Recent bank failures in the US and Europe have prompted government intervention to contain the crisis. The collapse has put the discussion of banking sector regulation back into the spotlight in a way not seen since the Great Recession.
On March 21, U.S. Treasury Secretary Janet Yellen said in a statement to the National Bankers Association, “The situation is stabilizing, and the U.S. banking system remains sound.”
Still, some economists and lawmakers are now advocating raising the Federal Deposit Insurance Corporation’s insurance limit to $250,000. The medium-sized bank is asking his FDIC to insure all deposits for at least two years, according to the report. But House Republicans have called for a moratorium on bank bailouts and said they oppose a “universal guarantee against bank deposits in excess of current limits.”
However, on March 22, Yellen told senators, “I have not considered or discussed anything to do with comprehensive insurance or deposit guarantees.”
Meanwhile, the Federal Reserve has not backed down from its mandate to contain inflation. The Fed has opted to raise the federal funds rate by 25 basis points on March 22nd. This is his ninth hike requested by the Fed since last March. Last year, the Fed raised rates by 75 basis points four times in a row. The latest rate hike brings the current interest rate level between 4.75% and 5.00%.
Federal Reserve Chairman Jerome Powell said at a press conference after the March 22 rate hike announcement that what happened at the SVB was due to the failure of the bank’s management, resulting in an “unprecedented rate of rapid and large bank growth.” A bank run,” he said.
However, the Federal Reserve will conduct an oversight and regulatory review to determine what happened.
“My only concern is to identify what went wrong here,” Powell said at a news conference, adding, “We have the right policies in place to find it and make sure it doesn’t happen again.” will be evaluated,” he added. and implement those policies. ”
To help you better understand the banking crisis of 2023, here are answers to common questions about recent events.
Bank failures are fairly rare. Before the collapse of Silicon Valley Bank and Signature Bank, there had not been a bank failure since Kansas-based Armena State Bank on October 23, 2020. According to the FDIC, there have been 563 bank failures since 2001.
Following the failure of Silicon Valley Bank and signatory banks, the U.S. Treasury, federal reserve The FDIC said on March 12 that depositors’ accounts were safe. It is borne by the Deposit Insurance Fund, which consists of fees charged to financial institutions and interest on government bonds.
In a March 21 statement to the American Bankers Association, Yellen said, “The government’s recent actions demonstrate its resolute determination to take the necessary steps to ensure the savings of our depositors and the security of our banking system. ” he said.
Silicon Valley Bank was the bank of choice for startups, venture capitalists and technology companies. It was the second largest bank failure in US history.
SVB failure It was caused by a bank run. On March 8, SVB’s CEO Greg Becker sent a message to shareholders indicating that he lost $1.8 billion on the sale of US Treasuries and mortgage-backed securities. In response, depositors quickly withdrew $42 billion, and by March 10, the bank had collapsed. The FDIC also announced today that it has acquired and formed a new deposit insurance company, National Bank of Santa Clara. This later became Silicon Valley Bridge Bank NA.
On March 26, the FDIC announced that First Citizens would purchase the Silicon Valley Bridge Bank loans and deposits.
On March 12, New York state regulators shut down Signature Bank, a lender that serves real estate firms, law firms, and the cryptocurrency industry. Like SVB, it went bankrupt after a bank run. On the same day, the FDIC took over and established a new Signature Bridge Bank NA.
March 20, known as a subsidiary of New York Community Bancorp Flagstar Bank Agrees to Acquisition Signature Bank loans and deposits.
Its closure is less dramatic, but another failure is in the works. Silvergate Capital Corp., which similarly served the cryptocurrency market, announced plans on March 8 to wind down its operations and liquidate its assets. On March 20, the bank said in his SEC filing that the president had been fired and needed more time to complete his 10-K form required by the New York Stock Exchange for listing criteria. said it is.
