Martin Gruenberg, chairman of the Federal Deposit Insurance Corp., delivered remarks March 6 on the state of the banking system to the Institute of International Bankers. He reiterated his long-held view that the regime of high and rising interest rates would impair banks’ longer-term-maturity assets, pointing out that rate increases had already reduced the value of these assets by $620 billion. He warned that these unrealized losses “weaken a bank’s future ability to meet unexpected liquidity needs.”
Silicon Valley Bank’s collapse four days later, followed swiftly by Signature Bank, another midsize financial firm, validated his concerns. (A smaller firm, Silvergate Capital Corp., had closed at midweek.) Depositors’ confidence in the soundness of these institutions evaporated, generating a classic bank run that led federal regulators to step in. (Disclosure: My son heads two venture-capital funds that have invested in startups with substantial deposits in SVB.) Over the weekend, regulators decided to guarantee depositors for the full amount of their accounts, though the formal FDIC guarantee is capped at $250,000 per depositor.
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