People walk near a First Republic Bank branch in New York City, United States, March 16, 2023. /CFP
First Republic Bank's stock price plunged over 43 percent on Friday and fell further in after-hours trading after it was reported that U.S. regulators are preparing to put the bank into receivership.
The U.S. Federal Deposit Insurance Corporation is preparing to place First Republic Bank under receivership imminently, as the U.S. banking regulator had decided the troubled regional lender's position has deteriorated and there is no more time to pursue a rescue through the private sector, a source told Reuters on Friday.
First Republic Bank now is at the center of the latest turmoil in the U.S. banking sector. If the bank falls into receivership, it would become the third regional U.S. bank to fail following Silicon Valley Bank (SVB) and Signature Bank.
A view of the U.S. Federal Reserve building, Washington, D.C., United States, March 14, 2022. /CFP
Meanwhile, the U.S. Federal Reserve on Friday released the results of a review of SVB, pointing out in a report which also discussed in detail the management of banks and the regulatory issues surrounding bank failures, that the bank failed because of a "textbook case" of mismanagement.
Michael S. Barr, the Fed's vice chair for supervision, said in a letter that went alongside the report that supervision and regulation must be strengthened.
According to the Fed's evaluation results, the incident with SVB occurred mainly because of four key points, including a scathing assessment of its own regulatory supervisors:
- the failure of SVB's board of directors and management to manage risks
- failure by supervisors of the bank to "fully appreciate" the extent of the vulnerabilities as the bank grew in size and complexity
- when vulnerabilities were identified, supervisors did not take sufficient steps to ensure SVB fix the problems quickly enough
- the Fed's own board's "tailoring" approach in response to economic growth, regulatory relief and consumer protection impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach.
The documents pointed out that SVB's assets rapidly grew from $71 billion to over $211 billion in a short period from 2019 to 2021.
"In SVB's case, the firm's rapid growth but slow transition to heightened standards contributed to the slow identification of risks and slow pace of supervisor action," wrote Barr.
(With input from Reuters)