US Looks Into Extra Bank Assistance, Favoring First Republic’s Advantage

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Last Updated on March 26, 2023 by Bitfinsider

According to people familiar with the matter, US officials are allegedly considering “expanding” an emergency credit line for banks, which might give First Republic Bank time to address balance sheet issues.

In a report citing unnamed sources, American officials are debating what assistance, “if any,” can be given to First Republic; however, one of the alternatives being considered is a “expansion of the Federal Reserve’s offering.”

As the bank works to “shore up its balance sheet” in the interim, First Republic was reportedly considered “stable enough to operate” by regulators without the need for a “immediate intervention.”

According to the sources, the Fed’s liquidity offerings would be increased in accordance with banking law, which states that it must be “broadly based” and not intended to benefit a particular bank, but they also issued a warning that the change could be “made in a way” that ensures First Republic Bank benefits.

A report states that despite structural issues with its balance sheet, First Republic is not in danger of having “the kind of sudden, severe run” that forced regulators to shut down Silicon Valley Bank because “the bank’s deposits are stabilizing.” It also stated: “It has cash to meet client needs while it explores solutions, the people said. That includes $30 billion deposited by the nation’s largest banks this month.”

This follows the Fed’s announcement of a strategy to improve liquidity conditions on March 19 through the use of “swap lines,” which entail an agreement between two central banks to trade currencies.

The central banks presently offering U.S. dollar operations “have agreed to increase the frequency of seven-day maturity operations from weekly to daily in order to improve the swap lines’ effectiveness in providing U.S. dollar funding,” the Fed said in a statement.

The Bank of Canada, Bank of England, Bank of Japan, European Central Bank, and Swiss International Bank are all participants in the exchange line network, which started on March 20 and will last at least until April 30.

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