https://asiatimes.com/2023/03/feds-try-to-stop-bank-crisis-of-their-own-making/
NEW YORK – US bank regulators on Sunday announced a massive response to last week’s run on Silicon Valley Bank (SVB) and the risk of copycat runs against other regional banks.
The Federal Reserve will provide one-year loans against banks’ security portfolios through a new Bank Term Funding Program, eliminating the risk that banks might be forced to sell their US$4.4 trillion in government securities at a loss.
The Federal Deposit Insurance Corporation (FDIC), meanwhile, will make whole all SVB depositors, as well as those of the Signature Bank of New York, closed by New York state authorities on “systemic risk” grounds.
Federal regulators have slapped a rather large bandage on a gaping wound that they cut into the banking system. By tightening credit to control a wave of inflation that had nothing to do with credit in the first place, the Treasury and Federal Reserve have created a credit problem where none existed before. There are few comparable instances of self-sabotage in the annals of bank regulation.
Although depositors won’t lose money, holders of bank bonds may take substantial losses. That augurs poorly for a recovery in credit markets already stressed by Federal Reserve tightening.
Sunday’s announcement will ease market fears that the run on SVB, which saw $45 billion in deposits leave the bank in little more than a day, might spread to other regional banks. The value of regional banks’ stocks collapsed on March 10 in response to the fear of a general run.