APRIL 6, 2023
The Wall Street Journal recently ran a story that looked at how public policy is affecting bank deposits, as money-market funds flock to the Fed’s reverse-repo facility. “Banks are under pressure from depositors’ embrace of money-market funds, pushing a popular Federal Reserve-sponsored financing program into the spotlight” according to the Journal. If nothing changes, expect a huge impact on credit availability.
“Small and mid sized banks won back nearly $6 billion of deposits during the week that ended March 22, staunching hemorrhaging caused by the sudden failures of prominent regional lenders,” according to American Banker, which recently reported smaller U.S. banks attracted $5.8 billion in deposits the week after SVB and Signature failed. Though small relative to what flowed out of the system, the gain does suggest that concerns about U.S. banks are easing, analysts say.
Two senior banking consultants from PwC shared oversight tips for bank directors amid ongoing uncertainty and industry stress, including planning for the post-stress environment, reviewing your crisis action plans, and seeking out independent perspectives.
Another piece, courtesy of American Banker, determined higher rates and shorter maturities in unsecured commercial paper are increasing the likelihood of a credit crunch. But, as the article points out, the Fed may establish a funding facility for commercial paper to prevent further tightening.
The banking industry needs to avoid a “whack-a-mole” political or regulatory response to the banking crisis, JPMorgan CEO Jamie Dimon wrote in his annual letter to shareholders. He added that it's unlikely that tighter regulations would have stopped the deposit run at Silicon Valley Bank. He also said the crisis had raised the risk of recession and the industry would be feeling its effects “for years to come.”
Maturing commercial real estate debt could become the next big concern for smaller banks, and lenders' exposure to this market sector could draw attention during the earnings season that gets underway next week. As reported, rising vacancy levels and high interest rates have analysts concerned about banks’ exposure to office, retail, and apartment buildings, especially if a recession hits.
The Consumer Financial Protection Bureau issued a policy statement recently clarifying what the agency classifies as “abusive” acts or practices under the Dodd-Frank Act.
The detailed statement does not bring forth any new legal requirements but does offer background and an analytical framework that would help federal and state agencies identify firms when they violate the law, CFPB Director Rohit Chopra said in a statement.
Legislation restricting compensation for execs of failed banks could be in the works. As reported recently, a piece of bipartisan legislation would give the FDIC greater power to reclaim compensation from failed bank executives for up to five years prior to the bank's failure. It’s one of the few topics on which Republican and Democrat lawmakers agree, writes American Banker’s Claire Williams.
American Banker's Claire Williams joined Rob Blackwell’s Banking with Interest podcast for a wide-ranging conversation.