Fierce Patriots

Conservative Political News

  • Subscribe

<![CDATA[Federal Reserve]]>

Two Weeks After Its Total Collapse, Silicon Valley Bank Has a New Owner

by Leave a Comment

On March 10, Silicon Valley Bank suffered a historic collapse, which briefly spiraled into a small financial crisis that took down two other banks. Two weeks later, a new buyer steps in as the largest regional bank in the U.S. acquires the San Bernadino bank.

First Citizens Bancshares Inc. has bought large pieces of Silicon Valley Bank, according to the FDIC – a move which moves them into the Top 25 banks in the U.S.

Via the Wall Street Journal:

The purchase includes $119 billion in deposits and about $72 billion of SVB’s loans at a discount of $16.5 billion. Some $90 billion of SVB’s securities will remain in receivership.

Regulators took control of Santa Clara, Calif.-based SVB on March 10. The collapse sparked a panic that led to the weekend failure of Signature Bank and a dramatic intervention by financial regulators aimed at easing fears that depositors would flee smaller lenders.

The sale represents a milestone in regulatory efforts to clean up after two of the largest bank failures in history, at a time when investors are on edge about the health of the global financial system.

[…]

The FDIC agreed to share any of First Citizens’ losses or potential gains on SVB’s commercial loans. Overall, the FDIC estimated the failure of SVB will cost a federal insurance fund it oversees about $20 billion, or roughly 10% of the bank’s assets before its failure.

SVB’s collapse appears to be traceable largely to risky business practices – some of which federal regulators knew about well in advance – combined with a run on deposits as rising interest rates forced tech companies to withdraw cash the bank no longer had.

The fallout from the collapse spiraled into a collapse of New York’s Signature Bank (which the FDIC also took over two weeks ago) and a near-collapse of First Republic (another tech-aligned bank). In the wake of Signature Bank’s collapse, the federal regulators chose to back uninsured depositors of Signature and Silicon Valley Banks, in an attempt to assuage the fears of depositors at other banks.

The markets have rebounded this morning in light of the news, signaling Wall Street is more confident in the financial sector. However, smaller financial institutions are still facing a confidence crisis, according to the above Wall Street Journal story:

At the same time, deposits continue to depart smaller U.S. banks following a surge in inflows during the Covid-19 pandemic. The outflows are going in part to the largest U.S. lenders, many of which are viewed as enjoying implicit government backing. The outflows also reflect, in part, the higher rates offered by money-market funds and short-term Treasury debt as the Federal Reserve has sharply raised interest rates in a bid to quell high inflation.

The big question, however, is how these financial moves might impact the Federal Reserve going forward. Despite warnings from Wall Street that such a move could be disastrous, the Federal Reserve Board voted to increase the interest rate by 25 basis points (0.25 percent), continuing with its goal of bringing inflation down to 2 percent.

Trending on RedState Video

Fed Raises Interest Rate to Continue Fight Against Inflation, UK Follows Suit

by Leave a Comment

Amid fears that recession is still running hot, the Federal Reserve announced on Wednesday that it would be raising the interest rate by another quarter of a percent.

The news came despite multiple financial experts and Wall Street executives warning that the recent financial crisis – in which three banks collapsed – should give the Fed pause about continuing to raise rates.

However, Fed Chair Jerome Powell countered those fears in his statement following the Fed’s decision, noting that the bank failures, which began with Silicon Valley Bank’s collapse earlier this month, were the fault of risky investing practices and failure to follow regulatory guidelines.

The Fed has maintained that its job is, first and foremost, to bring inflation down, and they have set a goal of at or below 2 percent inflation. That suggests they will continue to be more aggressive on interest rate hikes and don’t see the recent mini-financial crisis as a direct result of their policy.

The Fed’s Wednesday decision was followed up Thursday with a similar move in the U.K., as the Bank of England raised interest rates by a quarter of a percent (bringing it to 4.25 percent), citing signs of inflation also running hot there.

But the good news for the UK is that the Bank of England also believes the nation is no longer headed toward recession. Via the BBC:

The Bank also said the UK was no longer heading into an immediate recession.

“We were really a bit on a knife edge as to whether there would be a recession… but I’m a bit more optimistic now,” said Bank governor Andrew Bailey.

However, Mr Bailey warned the UK was “not off to the races”, with the economy expected to grow only slightly in the coming months.

Interest rates have been rising steadily in an attempt to tackle rising prices.

Inflation, which is the pace at which prices rise, remains close to its highest level for 40 years at 10.4% in the year to February – more than five times the Bank’s target.

Globally, inflation has been on the rise, but the U.S. and U.K. have seen it rise higher than almost anywhere else. In the U.S., the primary cause has been the amount of money given to citizens to combat other poor economic conditions during the COVID-19 pandemic. That much money dumped into the U.S. economy led to a massive spike in the inflation rate.

And while the Bank of England may believe that the U.K. is no longer headed for recession, there is still concern that the U.S. economy may well be on its way toward one. The Federal Reserve has been aggressive at raising the interest rate, but it still has to do it incrementally or risk completely destabilizing the economy (even further).

