The US banking sector is currently in turmoil, with several banks including Silicon Valley, Signature Bank of New York, Silvergate Capital, Credit Suisse and First Republic facing difficulties. This is having a major impact on the housing market with buyers canceling contracts and bowing out of their home search due to worry about job losses. As a result, mortgage rates have dropped to 6.6%, leading to a small spike in the buying activity. -
The fate of the housing market and mortgage rates will be determined at the conclusion of the next Federal Reserve meeting on March 22. Investors are currently pricing in a 68.6% probability that the Fed will hike benchmark interest rates by a quarter percentage point and a 31.4% probability that increases will pause.
In response to this, a consortium of 11 major banks, including JPMorgan, Citigroup and other financial giants, have come together to bail out California-based First Republic Bank with a $30 billion transfer. This private-sector rescue follows a public-sector bailout of Silicon Valley Bank (SVB) and Signature Bank by the Federal Deposit Insurance Corporation (FDIC), Federal Reserve and the Treasury Department. Reports indicate that the bailout of the First Republic was Treasury Secretary Janet Yellen’s idea and was suggested to JPMorgan CEO Jamie Dimon. -
A new study has revealed that 186 banks in the country are potentially at risk of facing a bank run if a large percentage of depositors quickly withdraw their funds. This is due to the banks holding a significant amount of their assets in interest-rate sensitive financial instruments such as government bonds and mortgage backed securities which have decreased in value due to the Federal Reserve raising interest rates.
The collapse of Silicon Valley Bank has drawn attention to the fragility of the U.S. The financial system and the role of the government in overseeing it. Democrats have debated approaches to handling the crisis, progressives calling for stricter regulations and moderates initially resisting them. In the wake of the collapse of Silicon Valley Bank, tens of billions of dollars have flowed into the coffers of the nation’s biggest banks, such as JPMorgan Chase and Bank of America. This shift is causing fears of the consolidation of the US Banking industry and its potential to cool the economy. -
The banking crisis has caused a political fight over the concentration of banking power as President Biden has called for more options for Americans seeking financial services. The government’s decision to guarantee all deposits at the Silicon Valley Bank and Signature Bank has left unclear what it would do if another regional bank failed, causing many depositors to withdraw their funds and shelter them at the largest banks. The Biden Administration is looking to tighten regulations governing bank mergers in order to prevent further concentration of banking power and to protect American citizens from financial instability.