All articles tagged with #too big to fail
The KBW Regional Bank index slumped over 3% after a report that Treasury Secretary Janet Yellen told bank chief executives that more mergers may be necessary, raising the prospect that more regional banks would have to be bought by larger too-big-to-fail firms. The Treasury Department confirmed the meeting but did not include the point about the possible need for further mergers in its readout.
JPMorgan Chase CEO Jamie Dimon has warned that the banking crisis caused by two bank failures in the US last month is still a threat and will have repercussions for years to come. He called for a reimagining of the regulatory process and cautioned against knee-jerk changes to the system. Dimon also stressed the importance of strengthening smaller banks for the benefit of the whole financial system and called for more forward-looking regulation. He also touched on the need for investments in climate technology and resiliency programs and the rise of artificial intelligence.
Recent bank failures have exposed the shortcomings of post-2008 regulatory reforms aimed at preventing bank bailouts. Governments have had to step in to prevent the recent turmoil in the banking sector from escalating into a full-blown crisis, laying bare the huge risks that bank failures still pose to taxpayers and the wider financial system. The recent failures have some lawmakers and regulators arguing that banking regulation needs to be tightened, with some suggesting that banks should fund themselves with more equity and undergo tougher tests to establish their ability to withstand losses in various adverse scenarios.
A group of 11 large banks, including JPMorgan and Citigroup, bailed out First Republic with a $30 billion transfer to help stabilize the US financial system. The private-sector rescue came just days after a public-sector bailout of Silicon Valley Bank and Signature Bank by the Federal Deposit Insurance Corporation, Federal Reserve, and Treasury Department. The move is raising eyebrows about the relationship between Wall Street and the federal government, with reports indicating that Treasury Secretary Janet Yellen leaned on JPMorgan CEO Jamie Dimon to get the deal done. The private rescue takes taxpayers off the hook for yet another bank failure, but smaller and midsize banks are furious after Yellen told Congress this week that only the big banks would be backstopped by the taxpayer and not the $23 trillion banking industry as a whole.
The recent events surrounding Silicon Valley Bank and Signature Bank have created unprecedented challenges for the health of community, midsize and regional banks. The American banking system is shifting towards a European-style banking system dominated by a handful of very large, effectively government-guaranteed banks, which would undermine its support for small and midsize businesses and local communities. This shift is in part due to a larger trend of bank consolidation over the past several decades, which has allowed the biggest banks to continue to grow even larger.