That balancing act has put the Fed in the crosshairs of the left and the right. Progressives in particular are demanding that the Fed pause interest rate hikes and focus on regulations. Conservatives are wary of federal regulators and are currently demanding answers as to why those banks were bailed out.

Trending on RedState Video

Midsize Banks to Feds: Insure All Our Deposits for Two Years

by Leave a Comment

A coalition of midsize banks sent a letter to Treasury Secretary Janet Yellen, the Federal Deposit Insurance Corporation (the FDIC), the Comptroller of the Currency, and the Federal Reserve requesting that the FDIC insure all their deposits for the next two years, according to Bloomberg.

The request comes amidst a banking crisis that started earlier this month with the collapse of Silicon Valley Bank (SVB) and then Signature Bank. The group wrote:

“Doing so [insuring all deposits] will immediately halt the exodus of deposits from smaller banks, stabilize the banking sector and greatly reduce chances of more bank failures,” the Mid-Size Bank Coalition of America [MBCA] said in a letter to regulators seen by Bloomberg News.

The bank runs have created turmoil on Wall Street, with fears running high that we are reliving the dark days of 2007-2008 when the entire banking system came under duress. Investment giants like Lehman Brothers were shuttered forever, while others were bailed out by the government. Resentments still linger today among many who feel the government unfairly picked winners and losers, while taxpayers footed the bill.

Similar sentiments abound today, with many asking, “why should we retroactively insure deposits at a failed bank?” It’s a good question.

The crisis caused many depositors to take their money from regional lenders and move it to larger banks like Bank of America and J.P. Morgan which are considered “too big to fail.”

The group continued:

“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the group said in the letter. “Confidence in our banking system as a whole must be immediately restored,” it said, adding that the deposit flight would accelerate should another bank fail.

The expanded insurance program would be paid for by the banks themselves by increasing the deposit insurance assessment on lenders that choose to participate in increased coverage, the MBCA proposed. What they don’t mention is those costs would presumably be passed on to customers in the form of higher fees.

Once again, South Park was prescient, joking about banks wiping out clients’ deposits in 2021:

The MBCA, which includes 110 members—with some banks worth as much as $100 billion—continued their plea:

It is imperative we restore confidence among depositors before another bank fails, avoiding panic and a further crisis. While the cost of deposit insurance is not insignificant, the likelihood of it being needed is much, much smaller should all deposits be temporarily insured.

The Treasury Department, the FDIC, the Federal Reserve, and MBCA itself all refused to respond to Bloomberg’s request for comment, although Deputy US Treasury Secretary Wally Adeyemo said Friday that deposits have begun to stabilize at small- and medium-sized banks and even “modestly reverse” in some cases.

There’s plenty of blame being thrown around for the fiasco—was it Donald Trump’s fault because he eased some regulatory requirements for midsize banks? (The answer is no. He’s been out of office for over two years. This is Joe Biden’s ship now.) Was it the fault of woke bankers who cared more about ESG than risk management? (There is some evidence for this, yes.) Was it too much regulation, or not enough regulation?

My view is that Joe Biden’s insane spending spree is the root cause. The massive inflation that followed caused the Fed to repeatedly raise interest rates, which many of the long-term bonds SVB had invested in worthless—and suddenly, they were out of business. That doesn’t excuse their own failed risk management policies, but the spending which caused the inflation is still the fundamental issue.

The question now is, how will the government respond to MBCA’s pleas?

The opinions expressed by contributors are their own and do not necessarily represent the views of RedState.com.

See also:

Silicon Valley Bank Spent $74 Million on Black Lives Matter and Social Justice Causes

Gavin Newsom Praises Biden’s Backing of SVB Customer Deposits, Forgets to Mention He Was a Client

Trending on RedState Video

Elizabeth Warren Calls for More Regulations to Kill Small Banks, Hurt Taxpayers

by Leave a Comment

U.S. Senator Elizabeth Warren has been one of the loudest voices on banking regulations, and the collapse of Silicon Valley Bank has given her a renewed opportunity to pitch her fever dream of increased regulations on the nation’s largest banks.

However, her calls on Sunday make absolutely no sense in that regard, because as much as she says she wants to keep them in line, her latest demands benefit those banks and the wealthy.

Via the Washington Post:

Sen. Elizabeth Warren (D-Mass.) on Sunday called on Congress to lift the federal insurance levels for bank deposits above $250,000, a week after the Biden administration announced it would protect all depositors at Silicon Valley Bank, regardless of how much money they had in the failing institution.

Currently, the Federal Deposit Insurance Corporation, or FDIC, insures only up to $250,000 in deposits at banks. On CBS’s “Face the Nation,” Warren, a member of the Senate Banking Committee and a commercial and bankruptcy law expert, suggested raising that figure to anywhere from $2 million to $10 million.

“Small businesses need to be able to count on getting their money to make payroll, to pay the utility bills,” she said. “Nonprofits need to be able to do that. These are not folks who can investigate the safety and soundness of their individual banks. That’s the job the regulators are supposed to do.”

