# Fed in spotlight with US focus on stability, First Republic
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-03-22
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: U.S. Authorities Set to Explore Ways to Bolster Financial
Meta Description: Get insights on steps to tackle issues facing First Republic Bank and implications for interest rate hikes as central banks aim to stabilise banking sector.
URL: https://financedigest.com/fed-in-spotlight-with-us-focus-on-stability-first-republichtml

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By Nupur Anand, Andrea Shalal and Balazs Koranyi

(Reuters) – U.S. authorities are set to explore [ways to bolster financial](https://www.financedigest.com/5-ways-to-improve-your-financial-literacy.html "5 Ways to Improve Your Financial Literacy") stability, along with steps to tackle the problems facing First Republic Bank, as central banks assess whether turmoil in banking makes interest rate rises less pressing.

With an easing of recent big swings, Wednesday’s Federal Reserve [meeting is firmly in focus](https://www.financedigest.com/dollar-skulks-at-eight-month-low-central-bank-meetings-in-focus.html "Dollar skulks at eight-month low, central bank meetings in focus"), with traders split over whether the U.S. central bank will be forced to pause its hiking cycle as efforts continue to stabilise battered [banking stocks](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood").

Pacific Western Bank, one of the regional lenders caught up in the market volatility, said on Wednesday it had [raised $1.4 billion from investment](https://www.financedigest.com/5-tips-for-raising-investment-as-a-start-up.html "5 tips for raising investment as a start-up") firm Atlas SP Partners.

Shares of the bank, which have lost nearly 47% of their value so far this year, fell about 9% in early trading even as it tried to assuage [investor worries by saying it had more than $11.4 billion in cash as of March](https://www.financedigest.com/uk-investors-add-1-2-billion-to-equity-funds-in-march-calastone.html "UK investors add .2 billion to equity funds in March – Calastone") 20.

The Fed, whose relentless rate hikes to rein in inflation are among factors blamed for the biggest [banking sector meltdown since the 2008 financial crisis](https://www.financedigest.com/how-the-2023-banking-crisis-unfolded.html "How the 2023 banking crisis unfolded"), is tipped to raise rates by 25 basis points, half the 50 bps move foreseen before the shake-up.

In order to solve the banking problem, you really have to go [back down to very low interest rates](https://www.financedigest.com/bank-of-englands-mann-doubles-down-on-backing-for-rate-hikes.html "Bank of England’s Mann doubles down on backing for rate hikes") and I don’t think that’s going to happen,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest.

What you’re going to wind up with is a Fed that will probably be a little bit more focused on [inflation and they’re going to deal with the banking](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel") situation as it comes up.

European Central Bank top brass said on Wednesday they will watch for [signs of stress](https://www.financedigest.com/4-reasons-your-finance-employees-are-showing-signs-of-stress.html "4 reasons your finance employees are showing signs of stress") in bank lending, a day after the ECB warned banks not to be caught off-guard by rising rates.

Investors are wondering whether the [ECB will be able to continue hiking](https://www.financedigest.com/analysis-investors-stick-to-bets-on-early-end-to-ecb-hikes-as-uncertainty-grows.html "Analysis-Investors stick to bets on early end to ECB hikes as uncertainty grows") to fight inflation, but its chief economist Philip Lane said market jitters may turn out to be “a non-event” for monetary policy, while a full-blown crisis that completely rewrites the outlook is unlikely.

Speaking before Lane, ECB President Christine Lagarde said the ECB’s interest rate [hikes could be magnified if banks](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") become more risk-averse and start demanding higher rates when lending – implying the central bank may need to do less.

But an unexpected jump in UK inflation last [month led investors](https://www.financedigest.com/6-months-to-go-until-brexit-and-investor-sentiment-remains-bold.html "6 months to go until Brexit and investor sentiment remains bold") to bet heavily that the Bank of England will raise interest rates by at least another 25 bps on Thursday.

And less than two weeks after Silicon Valley Bank (SVB) sank under the weight of bond-related losses due to surging interest rates, the CEO of [hedge fund](https://www.financedigest.com/what-is-a-hedge-fund.html "What Is A Hedge Fund") Man Group, Luke Ellis, said the turmoil was not over and predicted further bank failures.

SVB’s collapse kicked off a tumultuous 10 days for banks which led to the 3 billion Swiss franc ($3.2 billion) Swiss engineered takeover of [Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") by rival UBS.

While that deal brought some respite to battered banking stocks, U.S. lender First Republic remains firmly in the spotlight. It is looking at ways to shrink if it cannot raise new capital, three people familiar with the matter said.

First Republic’s volatile shares were up 3% in early trades.

Scenarios for the bank were being discussed as [major bank CEOs](https://www.financedigest.com/deutsche-telekom-reaches-majority-stake-in-t-mobile-u-s-ceo.html "Deutsche Telekom reaches majority stake in T-Mobile U.S. – CEO") gathered in Washington for a scheduled two-day meeting starting Tuesday, sources familiar with the matter said.

