Deepening Crisis at First Republic Prompts Urgent Rescue Talks, What Does it Mean for Bitcoin?

The shares of First Republic Bank have declined to a record low after the lender announced that depositors withdrew over $100 billion in the first quarter. It has been under massive pressure since a series of bank failures in the United States sparked fears of a wider crisis.

The private-sector initiatives are being led by the First Republic Bank’s advisers but are yet to reach an agreement. US officials have now stepped in to coordinate urgent talks to rescue the commercial bank founded in San Francisco in 1985.

Chaos in First Republic

Last month’s collapse of Silicon Valley Bank (SVB) and Signature Bank drove fears of contagion across the banking sector. Ever since then, investors have been closely following the financial health of regional lenders, including First Republic.

According to sources familiar with Reuters, US government authorities that have started conducting meetings with financial companies are Federal Deposit Insurance Corporation (FDIC), the Treasury Department, and the Federal Reserve. The government’s participation is helping bring more parties, including banks and private equity firms, to the negotiating table.

However, it is still not clear if the government is planning for a private-sector rescue of First Republic with its involvement. But a source said the move has encouraged the executives of the lender as they struggle to construct a deal that would steer clear away from a takeover by the US regulators.

Two of the sources in the report suggested that the US officials view a private-sector deal as preferable to First Republic falling into FDIC receivership. To avoid falling into ruin, several options have been proposed. This includes selling assets or the creation of a “bad bank” that would isolate its underwater assets. However, a deal is yet to successfully transpire.

“Any solution would have to come with coverage for the losses that the First Republic or a potential acquirer of the bank would assume if there were a transaction. These losses would stem from First Republic’s loan book and fixed-income portfolio, whose low-yielding assets would be marked down to account for a rise in interest rates.”

Where Does Bitcoin Stand?

The banking crisis has taken a heavy toll on financial institutions in the United States over this year, and Bitcoin appears to be on the winning side.

Earlier this week, First Republic said it was exploring strategic options following its disclosure of losing nearly $100 billion in deposits. While analysts and investors seem to have already lost confidence in it, during the same period, Bitcoin gained a significant foothold near $30k.

With the declining confidence in the US banking system, as well as its counterparty in Europe, the interest in Bitcoin, which emerged during the previous massive crisis caused by banks, is on the rise.

Featured Image Courtesy of FT