US officials are working on a “material action” over the weekend in an attempt to limit the ripple effect throughout the country’s banking system after Silicon Valley Bank abruptly collapsed on March 10.
According According to a Reuters report citing unnamed sources, officials in the Joe Biden administration assessed the impact of the bank’s failure over the weekend with a focus on venture capital firms and regional banks.
“This will be a material action, not just words,” a source told Reuters.
During a speech on March 6, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg speak on the risks associated with rising interest rates in the United States. “The current interest rate environment has had dramatic effects on the profitability and risk profile of banks’ financing and investment strategies,” he noted before adding that:
“The total of these unrealized losses, including securities available for sale or held to maturity, was approximately $620 billion as of the end of 2022. Unrealized losses on securities have significantly reduced the reported equity capital of the industry. bank”.
According to Gruenberg, the “good news” about billions in unrealized losses is that “banks are generally in strong financial shape.”
“On the other hand, unrealized losses weaken a bank’s future ability to meet unexpected liquidity needs. This is because the securities will generate less cash when sold than originally anticipated, and because the sale often causes a reduction in regulatory capital.
This is a developing story, and more information will be added as it becomes available.
