Banking Crisis 2023

Economists have warned since last summer that speedy monetary tightening could be destabilizing. This week, the Federal Reserve will decide whether to stay on that course.

The incentive structures for both banks and large, sophisticated depositors have changed because of federal regulators' decision to guarantee the uninsured deposits of Silicon Valley Bank and Signature Bank.

In prepared remarks to the American Bankers Association, Treasury Secretary Janet Yellen says the government's intervention to cover uninsured deposits at Silicon Valley and Signature banks "reduced the risk of further bank failures."

The government-backed acquisition heads off regulatory and financial concerns at a Swiss bank that could have affected overseas financial institutions that U.S. lenders count on.

After a bank run led to Signature Bank's failure, New York Community Bancorp bought much of what was left from the FDIC. The acquirer now faces questions about how it will persuade the remaining depositors to stick around.

Since the sudden collapse of Silicon Valley Bank on March 10, unstable deposit funding has roiled the banking industry. Ideas on how to reestablish confidence include providing a temporary guarantee for all deposits, raising the deposit insurance limit and reviving an expired program that helped quell market panic in 2008.

On Monday, the top banking Republicans in both chambers laid blame for Silicon Valley Bank and Signature Bank's failures on the Federal Deposit Insurance Corp. and Federal Reserve, and they asked the agencies for a full autopsy of what went wrong.

The Federal Deposit Insurance Corp. says it has extended the deadline for bids on Silicon Valley Bank, will break the bank into two parts for sale and will allow nonbanks to bid on asset portfolios.

Flagstar Bank, a subsidiary of New York Community Bancorp, will buy most of failed Signature Bank, but it's not taking Singature's digital-assets business as part of the deal.

Institutions can borrow against par-valued securities that they would otherwise have to sell at a loss when there's a run on deposits, and it could have effectiveness beyond its actual usage.