First Republic Rescue May Rely on US Backing to Facilitate Deal

Of course, we have seen already the biggest lenders coming to the rescue that doesn't seem to have been enough. So what else could be done? Exactly. That didn't seem to allay concerns that this bank might become the fourth victim of this kind of regional banking crisis. So the real aim of this game here today would be for to encourage and smooth the path toward a sale, because then they avoid another bank failure which would sort of inflate this fear that this contagion would be spreading around the regional banks. Sally, is there a sense that the depths of this crisis is not fully kind of well known, yet particularly as we had that report that they were exploring the potential to ensure all deposits, which was such a market moving story that we broke yesterday? Well, I think the sticking point and the real issue here for a lot of the banks and it's come up a lot is the potential that they have these unrealized losses on their balance sheets. So a lot of these regional lenders, they plowed money into debt securities like treasuries and mortgage backed securities when interest rates were low. Now, because of the path of aggressive interest rate hikes, they have seen the value of those assets eroded.

And of course, that's been compounded by a withdrawal of deposits. Now, how extensive that is on regional banks more broadly is the question and also will dictate the sort of level to which this continues. But the US government and regulators, this is precisely what they're trying to stem. And that's what they did with Silicon Valley Bank and Signature Bank is they guaranteed uninsured deposits for those lenders. So that ultimately kind of backstops and might dissuade people from withdrawing their money. And they've hinted that they could extend those measures to other smaller lenders, which again would be an effort to contain the crisis from spreading further. I mean, Bloomberg has learned that potentially we could see all deposits insured, right, that those conversations are ongoing.

What sort of factors need to be aligned for officials to come out with such a drastic plan? Yeah, I think again, all options are on the table. And they probably want to see what happens with First Republic, for example, because while that saw its shares plummet yesterday, they have rebounded a little bit today on comments by Yellen, for example, that they are willing to intervene to help smaller lenders. So things aren't looking perhaps so as dire as they were last week. It was obviously disappointing that the 11 banks who came together to inject 30 billion to sort of replenish the deposits that had been withdrawn from First Republic didn't have necessarily the desired effect. But now they're coming up with a slightly more creative plan, including government intervention. Of course, again, that's all on the table, and it's not necessarily guaranteed to happen. But this is the kind of thing they're thinking in order to keep things contained.

Bloomberg