U.S. authorities are reportedly considering "extending" the bank's emergency credit line, which could give First Republic Bank a time buffer to fix its balance sheet, according to people familiar with the matter.
A Bloomberg report on March 26, citing unnamed sources, said U.S. officials were considering what support "if any" could be offered to the First Republic; however, "expanding the Fed's issuance" was an option being explored one. First Republic was reportedly deemed "stable enough to operate" by the regulator without "immediate intervention" as the bank simultaneously worked to "strengthen its balance sheet".
While the Fed's liquidity provision would be expanded under banking laws that must be "broad-based" and not designed to benefit specific banks, the sources reportedly said, they also warned that the change could be "on a specific basis." "in a manner that secures the interests of First Republic Bank" within the scope.
While First Republic's balance sheet faces structural challenges, "the bank's deposits are stabilizing" and it's not at risk of experiencing "the kind of sudden, severe run" that led regulators to shut down Silicon Valley Bank, according to the report. Added sources: "It has the cash to meet customer needs while it explores solutions," the source said. That includes $30 billion deposited by the largest U.S. banks this month. "
It follows a plan announced by the Fed on March 19 to strengthen liquidity conditions through "swap lines," which involve agreements between two central banks to swap currencies. “In order to improve the effectiveness of the swap lines for funding U.S. dollars, central banks currently offering U.S. dollar operations have agreed to increase the frequency of seven-day maturities from weekly to daily,” the Fed said in a statement.
The network of swap lines involving the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss International Bank opened on March 20 and will operate until at least April 30.
