Press Center

Bank supervisors under bipartisan fire from Senators

Host David Brancaccio

Lawmakers on Senate Banking Committee yesterday grilled bank supervisors and other government financial regulators over alleged failures in oversight leading up to the recent bank collapses. Karen Petrou, managing partner at Federal Financial Analytics, walks us through what’s been said so far — and what could be in store for today’s hearing. Plus, housing prices remain all too high for many people, but recent data suggest a tapering in the rate of rent inflation. And, a look at the economic and environmental effects of having a lead smelting plant in the Los Angeles area, one of the few remaining in the country.

https://www.marketplace.org/shows/marketplace-morning-report/bank-supervisors-under-bipartisan-fire-from-senators/

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Bank crackdown takes shape

By Zachary Warmbrodt

Top Federal Reserve and FDIC officials are beginning to preview what the post-SVB banking rulebook will look like. Here’s what we know: Michael Barr, the Fed’s vice chair for supervision, will tell senators at a hearing on SVB’s collapse this morning that officials need to “enhance” bank stress testing, consider stronger liquidity requirements and explore “other reforms” to help make the financial system more resilient. Barr’s comments matter because he’s the Fed’s pointman on bank regulation. He’s leading the Fed’s review of what went wrong at SVB, and Fed Chair Jerome Powell has pledged to support Barr’s recommendations….Even if Republicans continue to complain at this week’s Senate and House SVB hearings, it will be easier for regulators to brush off.
“Although there will be continuing GOP pressure to ease pending capital revisions, the banking agencies will toughen the rules they now target knowing that crises dull Congress to fears about macroeconomic impact,” Federal Financial Analytics managing partner Karen Petrou told MM. “There will surely be some macroeconomic impact, not to mention continuing transformation of banking to shadow banking,” she added. “But the agencies will do what they want and mostly what they’ll want is to look tough.”

https://www.politico.com/newsletters/morning-money/2023/03/28/bank-crackdown-takes-shape-00089127

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Isolated issues or systemic risks? The Fed’s framing conundrum

By  Kyle Campbell

Federal Reserve Vice Chair for Supervision Michael Barr has two distinct, if not contradictory, messages to convey on Capitol Hill this week. Barr will appear in front of Senate and House committees this week alongside other bank regulators to discuss recent volatility in the banking sector. During those hearings, he will attempt to frame the failures that set off the crisis as the result of uniquely poor bank-level management. He will also use them as evidence that broader reforms are needed…Karen Petrou, managing partner at Federal Financial Analytics, said Barr’s credibility this week will rely, at least partly, on his acknowledgment of the role supervisors played in failing to address blatant issues within the two failed banks. “It is a dereliction of duty for the Fed to blame SVB or Signature’s problems solely on bad management,” Petrou said. “The M in CAMELS [supervisory ratings] stands for management, and supervisors are supposed to judge and discipline it. Indeed, poor management is usually the leading edge of problems in each of the other CAMELS factors, making this judgment the linchpin of supervisory responsibilities.”

https://www.americanbanker.com/news/isolated-issues-or-systemic-risks-the-feds-framing-conundrum

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Does deposit insurance matter if your bank can’t fail?

By  Ebrima Santos Sanneh

WASHINGTON — Most companies don’t expect their main banking partner to fail — indeed, before this month, none had failed since 2020. So rather than depositing their money into the safest possible accounts, many firms have instead prioritized interest rate returns and convenience over reducing deposit risk. Greyson Tuck, president of consulting firm Gerrish Smith Tuck, says Silicon Valley Bank’s tech customers and their financial officers would rather hold large amounts of cash uninsured than manage hundreds of accounts in the name of absolute FDIC insurance coverage…..Karen Petrou, managing partner at Federal Financial Analytics, says another reason Silicon Valley had so many uninsured deposits was the way they allegedly enforced exclusive banking partnerships with companies seeking loans. If that was the case, she said, it means whole networks of tech companies and their affiliates had all their eggs in one basket. “SVB appears to have mandated ‘exclusivity’ clauses requiring any venture capital firm that received funding from the bank not only to deposit proceeds with the bank, but also require by covenant that any entity in which the VC invested do the same,” said Petrou. “It is for this reason that so many small tech and biomed firms had such large deposits at SVB, including  payroll.” Petrou said that if subsequent investigations confirm that SVB relied on exclusivity clauses for its startup clients, regulators should immediately prohibit such clauses as preconditions for banking …

