Day: March 23, 2023

Federal Reserve Chair Jerome Powell said that “Financial conditions are tightening after SVB’s collapse and could slow the economy, Powell says The U.S. banking industry is robust, but the recent failure of a few regional banks could have unintended consequences that slow down the economy, according to Federal Reserve Chair Jerome Powell. Powell described the banking system in a press conference following the most recent Federal Open Markets Committee meeting as “sound and resilient” but said the central bank was monitoring a change in the availability of credit for consumers and businesses. related investing news “Financial conditions seem to have tightened, and probably by more than the traditional indexes say. The question for us though is how significant will that be, what will be the extent of it, and what will be the duration of it,” Powell said. “We’ll be looking to see how serious is this and does it look like it’s going to be sustained. And if it is, it could easily have a significant macroeconomic effect, and we would factor that into our policy decisions,” he added.

On Wednesday, the Fed increased its benchmark interest rate by a quarter of a percentage point, but according to its forecasts, there will only be one more increase this year. According to the head of the central bank, tighter financial conditions brought on by banks making more stringent lending decisions could have a similar effect as additional rate hikes from the Fed. Powell’s remarks follow significant pressure this month on regional banks. Due in large part to the rapid increase in interest rates devaluing the bank’s bond portfolio and causing significant paper losses, Silicon Valley Bank failed, becoming the second-largest failure in American history. While other banks have been able to handle the rate hikes, Powell said that SVB’s management “failed badly” in managing its interest rate risks. There have been significant deposit outflows at other banks, including First Republic and PacWest. A new Bank Term Funding Program was established by the Fed to aid banks in accessing capital, but since the facility’s launch on March 12 regional banks’ stock prices have fallen in choppy trading.

Although Powell refrained from saying explicitly that all deposits are now guaranteed, he said that deposit flows have stabilized over the past week and that Americans should feel confident about the security of their money. “What I’m saying is you’ve seen that we have the tools to protect depositors when there is a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools. I think depositors should assume that their deposits are safe,” he said. The collapse of Silicon Valley Bank has led to more scrutiny on the Federal Reserve’s supervisory role over banks, especially from Sen. Elizabeth Warren (D-MA). The Fed is conducting an internal review of potential regulatory issues around SVB, led by Vice Chair for Supervision Michael Barr, and Powell said he expects investigations from outside the central bank as well.”

From CNBC