mario tama
Recent tensions in the banking system that resulted in the failures of Silicon Valley Bank and Signature Bank will take time to clear up, said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis. during an interview on CBS’s “Face the Nation” on Sunday. Such tensions will also bring the US economy closer to recession, he added.
“We know there are other banks that have long-term Treasury exposure that have some duration risk, as we call it, on their books,” he said. “We also know that there is a lot of commercial real estate in the banking sector and there are some losses that will probably work their way through the banking sector. So that process will take time to fully clear up.”
Even so, he pointed out that the banking system has a lot of capital to be able to withstand these pressures.
The recent stress in the banking sector “definitely brings us closer” to recession, he said. “What’s not clear to us is how much of these banking stresses are leading to widespread credit crunch.” That credit crunch would slow down the economy.
On the bright side, those “tensions could reduce inflation, so we have to work less with the fed funds rate to balance the economy,” Kashkari said. “It’s something to watch very carefully and that’s what we’re focused on.”
He is encouraged that “deposit outflows appear to have slowed down. Some confidence is regaining among smaller and regional banks.”
But at the same time, the “capital markets have been largely closed for the last two weeks. If those capital markets remain closed because borrowers and lenders are still nervous… that tells me that this is going to have a footprint bigger in the economy,” he said.
Although banking tensions may slow down the economy, “it’s too early to forecast the next interest rate meeting,” Kashkari said. saying. “We’re going to continue to let the data and evidence guide us.”
He sees a need to make US banking regulations fairer for regional and community banks.
“We need regional banks in the United States. We need community banks in the United States,” he said. “Once we get over this period of stress, we have to come up with a regulatory system that ensures the strength of our banking system, but is also fair and even so that community banks and regional banks can thrive. We don’t have that today.” .”
On Friday, UBS analysts said the Fed’s balance sheet implies liquidity stress is stabilizing.
