Analysis: Wall Street push for bank rescues clashes with Washington
realities
Send a link to a friend
[March 25, 2023] By
Pete Schroeder and Saeed Azhar
WASHINGTON/NEW YORK (Reuters) - The banking crisis set off by the swift
collapse of Silicon Valley Bank has exposed a sharp disconnect between
Washington and Wall Street. Bankers want faster, more aggressive action
to shore up the industry, while the Biden White House and regulators
argue they've done what they can within the limits of the law.
Some critics are asking whether the Biden administration could have
contained the crisis with aggressive actions at the start.
"Policymakers have done some things that are helpful, but they haven't
broken out the big bazooka yet and we have not passed the point of major
vulnerabilities," said Edward Campbell, co-head of the multi-asset team
at PGIM Quantitative Solutions. "They're going to have to do more."
Regional Bank stocks have been hammered since SVB's collapse, led by
First Republic. Analysts and investors worry that without more
government intervention, fleeing depositors may destabilize small and
mid-sized banks.
Some officials in the Biden administration, guided by the public rebuke
of bailouts in the 2008 financial crisis, say they will protect
depositors and the system, but do not intend to rescue individual banks
or put taxpayers at risk.
The tensions between Wall Street and Washington revolve around three
main points: the Federal Deposit Insurance Corporation's (FDIC) failure
to find a buyer for SVB; the Biden administration's messaging around
supporting depositors; and its focus on stricter rules for the banking
sector instead of further relief.
FINDING A BUYER FOR SVB
The failure of the nation's 16th largest bank caught regulators off
guard. The FDIC shuttered the bank in the middle of a Friday, instead of
waiting for markets to close.
That weekend, the administration guaranteed all SVB deposits and started
an emergency liquidity facility for banks, but found no buyer.
“I can’t imagine under what set of circumstances the FDIC might have
thought it was a better outcome to allow the auction to fail,” said
Senator Bill Hagerty, a Tennessee Republican who was briefed by the
FDIC. “We would be dealing with a bank in place right now, as opposed to
a broken process," he said.
The FDIC did not begin talking to potential buyers or allow banks to
review SVB's finances until later on Saturday, according to two industry
sources.
An FDIC spokesperson declined to comment on the sales process.
Senate Banking Committee Chairman Sherrod Brown, an Ohio Democrat, said
his conversations with top U.S. regulators suggested there had been a
chance for a private buyer but "apparently, the due diligence meant that
either they backed out or the FDIC didn’t think they were capable."
One government source noted that the FDIC can only pursue the least
costly deals for its deposit insurance fund, which limits options for a
prompt sale.
[to top of second column] |
SVB (Silicon Valley Bank) logo and
decreasing stock graph are seen in this illustration taken March 19,
2023. REUTERS/Dado Ruvic/Illustration/File Photo/File Photo
The FDIC is expected to announce next steps for SVB's assets this
weekend.
DEPOSIT MESSAGING
Led by Treasury Secretary Janet Yellen, the administration sought to
reassure depositors that their money is safe, while navigating
technical and legal limitations, and making clear they do not intend
to bail out ailing banks.
Markets whipsawed on Yellen's comments this week, struggling to
decode how far the administration would go to protect depositors and
the banking system.
The administration says it is doing all it can to protect
depositors, without putting taxpayer funds at risk or bailing out
banks.
“We will use tools we have to give the American people confidence
that their deposits will be safe," White House press secretary
Karine Jean-Pierre said Thursday.
A Treasury spokesperson also noted that deposits have stablized at
regional banks and in some cases "modestly reversed."
The banking industry itself is not united on how to reassure
depositors.
"Certainly, people would like to see more out of the Biden
administration,” said Chris Brown, a lobbyist with the firm Mindset
in Washington and former House Financial Services Committee staffer.
However, "what they would like to see runs the gamut," he said.
MORE RELIEF OR REGULATION?
The banking industry is searching for sweeping relief to calm
markets, while Washington is discussing how to prevent the next
crisis.
"My sense right now is that regulators think everything is under
control," said Todd Phillips, a former FDIC attorney.
President Joe Biden has asked for legislation to make it easier to
claw back pay and profits from stock sales for executives at failed
banks. The Federal Reserve is expected to ramp up rules for regional
banks.
"It is clear we do need to strengthen supervision and regulation.
And I assume that there will be recommendations ... and I plan on
supporting them," Fed Chairman Jerome Powell said Wednesday.
(Reporting by Pete Schroeder and Saeed Azhar; additional reporting
by Chris Prentice David Morgan, Andrea Shalal, Heather Timmons and
Paritosh Bansal; editing by Megan Davies, Heather Timmons and
Suzanne Goldenberg)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |