Washington (EFE)
This was stated on Tuesday by the president of the Federal Deposit Insurance Corporation (FDIC), Martin Gruenberg, before the Senate banking committee, in a special appearance called as a result of the falls of the two banks two weeks ago.
“I think the evidence suggested from the sequential failures that there was a significant risk of contagion to other institutions. And, in fact, during that weekend, we saw serious stress in other institutions (…) I think there would have been a contagion and I think that today we would be in a worse situation ”, he affirmed.
Gruenberg thus responded to a question from Democratic Senator Sherrod Brown about what the impact would have been on small banks and small businesses across the country if regulators had not taken steps to protect deposits.
The actions of the authorities before the banking fall
On March 12, the United States regulatory bodies launched a plan to protect the deposits of Silicon Valley Bank (SVB) and Signature Bank after their fall.
The Treasury Department, the Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC) announced that customers would have access to all money deposited in these entities.
The Fed also launched a liquidity line for banks with financing difficulties in order to prevent mistrust from spreading to other entities and so that what happened did not bring about a deeper financial crisis.
According to data provided by Gruenberg, the FDIC estimates that the cost of bailing out SVB was $20 billion and that of Signature Bank was $2.5 billion.
“I would like to emphasize that these estimates are subject to significant uncertainty and are likely to change, depending on the final value obtained from each judicial administration,” said Gruenberg, who recalled that regulators are conducting a “deep investigation” into what happened. , whose conclusions will be presented in the coming weeks.
Insistence on the strength of the sector
At the appearance, Gruenberg was accompanied by the vice chair of the Fed Board of Governors, Michael S. Barr, who stated that these banks failed because “their administration did not adequately address the clear interest rate risk and the clear liquidity risk ”.
Asked by Democratic Sen. Tina Smith about whether the regulator is monitoring the risks to banks from continued interest rate hikes, Barr insisted that “the banking system is strong and resilient.”
“Most banks are very effective in managing interest rate risk and liquidity risk (…) We are analyzing interest rate risk and liquidity risk throughout the banking system to assess that our banks should improve and manage interest rate risk and liquidity risk”, he stated.
Also testifying in this committee was the Treasury Undersecretary for Domestic Finance, Nellie Liang, who stressed that “the US economy is based on a healthy banking system, which includes large, small and medium-sized banks” and that, therefore, the fall of these banks required “a rapid response” which was offered.
“In the days that followed, the federal government took decisive steps to strengthen public confidence in the American banking system and protect the American economy,” he said.