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It’s not a regulatory issue. It’s a bailout.
I’ve heard from the White House and Treasury Secretary Janet Yellen that taxpayers shouldn’t have to pay for the failure of Silicon Valley Bank, but it’s inevitable. When the FDIC imposes an additional fee of $25,000 to $1 million for community banks to bail out her SVB, local banks do what they can to tighten their belts and absorb the additional costs. To do. Ultimately, though, these fees will flow through to the consumer. Sadly, hard-working Americans in small towns across America pay more to recover money in banks they’ve never heard of in Silicon Valley, California.
But that’s not the crux of the matter. The most dangerous part of this bailout is the message this administration is sending to depositors. It means your money is safer even if the big banks fail. Overreaction to the SVB board’s mismanagement and panic by the White House should not cause community banks to collapse as collateral damage. Our local bank is the backbone of our community and the primary funder of Main Street USA and rural America.
The most costly unintended consequence for our community banks is not only increased fees, but depositors leaving because Secretary Yellen signaled in “Too Big to Fail Banks” that your deposits are safer. is.
To encourage these deposits to stay at these community banks and level the playing field, Congress must at least debate the pros and cons of FDIC protection for interest-free demand deposit accounts. . These business accounts are essential to the survival of community banks, and his $250,000 to his $500,000 CD deposits in small town banks are essential to lending to local businesses and family farms. is. Their move to “banks too big to fail” will only exacerbate the exit of smaller banks unable to carry the regulatory burden created by Dodd-Frank.
Flashback: Treasury Department Yellen didn’t believe she’d see another financial crisis in her life
What SVB did was a Banking 101 violation. Banks want to buy long-term government bonds/bonds when interest rates are high and short-term government bonds/bonds when interest rates are low. SVB did the opposite. The SVB saw interest rates rise and saw the value of its bond portfolio decline. Combined with the massive outflow of deposits, which is not uncommon with a VC-heavy client base, SVB soon had a liquidity crisis, or cash flow problem.
Soon after, the run was in progress.
SVB ignored common sense measures. Interest rate risk assessments are required quarterly by all banks, regardless of size. Generally, reports on interest rate valuations prepared by external third-party experts are submitted to the Board at least quarterly. The interest rate risk test assesses what happens to the bank’s value if interest rates move up or down by 1-4%. Perhaps this exercise took place at his SVB and was ignored by SVB’s management and board. Shockingly, the interest rate stress test is not included in the Federal Reserve’s assessment. This is a big mistake and, quite frankly, a gross negligence on the part of the Federal Reserve.
Of course, it’s not just interest rate fraud. SVB gifted an amazing non-profit, made his ESG investments environmentally friendly, and got management to sell its shares just weeks before bankruptcy. Accelerating interest rate hikes only exacerbated their ill-conceived fiscal plans.
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Let me be clear. This was not a question of capital. The worst thing Congress can do right now is to impose more regulation on banks. don’t take the bait Even if SVB reached its capital threshold, decommissioning S.2155 would not have prevented this reckless bank meltdown. Regulation cannot prevent irresponsible management teams with incompetent boards from running amok.
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In my personal experience, having overseen the implementation of the Dodd-Frank Act for 15 years as a community bank board representative, I have seen first-hand how the heavy hand of government drives up costs for local banks. .
Government overreach drives bankers away from customer service and reduces the ability of agile small-town banks to conduct the business they were once known for. This remedy sends the wrong message. It’s nepotism capitalism. I support community banks, the backbone of small businesses. This community bank should not be adversely affected by major government remediation of irresponsible management.
Click here to read more about SEN.Roger Marshall