US government races to reassure banking system is safe
New York : Depositors withdrew savings and investors broadly sold off bank shares Monday as the federal government raced to reassure Americans that the banking system was secure after two bank failures fed fears that more financial institutions could fall.
President Joe Biden insisted that the system was safe after the second- and third-largest bank failures in the nation’s history happened in the span of 48 hours. In response to the crisis, regulators guaranteed all deposits at the two banks and created a program that effectively threw a lifeline to other banks to shield them from a run on deposits.
“Your deposits will be there when you need them,” Biden told the public, seeking to project calm. He also said the banking executives responsible for the failures would be held accountable.
In other developments, the Federal Reserve announced that it would reassess its supervision of Silicon Valley Bank.
“We need to have humility and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” said Michael Barr, the Fed’s vice chair for supervision, who will lead the effort.
Regulators closed the bank Friday after depositors rushed to withdraw their funds all at once. The only larger failure in U.S. banking history was the 2008 collapse of Washington Mutual. New York-based Signature Bank was seized by regulators late Sunday in third-largest failure in the U.S.
In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000.
Despite the message from the White House, investors broadly dumped shares in bank stocks. Shares of First Republic Bank closed down more than 60% even after the bank said it was taking emergency funding from the Federal Reserve and additional money from JPMorgan Chase.
Shares in KeyCorp and Comerica plunged by nearly a third. The stock of well-known franchises such as Charles Schwab, Fifth Third Bank, Truist and Huntington Bancshares all dropped by double digits.
The selloff happened in part because the country woke up to a new banking system and investors had to find the winners and losers, banking experts said.
There was no guarantee that the anxiety would not spread. Customers at other banks with deposits over the $250,000 limit remained at risk of losing access to their money for a time.
Just because the government covered for Silicon Valley Bank and Signature Bank “doesn’t mean they are going to cover for these smaller banks,” said Chris Caulfield, a senior partner at West Monroe.
In Asia, direct exposure to the risks from the U.S. failures seemed slim, at least so far. Hirokazu Matsuno, the Japanese government spokesman, told reporters a major ripple effect to the Japanese financial system was unlikely. But fears sent regional benchmarks lower in morning trading.
Japan’s benchmark Nikkei 225 dropped 1.7%, extending losses from the day before. Australia’s S&P/ASX 200 dipped 2.1%, and South Korea’s Kospi fell 0.9%. The Shanghai Composite index lost 0.7%, while Hong Kong’s Hang Seng was down 1%.
Wesley Zheng, co-founder and CEO of Posh Robotics, which is working to develop sustainable batteries, said he will move $4 million from Silicon Valley Bank to JPMorgan Chase.
“No more small banks. We have so many other things we’re working on, we don’t want to be worried about figuring out the risk management of the banks we’re working with,” he said.
Further, the government’s actions suggested it would stand behind all deposits if doing so prevents damage to the broader economy.
“Everything is now covered. That’s a fact. No matter how specialized or isolated your bank is, if there’s a risk of contagion, regulators have made it clear that they are going to intervene,” said Norbert Michel, a banking policy expert at the libertarian-leaning Cato Institute. (AP)