fall victim to the same forces that recently caused the collapse of three US banks. But while those banks were ousted when rapid customer withdrawals forced them to take losses on depreciated assets, First Republic remained open and independent.
US officials have been keeping a close eye on the company’s health and progress — with the goal of remaining vigilant in case the situation changes unexpectedly.
Behind the scenes, they concluded, the bank’s deposits are stabilizing and it’s not vulnerable to the kind of sudden and severe stampede that prompted regulators to take over the Silicon Valley bank in a matter of days, the people said.
Although First Republic has structural problems with its balance sheet, it has the cash to meet customer needs as it explores solutions, the people said. This includes $30 billion deposited by the country’s largest banks this month.
Representatives for the Federal Reserve, the Federal Insurance Corporation (FDIC) and the First Republic declined to comment. There was no immediate comment from the Treasury Department.
A potential modification to the Fed’s emergency lending program announced on March 13 is among the options authorities have considered in recent days, according to people familiar with the deliberations.
Any expansion of the Fed’s liquidity offerings would apply to all eligible users, in line with banking law that says remedies must be broad, rather than aimed at helping a specific bank. But people said the change could be done in a way that would ensure that the First Republic would benefit.
– With assistance from Christopher Condon.
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