The failure of Silicon Valley Bank on Friday there are many who fear a domino effect, despite assurances from Treasury Secretary Janet Yellen, who on Sunday SPOKE Face the Nation that “the American banking system is safe and well capitalized. It’s strong.”
Among those who expect more banks to fail, notably, William Isaac, a former chair of the Federal Deposit Insurance Corporation, who has- designated receiver at Silicon Valley Bank.
Isaac led the FDIC in the early 1980s amid widespread bank failures and high interest rates. In a Politics article published on Sunday, he said about the failure of the SVB, “There is no doubt in my mind: There are more. How many more? I don’t know. How big are you? I don’t know. To me it’s like the 1980s.”
He was not alone. Larry McDonald, founder of The Bear Traps Report, too warned CNBC that regional banks may face a contagion risk after the collapse of SVB.
Many bank stocks in the region stops Friday after a sharp decline in early trading. Among them are First Republic Bank, a San Francisco lender serving businesses and high-net-worth clients in the tech-industry. The bank said in a regulatory filing that day it has a “well-diversified deposit base” and “capital levels that are significantly higher than regulatory requirements to be considered well-capitalized.”
Former Treasury Secretary Larry Summers, for his part, did not foresee a contagion hitting the banking sector.
“I don’t think it’s going to be a widespread systemic problem,” he told Bloomberg Television Wall Street Weekalthough he warned of dire consequences when tech startups cannot make payroll due to SVB funds being frozen. (Mark Cuban issued a similar warning.)
“There is little risk that SVB’s failure will spill over into other banks,” William Chittenden, who teaches finance at Texas State University, said. just wrote for The Conversation. “Most banks currently have enough capital to absorb these losses—no matter how large—in part because of the efforts the Fed made after the 2008 financial crisis to ensure that financial companies could withstand even what a storm.”
He added, similar to Yellen, that “the banking system is good.”
On Saturday, the FDIC asked the officials of various small and midsize lenders, including First Republic Bank, about their financial situations, Bloomberg reported. They are also reportedly discussing setting up a new special vehicle to reassure depositors—and help prevent any panic.
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