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First Republic Bank Risks Downgrade, Curbed Access to Fed Lending

U.S. bank regulators are considering downgrading their private assessments of First Republic Bank, potentially limiting their access to Federal Reserve lending facilities. The Federal Deposit Insurance Corp. has been giving the bank time to reach a private deal to improve its financial situation.

First Republic Bank logo
First Republic Bank logo

FDIC Rating Downgrade Could Limit Fed Access

Suppose the bank's condition continues to worsen without a transaction. In that case, senior officials may downgrade its Camels rating, which would likely limit its use of the Fed's discount window and an emergency facility launched last month.

Decision Pending on First Republic Downgrade

The FDIC has yet to reach a decision and has not warned First Republic about the potential downgrade. If the bank can secure a deal with new backers to strengthen its finances, this could prevent the need for a lower rating.

First Republic Struggles to Find Financial Support

The bank has been struggling to find financial support for weeks. Raising capital or selling holdings quickly could negatively impact current shareholders. The stock lost half its remaining value on Tuesday after disappointing quarterly results and news of potential asset sales.

Conflicting Interests Hinder Private Rescue

Conflicting interests between U.S. officials and potential rescuer banks have complicated efforts to find a solution. Regulators prefer a private rescue that doesn't involve the U.S. seizing the bank, while banks want to avoid damaging their finances and are waiting for government aid.

Stock Price Falls Amid Potential Share Sale

First Republic's stock price fell by 41% on Wednesday after reports that potential buyers were lined up for new shares. This will only proceed if larger banks agree to buy bonds from the company for more than they're worth.


Fed to Deliver Report on Silicon Valley Bank Oversight

The FDIC's discussions about First Republic occur as the Fed prepares to deliver a report to Congress on its oversight of Silicon Valley Bank before its collapse last month. The Fed's vice chair for supervision, Michael Barr, has already acknowledged that supervisors could have done more.

Additional FDIC Staff was Sent to Monitor First Republic

The FDIC has sent additional staff to First Republic's San Francisco headquarters to help monitor its health. While the bank's fate is not seen as a systemic risk, authorities have stopped short of threatening to put the bank into receivership.

First Republic Faced Withdrawals During Banking Crisis

First Republic was among the banks that experienced waves of withdrawals during last month's regional-banking crisis. Wealthy customers and businesses removed their money over concerns that rising interest rates eroded lenders' assets' value.