We saw Silicon Valley Investment Bank and Signature Bank closed by the FDIC (Federal Deposit Insurance Corporation). Then we saw the acquisition of Credit Suisse by competitor UBS Group (multi-national investment bank). Now Deutsche Bank and First Republic Bank (and other regional banks) seem to be flashing warning signs. You might find yourself asking, what is happening with banks?
I spoke to a few local bankers and was told that falling bond prices are to blame. Banks’ capital reserves declined due to falling bond prices which led some banks to sell bonds at steep losses. Customers of those banks were spooked by the sell-off & losses which caused a mass movement to withdraw funds from affected banks which eventually led to liquidity issues for the banks.
On 03/24/2023 Janet Yellen called a FSOC (Financial Stability Oversight Council) meeting that was closed to the public. The FSOC includes heads of the Federal Reserve, the FDIC, Head of SEC, and several other regulatory agencies. This closed meeting led to speculation by the public that we would see the FDIC guarantee all uninsured bank deposits. A guarantee of all insured bank deposits would ease all concerns with the banking system but that was not the outcome of the meeting.
President Biden has claimed our banking system is safe. Janet Yellen says the US banking system is sound. Jerome Powell says the banking system is strong. It’s been a few weeks since we’ve heard any news of banks failing. It will be interesting to see how the next few months play out, and I’m not sure if anyone truly knows the true health of the US financial system. Rich Commercial Realty will continue to follow the banking situation and will have an updated blog post in June. Stay tuned!