The banking crisis will tilt US into recession, say Fed economists CNN Business

Investors have been rattled by the collapse of two US regional banks — Silicon Valley Bank and Signature Bank — earlier this month. Sunday’s rescue of Credit Suisse by bigger Swiss rival UBS calmed markets at the start of this week, but the fear of a wider banking crisis returned Friday. Under the Basel TLAC standard, G-SIBs are required to hold an additional cushion on top of their minimum regulatory capital requirements. In addition to common equity, TLAC includes unsecured debt with a remaining maturity of more than one year, so long as that debt is subordinated to deposits and other excluded liabilities. Under the 2016 TLAC standard agreed by the Basel Committee on Banking Supervision, regulators began requiring the world’s largest banks to maintain a minimum level of long-term, unsecured debt to complement their regulatory capital. If a bank’s losses exhaust its capital, the additional layer of debt can be “bailed-in,” that is, converted to equity, providing an additional cushion against the bank’s insolvency.

Biden proposes reforms to strengthen oversight of larger banks — March 30

1. As interest rates rose, the value of Silicon Valley Bank’s investment went south.
2. Silicon Valley Bank had to sell its investments at a huge loss to meet its customers’ demand.
3. In the interim, Executive Director John Arnold will serve as CFO and senior vice president for business affairs.
4. Goldman Sachs said Wednesday that growing stress in the banking sector has boosted the odds of a US recession within the next 12 months.
5. Christine Lagarde, president of the European Central Bank, told reporters Thursday that “persistently elevated market tensions” could further constrict credit conditions that were already tightening in response to rising interest rates.
6. “Homebuyers in 2023 have shown themselves to be quite sensitive to any changes in mortgage rates,” Fratantoni said.

The net impact of these various factors on the observed outcomes in the banking system is not easy to disentangle and is left aside for the purpose of this discussion. When conditions are suited for bank fragility, instability in one bank may trigger a loss of confidence in another bank. This kind of contagion is a looming threat for bankers and policymakers trying to contain a crisis.

However, it does set an additional subordination requirement, called a bank’s total liabilities and own funds (TLOF), which is set at 8% of RWAs. Fourth, ensuring a minimum amount of TLAC and LTD requires continuous monitoring by banks and their supervisors. For example, one month before SVB’s fateful press release, First Republic redeemed $500 million of its senior debt, roughly two-thirds of its outstanding TLAC-able debt. The current US rules prevent G-SIBs from redeeming LTD if doing so would cause them to breach their TLAC or LTD requirements. For example, these three banks were also subject to a capital conservation buffer of 2.5% of their RWAs, which they had to meet entirely with common equity Tier 1 capital (CET1). If they breached their minimum capital requirements plus this buffer (i.e., a total CET1 ratio of 7.0%), regulators would force the banks to pause capital distributions.

Janet Yellen: Washington could protect deposits at bank of “any size” to prevent contagion

One possibility for expanding FDIC insurance would be to draw from the Exchange Stabilization Fund (the emergency reserve account the Treasury uses to mitigate instability) in emergencies. Another idea that’s circulating is having a tiered price system, in which depositors with funds that exceed the insurance limit can pay to guarantee their extra deposits. Flagstar Bank will acquire nearly all of Signature’s deposits and a portion of its loan portfolios for a total transfer of about $38.4 billion in assets.

First, on banks, action and agreement

The flight-to-safety response has sent Treasury yields rapidly lower from recent highs, especially for short maturities. President Joe Biden released a briefing outlining several reforms he’s proposing in the wake of multiple bank failures and following criticism of the government’s regulatory capacity during Senate hearings. Yellen’s comments come two days after reports indicated that U.S. officials were studying how to guarantee all deposits. Her remarks confirm that the FDIC will only insure excess deposits in the case of systemic risk.

Signature Bank was the other casualty of the US banking industry’s turmoil last month and, later, Swiss banking giant Credit Suisse, which was forced to merge with its longtime rival UBS as a remedy. “Such a tightening in financial conditions would work in the same direction as rate tightening,” Powell said, stressing that the banking industry remained sound. Fewer businesses want to come into the city, and residents are less trusting of the government — and, therefore, less likely to pass tax measures that would increase its revenue.

The bank, which had over $200 billion in total assets at the end of last year, primarily provided banking services to venture-backed technology companies. The turbulence in the technology industry meant many customers were burning through cash and taking out their money at a faster pace. Since November 2022, staff economists at the Federal Reserve have predicted subdued growth and a weakening economy during policy decision meetings. When a city files for bankruptcy, it has to enter into a settlement agreement with all of its claimants — the people or entities to whom the city owes or pays money. These include bondholders, bargaining units, individuals or companies who have pending litigation with the city and capital market creditors, among others. The experience of the 1970s, the policy responses to the 1975 global recession, the subsequent period of stagflation, and the global recession of 1982 illustrate the risk of allowing inflation to remain elevated for long while growth is weak.

Sen. Brown closed out the hearing with types of quantitative trading strategies final remarks on the need for well-funded banking regulators. “Events of the last month have shown why we need independent regulators, funding and stability for all of our financial watchdogs,” he said. PurePoint, the savings-only division of MUFG Union Bank, is set to close in late April. At this point, it’s unclear whether the bank’s closure is the result of the ongoing banking crisis. Despite talks of insurance revisions, Treasury Secretary Janet Yellen assured that the bank “situation is stabilizing,” specifically noting that outflows from regional banks have stabilized, in a speech to the American Bankers Association. The future creditworthiness of UBS will largely depend on how it fares post-merger.

First Republic Bank losses persist, Credit Suisse gets lifeline — March 16

Policymakers at the Fed voted unanimously last month for a smaller interest rate increase after turbulence in the banking industry set off fears of bank runs, according to the minutes. If she is elected supervisor, she could theoretically serve as interim mayor for a few weeks, but once sworn onto the board in January, the city will have to gbpnok great britain pound vs norwegian krone gbp nok top correlation appoint a different interim leader at this critical time. During the 2023–24 fiscal year, the city overspent by more than $27.5 million and had to dip into emergency reserves to pay its bills. City policy requires that these reserves stay above 7.5% of the city’s general purpose fund.

Thursday, March 16 — First Republic Bank was teetering on the brink as customers withdrew their deposits. In a meeting in Washington, US Treasury Secretary Janet Yellen and Jamie Dimon, the CEO of America’s The january effect biggest bank, drew up plans for a private sector rescue. The result was an agreement with a group of American lenders to deposit tens of billions of dollars of cash into First Republic to staunch the bleeding.

In the cases this year, crucially, the FDIC did impose losses on existing shareholders and creditors of the three banks. That meant total losses for the three banks’ shareholders (about $43 billion, based on separate calculations of the book value and market value at year-end), preferred equity holders ($7.3 billion), and other creditors ($4.7 billion). The total bail-in for shareholders and creditors was therefore about $55 billion (see Figure 2). Moody’s downgraded First Republic’s credit rating to junk status Friday night and S&P cut the bank’s rating to junk Sunday. Moody’s said the downgrade reflects the deterioration of the bank’s financial profile and “significant challenges” it faces from its reliance on shorter-term and higher-cost funding as customers yank their cash out. In that event, central banks across the world, including the Reserve Bank, would be forced to cut, rather than raise, interest rates.