After this week’s bank failures, some encouraging signs, but worries persist : NPR

Looking back at the past week in banking news, explained.


It’s been a terrible, terrible, bad, very bad week for the banks. And it all started with a classic bank run.

(SOUNDBITE OF montage)

NEIL CAVUTO: Okay. America’s 16th largest bank has collapsed. That’s big news right now.

Unidentified Journalist #1: The FDIC just reported that California regulators have shut down Silicon Valley Bank.

Unknown Journalist #2: Many call it the backbone of Silicon Valley.

KELLY: Last Thursday, customers tried to pull $42 billion out of Silicon Valley Bank or SVB.

KAMAL KAPADIA: Thursday morning was the first time we had the vague feeling that things were going badly.


Kamal Kapadia was one of the customers who failed to withdraw funds. She is the co-founder of a Bay Area startup that had millions of dollars frozen in their bank accounts at SVB. And she started scrambling, realizing that the company needed another place to deposit if they could somehow withdraw.

KAPADIA: So I ran into Chase. They didn’t have a manager available at the time. So, literally, I was standing on the corner, like, downtown Berkeley, and I saw a Citibank. I ran there. They didn’t open. So then I moved out – I ran to Bank of America, and they were able to open an account for me.

KELLY: Last Friday, regulators shut down SVB, the biggest bank bankruptcy since the 2008 global financial crisis. Columbia University law professor Kate Judge says it has Possibly the first bank run by group text.

KATE JUDGE: I mean, I think one of the lessons we’ve learned is that in a high-tech environment, you no longer have to wait for people to stand at the door of the bank to claim their money back.

SHAPIRO: A few days later, another US bank collapsed, and the government took the extraordinary step of announcing that it would prevent any depositors’ losses at both banks.


PRESIDENT JOE BIDEN: Thanks to my administration’s swift action over the past few days…

SHAPIRO: By Monday morning, President Biden had reassured the bank’s customers that their money was safe.


BIDEN: Your deposit will be there when you need it.

KELLY: Investors are not convinced. When the market opened, regional bank shares fell to a record.


Unknown Journalist #3: Up-to-date business information now. Credit Suisse shares hit all-time low…

KELLY: By the middle of the week, European bank stocks also slipped due to the crisis of confidence in Credit Suisse.

SHAPIRO: And the discomfort seems far from over after this tumultuous week for banks. So, to help us understand this, let’s invite NPR political correspondent Susan Davis and chief economic correspondent Scott Horsley. Happy Friday to both of you.


SCOTT HORSLEY, TRACKING: Nice to be with you.

SHAPIRO: Well, I’m joking, but, Scott, these are uncertain times for banks. Any end in sight to this precariousness?

HORSLEY: I don’t think we’re out of the woods. Anxiety is clearly still weighing on the stock market. Shares fell today. But there are some encouraging signs out there. The Treasury Department is monitoring money outflows from smaller banks for any signs of broader withdrawals. And a deputy treasury secretary told CNBC this morning that withdrawals appear to have stabilized. In some cases, people are actually depositing money back into those regional and smaller banks. Sure, governments and the private sector have poured a lot of money into banks to help them cover withdrawals and give people peace of mind. But, you know, confidence is a tough thing. People feel confident right away until they’re not. So I think we’ll have to keep a close eye on this for a while.

SHAPIRO: Sue, there’s some history involved here because Congress passed legislation preventing this from happening after the 2008 financial crisis, the Dodd-Frank law. But significant parts of it were reinstated in 2018 with bipartisan support and tighter scrutiny of mid-sized banks. So were there any Monday predictions on Capitol Hill this week as to whether it was the right decision or if it contributed to the crisis?

DAVIS: Well, not from the Republican who wrote the law. Mike Crapo is a Republican from Idaho, and he made it very clear this week that there is no need for regulatory reform here. But Democrats like Elizabeth Warren, who opposed the 2018 law, reiterated this week that she believes they should repeal it. But apparently, Ari, given the complexities of divided government, that doesn’t seem likely, not to mention the fact that so many Democrats voted for it in 2018 unlikely. that it is the correct answer to change it now. Tim Kaine was one of those Democrats, a Democrat from Virginia. He said he and a lot of other senators are waiting to see what the Fed’s post-action review of what happened at Silicon Valley Bank says. That is expected to be done in early May. And they’re going to look at that report for maybe some sort of legal response. But honestly, lawmakers don’t see this as akin to the 2008 level crisis and that the government has the tools to stop it.

SHAPIRO: Well, if the repeal of the 2018 law is out of the question now, is there anything else Congress might be considering that would be a response here?

DAVIS: You know, a bipartisan group of senators sent a letter to the Fed asking them to include in their review an analysis of whether letting these banks have a customer base like Silicon Valley did in the tech and startup industries, does that increase the risk? how could that cause another regulatory debate? There is another discussion going on in Congress that could lead to something because both Democrats and Republicans are interested in looking at the threshold limits for the Deposit Insurance Corporation. Federal, FDIC. Right now, those limits are $250,000. Mitt Romney, a Republican I spoke with, said he could be open to that depending on how it’s paid because, you know, depositors simply need it. trust that their money will be there when they need it.


HORSLEY: That’s going to be an interesting discussion because right now, by insuring all deposits at these two failed banks, the government has created an expectation that big depositors in Other places will also be protected. But no one pays for that extra insurance. It’s like asking for a new Cadillac when you’re only paying the premium for a Honda Civic. On the other hand, if a bank goes bust and its large depositors are not perfected, there are now questions of fairness.

SHAPIRO: Okay. So if legal amendments are a big deal, Scott, are there steps the regulator can take to prevent problems like this in the future?

HORSLEY: Yes. I mean, in the case of Silicon Valley Bank, there are clear warning signs of going undetected or at least not regulated. And the Federal Reserve is looking at how they dropped the ball and what it could do differently. As Sue said, we’re expecting a report from the Fed on that in about six weeks. Surely the people who run the bank are also responsible for what happened, most responsible. They have been overseen by regulators and the Ministry of Justice. President Biden said today he wants to strengthen some of the existing tools for holding bankers accountable. That includes fines, revocation of stock sales and banning those executives from working at other banks.

SHAPIRO: Sue, it’s Washington that could be the cause of the financial turmoil if Congress doesn’t vote to raise the debt ceiling. Will this banking volatility rattle lawmakers around that negotiation?

DAVIS: You know, Treasury Secretary Janet Yellen certainly hopes so. She appeared this week on Capitol Hill for a hearing on Thursday, and she told senators if they don’t raise the debt ceiling, in her own words, it will be absolutely devastating. banking industry. Congress, as Congress, still has the ability to push those negotiations to the brink, which is expected to actually take place around the summer. So far, Republicans have not changed their position. Speaker McCarthy insisted that Republicans would not vote to increase the debt limit unless they received some form of spending cut in exchange for their vote. And Presidents Biden and Janet Yellen again this week reiterated that they want a clear, unconditional increase, in part to keep the economy steady and steady.

HORSLEY: And by the way, if Congress doesn’t raise the debt limit in time, if we even flirt with a government default, that’s going to be a roller coaster ride of the financial markets this week. like a children’s swing.

SHAPIRO: Not exactly what to expect. NPR’s Scott Horsley and Susan Davis, thank you both.

HORSLEY: Nothing.

DAVIS: No charge.

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