First Republic’s fate in flux

First Republic Bank is on the brink. At the time of this writing, there were hurried, behind-the-scenes talks to find a way to keep it from failing. But the window for the bank to avoid FDIC receivership was closing.

Through Thursday night and Friday morning, big banks and private investors mulled a wide array of plans. (None of which would be likely without government aid—and that carries political and financial costs.) One good reason to keep First Republic afloat: to prevent the massive writedowns on its balance sheet from materializing. The problem is a hoard of underwater mortgages and some “held-to-maturity” bonds you keep hearing about, which have all fallen in value given the rise in interest rates, but don’t really count toward losses unless those securities have to be sold. Or, unless the bank has to be sold.

The Federal Deposit Insurance Corp. took a $22.5 billion loss from the failures of Silicon Valley Bank and Signature Bank, according to analysts at the investment bank Jefferies, which could cause pain to the big banks as they pay assessment fees to replenish the insurance fund. Should First Republic fail, that could make the levy much, much higher, given that the hole in its balance sheet is estimated to be bigger than the sum of the prior two failed banks combined. (Almost $30 billion or more.)

There’s a dispute in the banking community about how systemic the First Republic situation is and whether there’s another wave of banking hiccups to come. But let’s be absolutely clear: Even if another set of banks failed—which is a matter of debate—the repercussions won’t be felt across the economy equally.

“Credit will start crunching but not for everyone,” Goldman Sachs analysts wrote in a note last week. “Owing to their greater financial flexibility, large and highly rated firms can adapt to tighter bank lending standards.” That means the biggest banks are set to get bigger, and smaller borrowers who rely on the smallest institutions will find it much more expensive to get access to money.

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Next week is the Milken Institute Global Conference. We'll be broadcasting bright and early on Monday for Bloomberg Television with big interviews including with Apollo CEO Marc Rowan, Citigroup CEO Jane Fraser, Guggenheim CIO Anne Walsh and TCW's newly-named CEO Katie Koch in her first interview since taking the job. Many of these executives have a direct view into the credit contractions within the market, or even the banking crisis itself. I hope you'll join us, and send tips, opinions and ideas to sbasak7@bloomberg.net.