First Republic Bank’s possible takeover by the US government would completely transform the financial sector. According to a person who asked to remain anonymous and was cited by Reuters, the Federal Reserve and Treasury Department are in urgent discussions to salvage the bank. The Federal Deposit Insurance Corporation (FDIC) reportedly plans to place the struggling lender under receivership shortly.
First Republic Bank was thrown into crisis following the collapse of Silicon Valley Bank. The bank’s earnings report revealed that customers withdrew $102 billion in deposits, leaving the lender in difficulty. The bank had been struggling for some time, and the collapse of Silicon Valley Bank was the last straw.
Earlier in the week, three scenarios seemed possible. A buyer could purchase the bank or as much as $100 billion of its assets at a premium. The large lenders that provided a $30 billion lifeline in March could provide additional assistance. The FDIC could take the First Republic into receivership. It appears that the US Government has decided on the latter option.
If the US Government takes over First Republic Bank, it would shock the banking system. The FDIC has not taken over a bank since the 2008 financial crisis, and the move would send shockwaves through the industry. It would also be a clear signal that the US Government is prepared to take action to prevent another financial crisis.
What will happen after that is uncertain, although the US government will probably act fast to stabilize the bank. Another bank or financial institution could acquire First Republic Bank via the FDIC’s authority to seize control of a bank and sell its assets. As an alternative, the US government can opt to reorganize the bank and maintain its influence over it.