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First Republic Bank: US officials lead urgent rescue talks; US banking crisis

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Urgent discussions are being held by US officials to rescue First Republic Bank because the private-sector initiatives, led by the bank's advisers, have not yet reached an agreement.

As reported by Reuters citing sources, the Federal Deposit Insurance Corporation (FDIC), the Treasury Department and the Federal Reserve are among government bodies that have in recent days started to orchestrate meetings with financial companies about putting together a lifeline for the troubled lender.

One of the sources mentioned that the participation of the government is facilitating the involvement of more parties such as banks and private equity firms in the negotiations.

Meanwhile, another person familiar with the matter noted that it is unclear whether the U.S. government is considering participating in a private-sector rescue of First Republic. The government's engagement, however, has emboldened First Republic executives as they scramble to put together a deal that would avoid a takeover by U.S. regulators.

In March, First Republic was at the center of the regional banking crisis in the United States. The bank's rapid expansion fueled by attracting wealthy clients came to a halt when these clients started withdrawing their deposits, causing significant damage to the bank.

The sources requested anonymity because the discussions are confidential.

"We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients," First Republic said in a statement.

The Treasury Department declined to comment; the FDIC and Federal Reserve did not immediately respond to emailed requests for comment after hours.

Wall Street banks have been trying to find a solution for First Republic since 11 of the biggest U.S. lenders deposited $30 billion at the bank on March 16 to stanch a regional banking crisis that led to the failure of Silicon Valley Bank and Signature Bank.

Discussions for a deal took on new urgency this week after First Republic revealed on Monday it had deposit outflows of more than $100 billion in the first quarter. Although the bank said its deposits had stabilized, it disclosed it was losing money because it had to replace the withdrawn deposits with interest-bearing funding from the Federal Reserve.

U.S. officials view a private-sector deal as preferable to First Republic falling into FDIC receivership, two of the sources said. But many of the options proposed - including selling assets or the creation of a "bad bank" that would isolate its underwater assets - have so far failed to yield a deal, the sources added.

For any resolution to be effective, it would need to provide protection for losses that either the First Republic or a possible acquiring entity would incur in case of a transaction. Such losses would arise from the bank's loan portfolio and fixed-income investments, which have low yields that would be devalued to reflect an increase in interest rates.

First Republic is contemplating a major hit, and even a total loss for shareholders, as part of the options that would prevent U.S. regulators from taking it over, one of the sources said. First Republic shares have lost 95% of their value since the regional banking crisis started on March 8.

However, sources further noted that no decision on a way forward has been made and no deal is certain.