Banking fears, Silvergate, and SVB Financial
March 13, 2023
In other words, banks don’t have to recognize losses to service depositor requests for their funds back.
As you probably read over the weekend, the Treasury, Federal Reserve and the FDIC moved aggressively to extinguish any systemic risk to the US banking system. First and foremost, they made whole all depositors (not just account holders with <$250k of assets) of the two failed banking institutions. This should have the effect of reducing the perceived risk of uninsured deposits and cause depositors to discontinue their run on deposits in excess of $250k. Second, they established a Bank Term Funding Program that will advance banks any calls on their regulatory capital. In other words, if banks would have to sell Treasury bonds or mortgage bank securities for a loss, the program will allow them to borrow based on the par value of their collateral instead. In other words, banks don’t have to recognize losses to service depositor requests for their funds back. The two moves should put a pin in this entire fiasco and calm panicky investors. It is also my belief that this will effectively get the Federal Reserve to pause its rate hiking campaign. I’m sure they recognize now that the amount of tightening that they have put in place is starting to cause stress. The two bank failures was a clear manifestation. My guess is they will sit out the March meeting and this is likely the end.
About the Author
Robert Sigler, MBA
Rob serves as a Managing Director and the Chief Investment Officer for Westshore Wealth. Rob’s long career in the financial services industry reflects a diverse set of vocational tools and experience. He has advised some of the world’s most renowned […]
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