© Reuters. FILE PHOTO: People on Wall Street in front of the New York Stock Exchange (NYSE) in New York City, U.S., March 19, 2021. REUTERS/Brendan McDermid/
By Pete Schroeder, Douglas Gillison, and Hannah Lang
WASHINGTON (Reuters) – U.S. regulators are likely to let emergency measures announced on Sunday to bolster investor confidence in the banking sector sink and increase scrutiny of the industry before stepping in with additional measures, investment experts said. regulation.
Fears remained on Wall Street Monday despite measures announced over the weekend following the collapse of California-based Silicon Valley Bank and New York. signature bank (NASDAQ:). Shares of regional banks tumbled and the bank index ended the day down 7%, its biggest one-day drop since June 11, 2020.
Some investors have called for more action by banking regulators to reassure markets. But banking experts said regulators would probably want to see the extent of any further contagion before deciding on further action.
“It all depends on what the situation will be like,” said Saule Omarova, a law professor at Cornell Law School who was once nominated by President Joe Biden to head the Office of the Comptroller of the Currency, a top banking regulator. “Anything else they can do depends on how creative they are.”
Some experts also argued that there were some signs of optimism that the intervention was helping.
“It is noteworthy that we have yet to see any bank failures throughout the day,” said Young Kim, a banking lawyer at Clifford Chance. “At least some of his goals were achieved in terms of calming fears.”
However, regulators are likely to turn their attention to the gaps in supervision that allowed these banks to accumulate unsustainable risk, these experts said.
Fed Vice President for Supervision Michael Barr was already conducting a review of bank capital standards before the turmoil. In addition, the Fed announced Monday that it was conducting an internal review of its supervision of Silicon Valley Bank, where it was the chief regulator.
Before Silicon Valley Bank’s collapse, banks had been lobbying lawmakers to reject the Fed’s review, arguing it could slow the economy.
But a lobbyist who asked not to be named said Monday that the events of the past few days “give Michael Barr unlimited ability to turn all the dials in any direction he wants.”
A Fed spokesman declined to comment.
‘BAZOOKA’ FIRED
Several experts said tools already announced, including a deposit guarantee at the two failing banks and a new Federal Reserve facility that can provide liquidity to banks on attractive terms, should address market concerns for now.
Silicon Valley Bank collapsed days after announcing it had to raise capital to offset losses from rapidly rising interest rates, and its extremely high level of uninsured deposits quickly disappeared.
Experts said the measures announced Sunday targeted both problems directly, giving banks easy access to emergency funds and sending the message that bank deposits, even uninsured ones, are safe.
Some drastic steps, like raising the $250,000 ceiling for FDIC deposit insurance, would require new laws from Congress, an uncertain prospect in a divided government where lawmakers are already wrangling over next steps.
“The Fed and the Treasury have fired their bazooka for now,” said Mark Sobel, a former senior US Treasury official and chairman of London-based financial think tank OMFIF. “I think it’s a matter of the market stabilizing.”
(This story has been edited to correct the typo in paragraph 6)
