It has been over two months since Silicon Valley Bank failed. Since then, several other banks have met their demise. But with the industry largely stabilized, is the crisis already over?
Van Order pointed out that there are big differences between what happened with SVB and the situations of many other banks. An enormous share of SVB’s deposits — in the order of 95% — were uninsured, meaning that the deposits were in excess of $250,000. Amid growing panic from depositors and investors fearing the collapse could evolve into a full-on banking crisis, the government quickly announced that all of SVB’s depositors would be made whole, even those who banked in excess of the federally insured $250,000. The Fed also formed the Bank Term Funding Program as a new source of funding for banks that might face depositor runs.
He said the tumult in regional banks is in large part because they have too much of their loan portfolios in the real commercial property sector. Lachman noted that the sector is having trouble right now, so because there are more defaults on those debts, those banks will come under pressure. But the situation in the banking system also has broader implications for the economy. Right now, the Federal Reserve is in the midst of a historic tightening cycle. The Fed has been raising interest rates for more than a year in order to drive down inflation, although the downside of doing so is the risk of recession.