The Regulatory Response: What Happened, What Could Come Next

The short-term regulatory response amid the financial system’s swirling liquidity troubles has been well documented:

• On March 10, regulators closed Silicon Valley Bank and seized its deposits.
• On March 12, Signature Bank of New York was shuttered by state regulators and taken over by the FDIC. That same day, with fears rising that the inability of customers to access deposits at those banks would lead to panicked withdrawals of uninsured deposits systemwide, regulators announced that the normal $250,000 limit on deposit insurance would be waived for SVB and Signature customers. And they would be able to access their money without delay.
• Meanwhile, the Federal Reserve announced the new Bank Term Funding Program, which allows banks to borrow funds for immediate needs from the Fed using less liquid long-term securities as collateral.

What’s next? In the fog of fast-moving events, and as fears of a potential global crisis grow, it’s uncertain whether regulators may undertake additional stabilizing steps. When it comes to rulemaking and examining the regulators’ role, there are already reports that significant changes could be on the way.

The Wall Street Journal says the Fed is considering tougher liquidity and capital standards for banks with assets between $100 billion and $250 billion, which are currently not subject to the most stringent requirements. “The Fed was already reviewing a number of its regulations,” the report says. “But the past weekend’s banking crisis has caused officials to rethink parts of their review and to refocus their efforts on smaller institutions.”

This piece from S&P Global Market Intelligence says, “Regulators will also review their oversight of banks’ deposit mixes as deposit concentration was one issue that led to the recent bank collapses.”