Earlier this month the U.S. Federal Reserve in a report to Congress gave what has become a standard reassurance: Banks were strong and the overall financial system in solid shape.
The response from regulators on Sunday also included a pledge to make whole all depositors, even those with accounts above the Federal Deposit Insurance Corp's standard $250,000 limit, at Silicon Valley Bank and a second smaller institution, Signature Bank, that failed over the weekend.
at the start of the coronavirus pandemic to encourage such borrowing, some of which, including a lowered interest rate on discount window loans relative to its benchmark policy rate, remain in place.But in this case, as in crises dating back to the 2007-to-2009 housing collapse, the discount window was considered inadequate to address the developing risks, problems that to some degree stemmed from the Fed's own aggressive monetary policies.
The initial sense was that SVB's problems were "idiosyncratic," as Bank of America analysts put it, with others noting that markets still looked at the largest financial institutions as immune from fallout. Those firms in particular are buffered by the higher levels of capital under reforms enacted a decade ago to cushion them against failure.
But it also was framed by the lessons and restrictions of prior crisis. The situation had to be judged systemic, a finding unanimously endorsed by the Fed's Board of Governors, Treasury Secretary Janet Yellen, and others.
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