Pacific Western Bank, a regional bank based in San Francisco, experienced a significant drop in its stock price as investors learned about its possible sale. Despite the bank’s reassurance of not facing a high number of customer withdrawals, concerns about potential surges in withdrawals among regional banks grew. While the company’s stock price saw a significant increase on Friday, it remained down for the week. Another regional bank, Western Alliance Bancorp, also faced losses during the week.
TD Bank Group and First Horizon Merger Called Off, Regulatory Uncertainties Cited
The planned merger between TD Bank Group and First Horizon Corp. was canceled due to uncertainties surrounding regulatory approvals. This decision further highlights the challenges faced by the banking industry. The fallout from the failed merger raises questions about the future of the banking sector and its impact on consumers.
Reasons Behind Bank Failures and Pacific Western’s Uncertain Situation
The tightening of monetary policy and increased interest rates implemented by the Federal Reserve led to a significant decline in the value of long-term assets held by banks, such as mortgage-backed securities and U.S. treasury bonds. Many banks had increased their holdings of bonds during the pandemic when loan demand and yields were weak. As a result, these banks faced unrealized losses due to the sudden interest rate hikes.
Silicon Valley Bank, in particular, suffered from customer withdrawals as the tech industry experienced turmoil, forcing many of the bank’s customers, primarily tech startups, to withdraw their deposits. Additionally, the bank had a disproportional share of uninsured deposits, which further exacerbated its challenges. Mismanagement by the bank’s senior leadership and inadequate oversight by the board of directors were also identified as contributing factors in a scathing report released by the Federal Reserve.
Efforts to Address the Crisis and Ensuring the Safety of Bank Deposits
The Federal Reserve has taken steps to strengthen supervision and regulation by building a dedicated group to assess risks associated with novel activities, including fintech and crypto activities. Additionally, the Fed plans to evaluate liquidity risk and the risks associated with uninsured deposits. However, some argue that further action is necessary, such as expanding the deposit insurance coverage provided by the Federal Deposit Insurance Corporation (FDIC).
There are concerns about the potential collapse of more banks, as indicated by a study on the fragility of the U.S. banking system. Economists warn that bank runs could pose a risk even to insured depositors if the government fails to intervene and the FDIC’s deposit insurance fund incurs losses.
While Americans are increasingly worried about the safety of their money in banks, experts assure that funds kept in banks covered by the FDIC are secure, especially considering the $250,000 insurance limit. Depositors can open multiple accounts at different banks or joint accounts to ensure their funds are within the insurance limit. Federal regulators have also signaled their willingness to intervene and cover deposits beyond the limit if necessary, as they did after recent bank collapses.
In conclusion, the troubles faced by Pacific Western Bank and other banks, along with the canceled merger between TD Bank Group and First Horizon Corp., have raised concerns about the stability of the U.S. banking industry. Efforts are underway to strengthen regulation and supervision, but further actions may be necessary to address the crisis and ensure the safety of bank deposits.
Source: ©Liu Guanguan/China News Service/VCG via Getty Images ; USAToday
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