After years of failure and turmoil, Credit Suisse was on the verge of collapse when the Silicon Valley Bank collapsed. That turmoil accelerated on March 15, when he, then chairman of the Saudi National Bank, told news outlets that Ammar Al Khudairy would not provide additional financial support to the bank. Saudi National Bank was one of Credit Suisse’s main investors. Soon Credit Suisse’s stock price plummeted and customers began to withdraw their funds. Credit Suisse announced on March 16 that he would borrow 50 billion Swiss francs (about $54 billion) from the Swiss National Bank to boost liquidity.
The 167-year-old Swiss bank is classified as one of 33 “globally systemic banks,” according to the Financial Stability Board, the international body that oversees the global financial system. Failure. “The failure of any one of these globally systemized banks could, as the name suggests, have a dangerous domino effect on the global financial system.
By March 19, Swiss President Alain Berset announced that Credit Suisse rival UBS would buy the troubled bank. Berset called the deal “the best solution to restore the confidence that financial markets have been lacking in recent times.” However, according to the Swiss Financial Market Supervisory Authority (FINMA), the bondholder would still lose all of his investments, totaling him CHF 16 billion or about $17 billion.
Following the announcement of UBS’s acquisition of Credit Suisse, the US Treasury Department, US Federal Reserve and European Central Bank have issued statements reassuring both the public and markets that the banking system is strong and stable. announced.
First Republic Bank is in crisis. Since his March 8th trading close when SVB went bust, the company’s stock has fallen by nearly 90%. On March 16th, First Republic received a $30 billion lifeline from 11 of the country’s largest banks to curb another bank’s collapse and quell fears of further contagion. The Wall Street Journal and Barron’s reported that he had hired two advisors to help the bank review its sale options.
A recent decline in bank asset values has left the U.S. banking system vulnerable, according to a March 2023 research report by the National Bureau of Economic Research (NBER). NBER found 10% of banks with higher unrecognized losses than SVB and 10% with lower capitalization than SVB.
The biggest difference between SVB and other banks was the disproportionate share of uninsured funding. But there are still vulnerabilities. “Some 190 banks are at potential risk of harming their insured depositors if only half of their uninsured depositors decide to withdraw,” the newspaper said. ‘ said.
no. As long as your bank or credit union has federal insurance, your money is safe. All deposits of former Silicon Valley Bank and Signature Bank account holders are protected even if they exceed the federally guaranteed $250,000.
In addition, the Federal Reserve has announced that it will protect all bank deposits through its new Bank Term Funding Program. The fund aims to provide banks with an additional source of liquidity in the form of loans for up to one year. $25 billion will be available initially to banks, savings, associations, credit unions, and other eligible depository institutions pledging US Treasuries, agency debt, and mortgage-backed securities.
No, at least not yet.a recession According to NBER, which tracks business cycles, it’s often shorthand for “the economy looks bad,” but the actual definition is “a significant increase in economic activity that spreads across the economy and lasts for months or more.” Decrease. And is the official scorekeeper of the recession.
Its data date back to the mid-19th century. The latest recession was technically from his February 2020 to his April 2020, when the COVID-19 pandemic began.
The NBER uses a suite of economic indicators to determine business cycles and recessions in the United States. These metrics include employee numbers. employment; industrial production; sales of manufacturing and trading industries.real personal income; real Personal consumption expenditure, or PCE; Real Gross Domestic Product, or GDP. Real Gross Domestic Income, or GDI. and the real average of GDP and GDI.they are available in all Dashboard Compiled by Federal Reserve Economic Data (FRED), the research arm of the Federal Reserve Bank of St. Louis.
But fears of a recession remain high. Just because we’re not in a recession now doesn’t mean there won’t be a recession. As of January, the risk of a global recession this year is believed to be high, according to the World Economic Forum’s Chief Economist Outlook. As of early March, he has a 99% chance of a U.S. recession next year, based on a probability model from The Conference Board, a global nonprofit think tank.
According to the Federal Reserve, the United States has experienced only one economic recession since the beginning of the modern industrial age. The Great Depression lasted from 1929 to 1941, during World War II.