Bank panic raises spectre of 2008 financial crisis, may bring lasting change

5 days ago 41

WASHINGTON - The lightning speed at which the banking industry descended into turmoil has shaken global markets and governments, reviving eerie memories of the financial crisis. Like 2008, the effects may be long lasting.

In the space of a week, two US banks have collapsed, Credit Suisse Group AG needed a lifeline from the Swiss and America’s biggest banks agreed to deposit US$30 billion (S$40 billion) in another ailing firm, First Republic Bank, in a bid to boost confidence.

Evoking recollections of the frenzied weekend deals to rescue banks in the 2008 financial crisis, the turmoil prompted monumental action from the US Federal Reserve, US Treasury and the private sector. Similar to 2008, the initial panic does not seem to have been quelled.

“It does not make any sense after the actions of the FDIC and the Fed and the Treasury (last) Sunday, that people are still worried about their banks,” said Mr Randal Quarles, the former top banking regulator at the Federal Reserve. He now faces renewed criticism over his agenda at the Fed, where he oversaw efforts to reduce regulations on regional banks.

“In an earlier world, it would have calmed things by now,” he said.

The collapse of Silicon Valley Bank, which held a high number of uninsured deposits beyond the US$250,000 Federal Deposit Insurance Corporation (FDIC) guaranteed limit, shook confidence and prompted customers to withdraw their money. US bank customers have flooded banking giants, including JPMorgan Chase & Co, Bank of America Corp and Citigroup with deposits. That has led to a crisis of confidence and steep selloff in smaller banks.

“We do a lot of contingency planning,” said Mr Stephen Steinour, chief executive of Huntington Bancshares, a lender based in Columbus Ohio. “We started to do the ‘what if scenario’ and looked at our playbooks.”

As banks grapple with short-term shocks, they are also assessing the long term.

The swift and dramatic events have fundamentally changed the landscape for banks. Now, big banks may get bigger, smaller banks may strain to keep up and more regional lenders may shut. Meanwhile, US regulators will look to increase scrutiny on midsize firms bearing the brunt of the stress.

US regional banks are expected to pay higher rates to depositors to keep them from switching to larger lenders, leaving them with higher fund...

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