US Authorities Weighing Emergency Lending Facility Expansion

US authorities are reportedly considering expanding an emergency lending facility to assist First Republic, a move that could provide the bank with additional time to improve its financial position.

According to Bloomberg’s Business and Markets accounts, the news broke on March 25, 2023, at around 4:38 PM EDT. While details are scarce, the expansion of the emergency lending facility would fall under the rarely used Section 13(3) of the Federal Reserve Act, which authorizes the Federal Reserve to lend to non-bank entities in exceptional circumstances.

Emergency Lending Programs Authorized Under Section 13(3) of Federal Reserve Act

The emergency lending facility expansion could potentially give First Republic more time to bolster its health, though it is unclear at this time what conditions would need to be met for the bank to qualify for the program. The emergency lending programs authorized under Section 13(3) of the Federal Reserve Act were used during the pandemic to support businesses and financial institutions facing significant economic challenges.

David Wheelock, a senior vice president and special policy advisor to St. Louis Fed President James Bullard, explained in a previous interview that the 13(3) authority is rarely used and is typically only invoked in “times of extreme financial stress or systemic risk.”

Potential Relief for First Republic

If US authorities do decide to expand the emergency lending facility, it could provide much-needed relief to First Republic, which has faced challenges in recent years. The bank’s financial health has been under scrutiny, and it has been working to address concerns raised by regulators.

It remains to be seen whether the expansion of the emergency lending facility will come to fruition and what specific measures will be put in place to assist First Republic. However, the possibility of relief for the bank will undoubtedly be welcomed by investors and stakeholders alike.

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