On Monday, the government announced it would rescue depositors — insured and uninsured — at Silicon Valley Bank and Signature Bank. In a news release posted Sunday, the Federal Reserve announced additional funding for other banks to address any needs of their depositors. But given these two seemingly positive developments, how come other regional bank stocks are suffering?
Despite the government’s backstopping Silicon Valley Bank, customers at other banks, especially at smaller and regional banks, are scared.
Despite the government’s backstopping Silicon Valley Bank, customers at other banks, especially at smaller and regional banks, are scared. Today, we’re still seeing some of them pulling their money out and moving it to bigger and presumably, in their eyes, “safer,” banks. (As a reminder, Silicon Valley Bank was considered “A Rated” a week ago.)
While the government did step in to preserve deposits at SVB, that doesn’t mean it is guaranteeing all deposits at all “non-systemically important banks.” And clearly, the Silicon Valley Bank rescue hasn’t entirely calmed the masses. Some bank customers may be taking the view that it’s easier to pull their money than to take risks that the government will step in and help their banks should they get into trouble or even be closed.
Bank customers would obviously love it if every single deposit everywhere was guaranteed by the government. Banks, too, would love to be off the hook for the funds they safeguard. But if banks can assume the government will guarantee all deposits, no matter whether they are above the $250,000 FDIC insurance ceiling, then why should they manage risk at all?
The government could in theory make a permanent change and guarantee that more deposits are secure if banks fail. Congress would need to approve raising the cap above $250,000. But that would be a political hot potato.
And while Silicon Valley Bank did have lots of small,…
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