The problem with Warren’s claim, which on its face sounds like a defense of small business owners, is that it also greatly benefits the larger companies that use our nation’s biggest banks to hold on to their assets.

What’s more, Warren wants regulations that most large banks can easily comply with while smaller banks struggle to follow.

The brief financial crisis last week was centered around fears that there would be a run on small and regional banks rather than the biggest firms. What’s more, the regulators who are supposed to be checking these things knew about SVB’s problems for more than a year and did nothing. The SVB crisis wasn’t about a lack of regulation, it was about unmonitored, high-risk behavior.

“Those are the banks for whom the principal regulator is the Federal Reserve Bank. And those are the banks that took on these risky practices that ultimately have … blown up at least three banks,” Warren said. “We need tough regulation. If you’ve got more than $50 billion … you ought to be subjected to stress tests and decent capital requirements and so on.”

How exactly does Warren, or any progressive for that matter, propose more regulations when the current regulations simply aren’t being enforced? How would a company be motivated to be safer with its investments and money if the government offers to bail them out time and time again?

What Warren is proposing isn’t a way to protect you and me. Whether she knows it or not, what she’s offering benefits the nation’s wealthiest and hurt you and me. Once again, Wall Street actually gets favored over Main Street. That’s anathema to what she actually stands for, but she doesn’t actually understand what her policies are doing.

She also blasted the Federal Reserve’s continued interest rate hikes. “Raising interest rates doesn’t do anything to solve those problems. All it does … is put millions of people out of work,” she said. But, unable to cite her work, she comes just short of calling on President Joe Biden to fire Fed Chair Jerome Powell. She also completely ignores that what the Fed is doing is working – inflation has been cooling off, bit by bit, over the last few months.

But Warren and other progressives are full of rhetoric and little else when it comes to the financial health of the country. She once again proved that today.

The opinions expressed by contributors are their own and do not necessarily represent the views of RedState.com.

Trending on RedState Video

The Fed Knew Silicon Valley Bank Had Problems a Year Ago, and They Did Nothing

by Leave a Comment

More than a year before a shocking collapse that led to a near-crisis in the financial sector, Silicon Valley Bank was the subject of an investigation set in motion by the Federal Reserve in San Fransisco, according to a new report.

Bloomberg is reporting today that the investigative team, made up of senior examiners for the Fed, was tasked with assessing the firm and its potential risks. What they found, it seems, should have been enough to get regulators involved long before the bank collapsed and sent shockwaves through the tech and financial sector – and long before taxpayer bailouts became an option.

According to Bloomberg, those investigators “fired off a series of formal warnings to the bank’s leaders, pressing them to fix serious weaknesses in operations and technology, according to people with knowledge of the matter.”

More from the report:

Then late last year they flagged a critical problem: The bank needed to improve how it tracked interest-rate risks, one of the people said, an issue at the heart of its abrupt downfall this month.

The Federal Reserve has promised to investigate how it supervised SVB Financial Group’s Silicon Valley Bank, now the second-biggest failure of a US lender in history. The relatively late discovery of so many flaws raises questions about whether the Fed was diligent in stepping up oversight as the firm was ballooning in size. On Friday, Santa Clara, California-based SVB Financial filed for Chapter 11 bankruptcy protection.

In a twist, the San Francisco Fed’s deputy point person in charge of monitoring the bank until late 2021 received a new assignment afterward, becoming the regulator’s point person on Silvergate Capital Corp., according to people with knowledge of the situation. Silvergate also shut this month because of similar flaws in its deposit base and the positioning of its balance sheet.

A representative for the Fed declined to comment.

As the Democrats call for more regulation of the banking industry, this report highlights a familiar problem – namely, that the regulations and safeguards already in place don’t appear to be working.

The fact of the matter is that the bank had enacted an incredibly risky investment strategy – among other things, a total lack of diversity in their investments – and had no chief risk officer for most of the last year. There was no one around to tell them they were acting stupid.. except for the Fed, which tried. The bank just didn’t listen.

When the FDIC seized the bank, it was the first time the Biden administration was told of the problems the bank was facing, but the Federal Reserve was aware of them. In other words, it looks a whole lot like 9/11 in one regard: Federal agencies weren’t talking to each other, and something bad happened as a result of their negligence.

So when the Democrats and progressives and their allies in the media tell you we need more regulation, it’s important to point out that they can’t seem to enforce what’s already there, and imposing more restrictive regulation will only hurt small and regional banks (who don’t always have the capital to fully comply) while the big banks do very little to change their risky practices.

Janet Yellen admitted in a Senate hearing yesterday that those smaller banks won’t get the same opportunities at bailouts that big banks do. So the small banks get hurt by stifling regulations and the big banks can continue to take giant risks knowing the government will bail them out each and every time.

That’s the real underlying problem with all this. Time and again, the biggest banks, corporations, etc. can do all the shady or risky things they want to and they’ll be forgiven and even bailed out. They are, as was deemed during the last major financial crisis, “too big to fail.” But while Wall Street can suckle the fruitful teat of government, Main Street is never given that opportunity.

That is the real “systemic risk” we are facing today.

Trending on RedState Video