The Federal Reserve’s rate-setting Federal Open Market Committee (FOMC) is scheduled to meet next week – hard on the heels of the failures of Silicon Valley Bank and Signature Bank. With economists attributing those failures to inadequate hedging against rapidly rising interest rates, will the Fed consider a pause in their tightening strategy? Presented by @cmegroup:
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LEARN MORE ABOUT: Bank Failures
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As the COVID-19 pandemic continues to ravage the global economy, concerns surrounding bank failures have become increasingly pertinent. In the United States, the Federal Reserve has implemented a number of measures aimed at stabilizing the financial system and preventing widespread economic collapse. However, some experts are warning that even these measures may not be enough to prevent a wave of bank failures in the near future.
The potential impacts of bank failures on the Fed’s overall strategy are complex and far-reaching. At the most basic level, a wave of bank failures would lead to a tightening of credit and a significant increase in lending costs. This could hamper the Fed’s ability to continue to provide economic stimulus through low interest rates and other measures aimed at boosting liquidity.
Moreover, the failure of one or more systemically important banks could trigger a wider financial crisis, similar to what occurred during the 2008 financial crisis. This would pose an existential threat to the entire U.S. economy, and would likely force the Fed to embark on new and more aggressive measures in order to prevent a full-blown depression.
At the same time, if the Fed is seen as too aggressive in its efforts to prevent bank failures, it could create new risks for the economy. For instance, if the Fed provides too much liquidity to failing banks, it could incentivize reckless behavior by financial institutions and lead to an even larger financial collapse down the road.
Ultimately, the Fed’s response to the potential threat of bank failures will depend on a number of factors, including the severity of the pandemic, the health of the financial sector, and the political climate in Washington. As such, it is impossible to predict with certainty how the Fed will proceed in the coming months.
What is clear, however, is that the health of the banking sector will play a central role in the Fed’s overall strategy going forward. Whether the Fed is able to navigate this challenge successfully will depend on a variety of factors, including its ability to respond quickly to emerging threats and its willingness to take bold action when necessary.
After the 2008 financial crisis, all the major western democracies have implemented the recommendation of the Basel Framework for Banks, with the notable exception of the United States. The Basel Framework for Banks was implemented only for the major American banks.
All the majors American Bank are well capitalized and billion dollars of reserves deposited at Fed where the get as juicy 5% interest return.
The smaller banks and regional banks were exempted (including SVB) because they lobbied hard and Congress bowed, they were excluded from the Basel Framework.
No, the FED will continue raising interest rates and it's probably the best way to combat inflation. They have calmed down the markets by guaranteeing SVB's deposits and averted domino effects.
I personally expect another .25 rate hike in the next FED rate meeting.
I know that voice! More Ira please!
Did this guy say bank failures are a regular event by citing the global financial crisis???
The SVB went bankrupt because of the poor asset management strategy, not because of the FED. You could have mentioned that.
Bloomberg shilling for the Fed
FJB
Now, the Fed was wrong again by insisting on raising interest rate during the last month. It was wrong by insisting on not raising rate in 2021. It is indeed as if the Fed is governed by amateurs! Same for U.S. Treasury! Many of them happen to be women or black. Biden's new economic advisors are mostly women or black now. Under these economic "leaders", the Fed and the Treasury are running like the Transportation Department running under mayor Pete Buttigieg.
The banks broke themselves with their poor risk management. The FED needs to continue fighting inflation.