A new joint effort by the government and the finance industry to prevent another teetering bank from triggering a wider crisis is underscoring US and international worries about the sector and producing another no-win political headache for the Biden administration.
Regulators rushed over the weekend to auction off the troubled regional bank First Republic, which was hit by massive withdrawals despite a previous industry cash injection to try to shore it up.
The hurried effort to prevent First Republic sowing further turmoil in the banking sector followed a previous Federal Deposit Insurance Corporation mobilization to contain the failures of two other similar sized banks, Silicon Valley Bank and Signature Bank, in March.
The independent agency’s new forced intervention – even if it succeeds in limiting the fallout of First Republic’s troubles – is likely to fuel concerns about the overall health of the US banking sector. The run of banking crises has been partly caused by damage to banks – which had profited from years of low interest rates – from the Federal Reserve’s quick rate hikes to fight high inflation.
Challenges to the economy are already causing political reverberations for President Joe Biden, who launched his reelection bid last week arguing that he had engineered a strong exit from the Covid-19 storm for the economy, notwithstanding high inflation that caused significant pain for American families last year. Inflation has not yet fallen to low levels typical of recent decades, which has fueled an era of price stability.
The pain in the regional banking industry comes amid growing anxiety about a separate challenge to the sector posed by tens of billions of dollars in commercial real estate loans held on buildings whose values have tumbled following a slow return to offices in many cities and a reshaped work culture after the…
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