It's Only Just Begun: The Impact of the Collapse of SVB and Signature Bank

03/15/23

With the most recent events pertaining to Silicon Valley Bank and Signature Bank, the Ohio Bankers League wants to ensure the voice of stable banking reaches concerned consumers and businesses across our state and nation. Since last Friday, we've met with the FDIC, Treasury, ODFI, OCC, and congressional offices, along with having conversations with a number of you.

We are working to reiterate with elected officials and members of the press, Ohio Banks are strong and resilient. Mike Adelman, OBL President and CEO, has been delivering that message on the radio, in print, and on TV every opportunity we can.

As we move past the initial shock to the banking system, the following public policy debates and actions from the regulatory agencies will be crucial for the future of our industry. Below we have broken down areas that will get focus over the next couple of months.

Bank Capital Levels: Chairman Sherrod Brown has already asked the Federal Reserve to investigate toughening capital standards. Vice Chairman Michael Barr of the Federal Reserve before all of this was already engaging in a holistic review of capital standards. In a speech last year which you can read here, Barr suggests the Federal Reserve should tighten bank capital requirements and revamp annual stress tests. Some changes to capital levels like the Community Bank Leverage Ratio (CBLR) would require legislative action to change, but other changes to risk based capital could be changed at the sole discretion of the regulators. Thomas Hoenig, who served as president of the Federal Reserve Bank of Kansas City and vice chairman of the FDIC, said that Congress and the banking regulators should raise capital rules for midsize banks while also simplifying risk-weighted rules. OBL will be meeting with the Federal Reserve and others over the coming weeks to ensure capital levels are increased due to risk not simply across the board as a reaction to the current climate.

FDIC Insurance Limits: One of the most talked about issues the last 72 hours has been the FDIC insurance limit of $250,000 still the appropriate level. Several legislators on both sides of the aisle have called to increase the limit either permanently or temporarily. Maxine Waters, the top Democrat on the House Financial Services Committee, is floating the idea of guaranteeing all uninsured depositors in the future. Rep. Blaine Luetkemeyer of Missouri - a top member of the House Financial Services Committee and a former banker said government should temporarily insure every bank deposit in the country to shore up confidence in the U.S. financial system. The important missing part of the conversation about FDIC insurance limits are the details of how that would impact insurance premiums. Several lawmakers have suggested revisiting the calculations for banks with a significant percentage of uninsured deposits like the two failed banks. The OBL will continue to keep the membership informed as the debate heats up on if and how deposit limits increase.

Deposit Insurance Fund (DIF): If the DIF does in fact need to be replenished after the resolution of both the banks that failed the question will be, how does that happen? The FDIC and DC Democrats are using the talking points that "Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law," the agency wrote in a release detailing their response to the bank failures. While there is no doubt that the FDIC will raise fees, how they raise fees and from whom remains to be seen. Senator Bernie Sanders (I-VT) was the first elected official to detail his belief on how the DIF should be replenished. In a Twitter post from Sen. Bernie Sanders,. He said "If there is a bailout of Silicon Valley Bank, it must be 100 percent financed by Wall Street and large financial institutions." Former FDIC lawyer Todd Phillips thinks small banks shouldn't be too worried, "even if Congress is considering raising total insured deposits, big banks and systemically important institutions will pay for mitigating the risk" He said to the American Banker this week. The OBL has reached out to the FDIC for a meeting to discuss the replenishment of the DIF and will keep the membership informed as those conversations move forward.

If you have any comments or questions please contact Evan Kleymeyer at [email protected] or 614-340-7605.