Graphic: Traders bet on rate hike as [fears of bank](https://www.financedigest.com/banking-turmoil-means-recession-fears-are-creeping-back.html "Banking turmoil means recession fears are creeping back") crisis ease https://www.reuters.com/graphics/USA-RATES/FEDWATCH/xmpjkbnxmvr/chart.png

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/03/first.jpg)

‘HEAD IN SAND’

The wipeout of [Credit Suisse’s](https://www.financedigest.com/swiss-franc-grapples-with-safe-haven-identity-crisis-after-credit-suisse.html "Swiss franc grapples with safe-haven identity crisis after Credit Suisse") Additional Tier-1 (AT1) bondholders has sent shockwaves through bank debt markets.

But one of the largest investors in the Credit Suisse bonds said he still believes in the value of contingent convertible debt, known as CoCos, and the “bail-in” system meant to save [banks seen as too big](https://www.financedigest.com/big-banks-can-be-challengers-too.html "Big banks can be challengers too") to fail.

“Anybody that bought CoCos who didn’t think ‘bailed-in’ had their head in the sand. Nobody likes it when it happens, but that’s the whole idea behind CoCos,” Philip Jacoby, chief [investment officer at Spectrum Asset Management](https://www.financedigest.com/french-watchdog-fines-h2o-asset-management-executives-over-tennor-investments.html "French watchdog fines H2O Asset Management, executives over Tennor investments") Inc, said.

UBS said on Wednesday it would buy back 2.75 billion euros ($2.96 billion) worth of [debt it issued](https://www.financedigest.com/necessary-lessons-in-debt-six-out-of-ten-brits-wouldnt-feel-comfortable-discussing-any-money-issues-with-their-children.html "Necessary lessons in debt? Six out of ten Brits wouldn’t feel comfortable discussing any money issues with their children") less than week ago, seeking to boost confidence among investors rattled by its $3 billion rescue of rival Credit Suisse at the weekend.

“They’re trying to be friendly to investors who purchased just before the mess,” said Jerome Legras, head of research at Axiom Alternative Investments.

For now, the [Swiss bank](https://www.financedigest.com/swiss-regulator-monitoring-banks-and-insurers-after-svb-collapse.html "Swiss regulator monitoring banks and insurers after SVB collapse") rescue appears to have assuaged the worst fears of systemic contagion, boosting shares of European banks and U.S. lenders.

Policymakers from Washington to Tokyo have stressed the turmoil is different from the crisis 15 years ago, [saying banks](https://www.financedigest.com/boes-bailey-says-bank-reforms-worked-but-questions-about-liquidity-buffers.html "BoE’s Bailey says bank reforms worked but questions about liquidity buffers") are better capitalised and funds more easily available.

After Treasury Secretary Janet Yellen said on Tuesday that the U.S. banking system was sound despite recent pressure, Deputy Treasury Secretary Wally Adeyemo said a review of the [failures of SVB and Signature Bank](https://www.financedigest.com/bank-of-england-fines-former-tsb-executive-over-2018-it-failure.html "Bank of England fines former TSB executive over 2018 IT failure") was in order.

Graphic: Over $95 billion in market value wiped out in 2 weeks https://www.reuters.com/graphics/GLOBAL-BANKS/USA/myvmobkeovr/graphic.jpg

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/03/second-431x500.jpg)

POST-MORTEM

We of course continue to monitor the current situation and consider what [steps can be taken to further strengthen America’s financial](https://www.financedigest.com/5-steps-to-strengthening-your-online-financial-security.html "5 Steps to Strengthening Your Online Financial Security") stability,” Adeyemo said at an event hosted by the U.S. Hispanic Chamber of Commerce, without elaborating.

Political pressure continues to grow in the United States to hold [bank executives accountable](https://www.financedigest.com/new-legislation-makes-switching-bank-accounts-simples.html "New legislation makes switching bank accounts “simples”"). The Senate Banking Committee’s chairman said it will hold the “first of several hearings” on the collapse of SVB and [Signature](https://www.financedigest.com/exclusive-u-s-regulator-seeks-sale-of-silicon-valley-bank-signature-bank-portfolios-sources.html "Exclusive-U.S. regulator seeks sale of Silicon Valley Bank, Signature Bank portfolios-sources") Bank on March 28.

Although the Fed has said its review of SVB’s supervision will be finished by May 1 and released to the public, recent banking system ructions are likely to feature prominently in its chief Jerome Powell’s post-meeting news briefing.

Graphic: [Credit Suisse rescue](https://www.financedigest.com/bank-shares-rise-after-credit-suisse-rescue-eases-crisis.html "Bank shares rise after Credit Suisse rescue eases crisis") https://www.reuters.com/graphics/GLOBAL-BANKS/myvmobgwyvr/chart.png

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/03/third.jpg)

($1 = 0.9280 Swiss franc)

(Additional reporting by Sumeet Chaterjee, Tatiana Bautzer, Saeed Azhar, Scott Murdoch, Tom Westbrook, Shubham Batra, Amruta Khandekar, Ankika Biswas, Noel Randewich, Balazs Koranyi and Francesco Canepa, Akriti Sharma, Amanda Cooper: Writing by Lincoln Feast and Alexander Smith; Editing by Sam Holmes and Catherine Evans)


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