A former top banking regulator said regional banks shouldn’t be the only ones worried about a potential fallout from the rapid pace of Federal Reserve interest rate hikes over the past year.
“I don’t see any particular problem for regional banks,” Sheila Byr, who ran the Federal Deposit Insurance Corp. from 2006 to 2011, said in an interview with MarketWatch on Thursday.
Earlier in March, he called the hyperfocus on regional banks and interest rate risks “counterproductive” in the wake of the collapse of Silicon Valley Bank and Signature Bank.
of New York.
“This is a risk that all banks face,” he said. “All speculators should be aware of how interest-rate risk is managed. If there’s a run, they should sell these bonds. These are all banks of all sizes and all speculators should be concerned.
Deposits at the Silicon Valley bank rose after it posted a $1.8 billion loss on a sudden sale of $21 billion worth of high-quality, rate-sensitive mortgage and Treasury bonds. It was the biggest US bank failure since the collapse of Washington Mutual in 2008.
The FDIC rates US banks Some $620 billion in unrealized losses From the securities on their books at the end of 2022, long-term Treasuries and mortgage bonds are worth less than their face value.
“Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry,” FDIC Chairman Martin Grunberg said in a March 6 speech at the Institute of International Bankers.
Days after that meeting, Silicon Valley Bank and Signature Bank both collapsed, prompting regulators to declare a new state of emergency. Bank Finance Scheme Help avoid any cash flow strains with other US lenders. Regulators withdrew all deposits from the two failed lenders.
Bayer argued earlier this month that U.S. bank officials should go to Congress and ask for a “blanket” backstop against uninsured deposits if they see systemic risks. Fixed $250,000 cap For a depositor, in a bank.
According to: Guarantees should be on the table for all bank deposits, says former FDIC chairman Bayer
Treasury Secretary Janet Yellen said Wednesday that blanket deposit insurance protection is not something her department is considering, but that the appropriate level of protection could be discussed in the future.
Federal Reserve Chairman Jerome Powell said Wednesday that the U.S. banking system “Sound and resilient with strong capital and liquidity,“After another 25 basis points hike from almost zero a year ago to a range of 4.75% to 5%.
See: Fed raises interest rates again, pencils in one more rate hike this year
Baier has called for a pause in central bank rate hikes since December. Instead of raising rates by another 25 basis points on Wednesday, Fed Chair Powell should have paused and the Fed needed time to evaluate, he said.
“If we had a financial crisis, we wouldn’t have a soft landing,” Bayer said. “We must avoid it at all costs.”
According to: Bank failures like SVB are a reminder that ‘risk-free’ assets can still destroy portfolios.
Stocks gave up early gains to trade lower in afternoon trade, along with the Dow Jones industrial average.
and the S&P 500 index
Each fell 0.3%, while the Nasdaq composite index fell