Is the banking crisis idiosyncratic or systemic? It is too early to declare definitively that the run on banks is over. Though, if pressed on the matter, we would suggest that the banking system is on solid footing, comments Nancy Tengler, CIO at Laffer Tengler Investments.
SIVB (the poster child of the recent crisis) was an outlier. We know that SIVB was not just poorly managed, the management team—and in particular the CEO—were epically incompetent. What allowed the incompetence to carry on for over a year as the bank tripled in size during 2021/2022 without a risk officer and deposits draining as early as last fall?
An equally asleep and incompetent supervisory team at the San Francisco Fed (where SIVB’s president sat on the board—conflict?!) We also know the CEO sold 1/3 of his SIVB holdings a few weeks prior to the failure.
Add to that the conflicting statements from Treasury Secretary Yellen (who contradicted herself in a matter of days over whether all bank deposits would be backstopped) and Jerome Powell’s contrary statement to one of Powell’s flip flops in dueling press conferences and the market sold off significantly.
There is a great deal of confusion as to what the government’s policies are, but it is important to note that backstopping all bank deposits would be a Herculean effort even for this spendthrift crowd. According to the FDIC, $7.4 trillion of deposits are insured according to the maximum rate of $250,000. However, $10.5 trillion in deposits are uninsured.
There is likely to be more stress in the system in the near term. But if the regulators can move in lockstep instead of at odds, this too shall pass. And we will turn our attention to a slowing economy and which companies will continue to shine in a slowing growth environment.
