The “G” to the rescue … God help us!
Treasury Secretary Janet Yellen said Tuesday the government is ready to provide further guarantees of deposits if the banking crisis worsens.
“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” Yellen said. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
… government isn’t the solution to our problems, government is the problem.
~ Ronald Reagan
The comments come in the wake of several bank failures, most notably Silicon Valley Bank and Signature Bank.
Customers worried that liquidity problems caused by duration risk with the banks’ holdings could cause similar banks not to be able to meet deposit requirements.
In response, regulators said they would guarantee all deposits, going beyond the previous $250,000 level for the two institutions. Yellen’s comments indicate that the authorities are prepared to do the same for other institutions that need it.
Regulators are studying a way to guarantee all deposits.
One idea that has been floated has been to offer a tiered pricing system in which depositors would pay extra to guarantee deposits above $250,000.
“The situation is stabilizing. And the U.S. banking system remains sound,” Yellen said. “The Fed facility and discount window lending are working as intended to provide liquidity to the banking system. Aggregate deposit outflows from regional banks have stabilized.”
Bank shares broadly have been unstable over the past several weeks, with all their right – the past few weeks echo 2008 almost verbatim.
Though the industry is considered well capitalized, the nature of that capital has presented problems.
Many banks have loaded up on longer-duration securities such as Treasurys, mortgage-backed securities and municipal bonds.
First Republic in particular has a large share of munis on its balance sheet.
As interest rates have soared over the past year, that has decreased the face value of those bonds.
In SVB’s case, the bank was forced to sell a large portion of its holdings at a loss to meet depositor demands, spurring a further crisis of confidence.
There remain worries over large amounts of unrealized losses on many bank balance sheets.
Yellen expressed her commitment to making sure the smaller banks stay strong.
“The Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions,” she said.
When the government wants to “fix” all our problems, we no longer live in a free market capitalism state. We live in a government controlled, socialized state.
The government bandaging an underlying financial crisis is only going to work for so long. The bandage will not hold forever, and the longer they hold it back – the worse it’s going to get.
Guaranteeing depositors of a bank where the majority of their political donors and elites have their money is only going to open a can of worms because they’re not going to be able to afford to do the same for everyone else.
I look forward to working with you…