The United States: Pay attention to the government’s position on deposit protection.
2023-03-30
■ Pay attention to the trend of strengthening bank supervision and re-examining deposit insurance
■ In order to curb the instability of the financial system, it is necessary to demonstrate a positive attitude toward deposit protection
U.S. bank supervisor officials testified at a bank supervision hearing before the Senate Banking Committee on the 28th. The Vice Chairman of the Federal Reserve (in charge of financial supervision) emphasized that the financial system as a whole maintains a solid foundation and stated that all necessary measures will be taken to maintain the health of the financial system. In addition, the Federal Reserve plans to announce a new review of bank regulation and supervision before May 1, with a focus on strengthening the supervision of small and medium-sized banks. The chairman of the Federal Deposit Insurance Corporation of the United States plans to comprehensively review the deposit insurance system with a maximum limit of $250000 per account, and release a report before May 1. Strengthening regulation may encounter difficulties such as opposition from the US Republican Party, and it is necessary to pay attention to the progress of these discussions in the future.
According to the quarterly banking profile released by FDIC on February 28th, as of the end of 2022, unrealized losses on securities held by FDIC member financial institutions amounted to $620.4 billion. Although due to factors such as the decline in housing loan interest rates, there was a decrease compared to the previous quarter ($689.9 billion), due to the rapid interest rate increase by FRB, unrealized losses increased sharply compared to the same period last year ($7.9 billion), but it still maintains a high level of about one-third of its own capital ($2.21 trillion). Among them, the number of held-to-maturity securities is $340.9 billion, and the number of securities for trading purposes is $279.5 billion. There is a risk of implicit losses being realized due to withdrawals from bank customers. Bank of America, through the newly established Bank Term Fund Plan (BTFP) of FRB, can obtain liquidity through mortgage-assessed eligible securities, but eligible securities are only limited to US treasury bonds, government agency bonds, mortgage-backed securities (MBS), etc. If the assets held by Bank of America do not meet the requirements, it may not be able to make an adequate capital allocation. As long as a high-interest rate environment continues to be used to curb inflation, it should be recognized that the risk of financial system insecurity still exists. In order to avoid the proliferation of US $177 trillion in bank deposits and block the insecurity of the financial system, the US government (Treasury) needs to demonstrate a positive attitude in support of deposit protection, even if moral hazard is required.