After Silicon Valley Bank’s failure, analysts at Wall Street and the Federal Reserve expect fallout from that collapse to linger as regional and community banks ease up on the lending activity.
The US economy runs on credit and loans and if it slows, there would be domino effects for hiring, spending, and more — particularly if banks that are the most active lenders to small and midsize businesses are forced to pull back on lending.
The banking picture is worse than you think. The biggest problems are assets and liabilities. Credit conditions could tighten as people pull bank deposits (which are liabilities) and because of further losses on loans and securities (assets).
Total bank deposits have been in a freefall for the last year as Americans shift money out of bank accounts that pay little interest to higher-yielding savings vehicles, like Treasury bills and money market mutual funds. If people continue to fear for their money in deposit safety, essentially pulling it out of banks, it would force banks to make fewer loans.
In that environment, businesses would have a harder time accessing the cash necessary to hire more workers or spend on new equipment needed to expand the business. Consumers, such as car buyers and those looking to purchase a home might have a more difficult time getting a loan.
How big of a credit crunch is still conjecture. Economists at Goldman Sachs say that tighter lending would result in a drag of as much as a half-percentage point on U.S. growth over his year. But, it could be greater, especially if we see more bank failures.
Paul Plante says
“Deutsche Bank tumbles as jittery investors seek safer shores”
By Amanda Cooper, Sruthi Shankar and Amruta Khandekar
March 24, 2023
In the latest effort to reassure investors, the U.S. Treasury said the Financial Stability Oversight Council – which comprises the heads of various U.S. regulators – agreed at a Friday meeting that the U.S. banking system is “sound and resilient.”
The meeting was chaired by U.S. Treasury Secretary Janet Yellen, whose comments are being closely watched by markets for an indication of how far authorities are willing to go to shore up the banking sector after the collapse of Silicon Valley Bank and Signature Bank earlier this month.
“SF Fed bank’s Daly not responsible for SVB failure – former SF Fed chair”
By Ann Saphir
March 24, 2023
March 24 (Reuters) – Responsibility for the Federal Reserve’s oversight of large financial institutions like the failed Silicon Valley Bank rests with staff in Washington and not with any regional Fed bank chief, a former chair of the San Francisco Fed bank said on Friday.
“The regulatory regime at the Reserve Bank is that they (bank examiners) are housed in the district offices and report to the Board of Governors; they do not report to the (Reserve Bank) president,” said Alex Mehran, who served on the San Francisco Fed’s board of directors for six years including two as its chair.
“The responsibility for enforcing those regulations is not the purview of the president, it’s the purview of the regulators in Washington,” he said.
“I do not believe that (San Francisco Fed Bank President) Mary Daly is responsible for the regulatory mishaps in the SVB situation.”
Fed Chair Jerome Powell said this week he wants to identify “what went wrong here” even as bank examiners at San Francisco Fed had flagged escalating problems at the Santa Clara-based bank suggesting issues with the bank’s ability to meet short-term cash needs like depositor withdrawals.
Federal regulators closed SVB on March 10 after it was unable to meet rapid and massive demands from depositors for their money.
That was soon followed by the closure of Signature Bank and emergency action by the Fed and the Treasury to shore up confidence in the banking sector, but the fallout has continued, with UBS buying rival Credit Suisse, big U.S. banks staging a rescue of smaller First Republic, and banking shares under continued pressure.
As for me, I can’t believe this HORSE CRAP this FSOC is peddling, as if they had a shred of credibility left, starting with “TOODLES” Yellen herself, who starred in a Foreign Policy magazine article titled “Yellen’s Mandate: Massive Stimulus, Assuaging Fears of Inflation, New Treasury nominee hailed as the right woman for the moment” by Michael Hirsh on November 24, 2020, as follows:
“Out of the box” is one of Janet Yellen’s favorite phrases, her fellow economists say—as in, think outside of it.
And now the Yale-educated economist who made history in 2014 by becoming the first female Federal Reserve chairman is expected to do so again—think outside the box as President-elect Joe Biden’s nominee for Treasury secretary (also as the first woman in that post).
Because by the time she is sworn in early next year—her confirmation is considered highly likely—the U.S. and world economies might be facing a new wave of pandemic-induced unemployment.
“She’s a great choice.”
“She understands that the main challenge facing America is generating growth that includes everyone, and she has an evidence-based approach to making policy,” said economist Karen Dynan, a former Federal Reserve and Treasury official now at Harvard.
“Pushing through more fiscal stimulus is going to be a high priority on her agenda.”
So “TOODLES” to me is the architect of this financial mess facing all of us right now and tomarrow and the next day.
ALL of them combined, the so-called Financial Stability Oversight Council which comprises the heads of various U.S. regulators, are the very same ones who let the system get broken.
And now that same pack of political hacks want us to believe the same system they broke and ****** up royally is sound?
This is too much!
And now the buck-passing starts with NOBODY being held to account.
What a third-world country we have become!