Two days earlier, First Republic Bank faced questions from analysts that its leadership chose not to answer during the Q1 earnings presentation. That silence set off a rapid selloff, with shares plunging about 80 percent in two days. Although the market rallied more than 11 percent today, concern about another bank bankruptcy in the United States lingered, echoing stress seen at Silicon Valley Bank and Signature Bank last month. Deposits had already shifted dramatically, with about 57 percent of funds moving and totals near one hundred trillion in some contexts, underscoring the fragility felt in the system. After the latest banking turmoil, the government balked at broad sector bailouts, and First Republic faced the stark reality that only a narrow, custom recovery pathway remained viable, at least for now.
The administration is caught between avoiding prolonged financial stress and preventing a cascading crisis. Analysts suggest the White House is unlikely to let a major institution collapse, given the risk of triggering further domino effects. One potential path involves a consortium of banks purchasing assets from First Republic, with the government providing some form of guarantee. Reports note that First Republic had received about 30 billion in uninsured deposits from 11 large banks to calm the situation last month, though these deposits may be hard to access if the bank fails. With that uncertainty, a withdrawal of such funds could hasten a bankruptcy filing, making any immediate repayment or access even less straightforward.
Implementing a custom recovery plan seems technically feasible but practically difficult. For a smooth process, banks would need to buy assets above market value, with the buyers bearing the cost. There is chatter about regional lenders looking to offload 50 to 100 billion in high-quality loans, yet the sharp rise in interest rates raises the likelihood of losses. The market has shown reluctance to purchase these assets without guarantees from the government, and while some voices suggest a group of U.S. banks might still find a commercially sound justification for such purchases, certainty remains elusive for now.
The risk of bankruptcy remains a live concern
Deposits at Silicon Valley Bank and Signature Bank have not fully recovered, and even a large institution reports a net loss in deposit momentum during the crisis period. First Republic Bank saw a 41 percent drop in deposits during the first quarter, with total deposits around 176.3 billion, a level not seen since the second half of 2020. The current figure behind the headlines shows roughly 100 billion in deposits leaked across the country, a figure that translates to about 57 percent in some calculations. This paints a picture of continuing fragility rather than a resolved situation.
Industry commentary points to the asset sale strategy being aligned with the duration gap between assets and liabilities. The challenge lies in immunizing risk and hedging interest-rate exposure, a lesson echoed by observers looking back at Silicon Valley Bank. If First Republic cannot better manage the timing of asset sales versus liability obligations, downside risk will persist as interest rate volatility continues. Some analysts from XTB emphasize that while the option of a government-backed guarantee remains possible, it may not be a guaranteed safeguard against further turmoil. Individual banks might still decide to pursue asset purchases if conditions become favorable, but broad confidence is not guaranteed.
Beyond asset sales, debt management remains a critical factor. The bank’s balance sheet reveals a substantial uptick in lending during the first quarter, lifting total liabilities to around 107 billion. Much of that is short-term debt maturing within the next year, underscoring the pressure from looming repayments. The broader policy stance—whether the U.S. Treasury would insure all deposits regardless of size or FDIC limits—adds another layer to the calculus. Authorities are weighing whether a bailout that mirrors the magnitude of the prior crises is politically feasible or desirable. The market now awaits decisive moves from major institutions to stabilize the situation and restore confidence.