SVB Collapse Prompts Effort to Quash Bank Frenzy on Social Media

By Evan Weinberger

Speed of social media puts banks at risk of rumor-based runs
New rules, better communication considered for halting deposit flight
Silicon Valley Bank’s collapse has been called the first “Twitter bank run,” and banks and policymakers are scrambling to find ways to prevent the next one.Tech executives and investors’ social media posts—including group chats, Slack messages and investor Bill Ackman’s tweets—contributed to a massive, unprecedented amount of withdrawals that crippled SVB earlier this month…Some potential solutions don’t require new law, said Karen Shaw Petrou, the co-founder and managing partner of Federal Financial Analytics, a financial advisory firm. Banks could be required to have an early warning system to know when deposit accounts are close to reaching the $250,000 statutory limit for federal deposit insurance, Petrou said in her analysis. Changing bank liquidity requirements also would allow financial institutions to better handle sudden runs, she said.

https://news.bloomberglaw.com/banking-law/banks-regulators-mull-social-media-impact-on-bank-runs-after-svb…

Fix Deposit Insurance, or the Bank Bailouts Won’t Stop

By Karen Petrou

Expanding the FDIC’s insurance limit of $250,000 “is not something we are considering,” Treasury Secretary Janet Yellen told a Senate committee on Wednesday. About the author: Karen Petrou is managing partner at Federal Financial Analytics and the author of Engine of Inequality: The Fed and the Future of Wealth in America. In 1933, President Franklin D. Roosevelt assured Americans that “all we have to fear is fear itself.” But when it came to federal deposit insurance later that year, FDR thought that a bit of fear would be good for banking-system discipline. He opposed the creation of the Federal Deposit Insurance Corp., conceding to it only when the deposit-insurance coverage limit was set at average household savings, about $58,000 in current dollars. Depositors today have lost any fear. The deposit-insurance ceiling is now a more-generous $250,000. Failed banks have been rescued for decades without repercussions for insured depositors. When the prospect of loss suddenly loomed at Silicon Valley Bank, adrenaline rushed back into the system…

https://www.barrons.com/articles/banks-deposit-insurance-bailouts-fdic-3330499c…

What to know about First Republic Bank

By Karl Evers-Hillstrom

First Republic Bank is the latest financial institution to come under stress following the second- and third-largest bank failures in U.S. history. The San Francisco-based bank, which had $212 billion in assets at the end of last year, has seen its stock price plummet 87 percent over the last two weeks as large depositors pulled their funds…“The reason why I think First Republic and the other banks, while problematic, are not as fragile is that their percentages of uninsured deposits, while relatively high, is far lower than Signature and SVB and their asset base is a good deal more diversified,” said Karen Shaw Petrou, managing partner of Federal Financial Analytics.

Sylvan Lane contributed

https://thehill.com/business/3911002-what-to-know-about-first-republic-bank/

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Deposit backlash

By Zachary Warmbrodt

How to head off future ‘viral’ bank runs — Federal Financial Analytics is out with a new report looking at ways policymakers may try to prevent future social media-fueled bank runs in light of SVB’s failure. Among the potential ideas: A mandatory early-warning system when deposits near the $250,000 insurance limit, stricter liquidity rules and run-risk scenarios in stress testing.

https://www.politico.com/newsletters/morning-money…

Two Big Ideas for Preventing Another Banking Crisis

By Joe Nocera and Michael J. de la Merced

Last year, Marc Lasry, the owner of the Milwaukee Bucks basketball team, revealed that its star player, Giannis Antetokounmpo, at one time had been putting his money in 50 banks, with no single account holding more than $250,000. Why? Because Antetokounmpo wanted every cent to be insured by the Federal Deposit Insurance Corporation. And $250,000 is the cap on insured deposits….“Ever since the S.&L. crisis in the 1980s, everyone gets rescued,” said Karen Petrou, a co-founder of Federal Financial Analytics, referring to depositors.

https://www.nytimes.com/2023/03/18/business/dealbook/banking-crisis-svb.html?searchResultPosition=1…

What you need to know about this week’s banking crisis

By Tobias Burns and Sylvan Lane

Markets and policymakers have been waiting for the other shoe to drop since the collapse of Silicon Valley and Signature banks last week, fearing a broader international banking crisis. Concerns about the health of First Republic Bank and slew of other regional powerhouses rattled markets for weeks and the troubles facing Credit Suisse added an international element to the meltdown…The reason the banking agencies intervened Sunday night … was that the risk was that the run would go from some banks to all banks. That risk is substantively quashed because of the Fed’s backstop.” said Karen Shaw Petrou, managing partner at Federal Financial Analytics. Even so, Petrou warned, “this is a situation that is driven by fear, and that brings out adrenaline, and depositors can’t fight, so they flee. Any additional sign of anything even a little scary could start this up again.”

https://thehill.com/business/3904015-what-you-need-to-know-about-this-weeks-banking-crisis/

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