Apparently, US officials are deliberating on extending an emergency credit line for banks “so” it can give First Republic Bank a cushion of time to deal with its balance sheet problems, according to people with knowledge of the situation. .
In a March 26 Bloomberg report citing anonymous sources, it was reported that the US authorities have not decided what kind of support, “if any”, they can provide to First Republic, although an “extension of the Federal Reserve’s offer” is one of the options being considered.
First Republic would have been deemed “stable enough to operate” by regulators without the need for “immediate intervention” as the bank and its advisers try to “prop up its balance sheet.”
The sources noted that while the Fed’s liquidity supply would have been expanded in accordance with banking law, which stipulates that it must be “broad” and not targeted to benefit a specific bank, they also warned that the alteration could “be made in a manner” that ensures that First Republic Bank benefits.
It was reported that, even though First Republic faces structural challenges with its balance sheet, “bank deposits are stabilizing” and it is not at risk of experiencing “the kind of sudden and severe run” that led regulators to shut down Silicon Valley Bank. This is how he pointed it out:
“It has cash to meet customer needs while exploring solutions, the people said. That includes $30 billion deposited by the nation’s largest banks this month.”
This comes after the Fed announced a plan on March 19 to bolster liquidity conditions through “swap lines,” an agreement between two central banks to swap currencies.
Coordinated central bank action to enhance the provision of US dollar liquidity: https://t.co/Qs4cYY8BFO
—Federal Reserve (@federalreserve) March 19, 2023
Coordinated action by the central bank to improve the provision of liquidity in US dollars:
“To improve the effectiveness of swap lines in providing funding in US dollars, Central banks that currently offer dollar trading have agreed to increase the frequency of seven-day trading from weekly to daily,” the Federal Reserve said in a statement.
The swap line network, which involves the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss International Bank, began on March 20 and is expected to last at least until April 30th.
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