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Moody’s said in its statement the upgrade from Ba1 to Baa2 with a concurrent change in outlook from positive to stable is due to previous and continuing economic, fiscal and banking reforms, as well as a significant drop in bad bank loans.

But First Republic struggled to find support from larger banks or private equity firms on its proposed move to create a so called "bad bank" or sell assets such as securities and mortgage book.

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.

The bank has been looking at several options, such as selling assets or the creation of a "bad bank", a source familiar with the matter told Reuters on Tuesday.

First Republic faces dwindling and tough options to turn around its business with the creation of a "bad bank" or asset sales possibilities, a source familiar with the matter told Reuters, after the lender showed the extent of deposit flight during last month's banking crisis.