This is even more alarming than what happened last spring. The problem back then was that a small number of banks did something they shouldn’t have done (buying large quantities of long-term bonds) and were foolish enough to do so (failing to protect themselves from the economic damage caused by rapidly rising interest rates). was. It’s not great, but it’s easy to blame greedy management and flat regulators.
Embattled banks got there by doing exactly what they were supposed to do, and doing it poorly. There is no need for banks to hold large amounts of government bonds.Individuals can hold their own, but we do We need them to fund office buildings, solar farms and startups in New York City.
In other words, most of the banks that failed last spring did so because the pandemic caused many things that had never happened before. Savings accounts bulged, inflation skyrocketed, and the Federal Reserve raised interest rates at a record pace. Silicon Valley banks basically misjudged Fed Chairman Jerome Powell.
But banks like NYCB are currently reeling from misjudging their own borrowers, lending to less creditworthy companies, and not charging enough interest to compensate for the risk. That is the basic job of a bank, and this gives the current uproar a more unsettling tone than the previous one.
Another note: There’s also a real risk of embarrassment here for the regulators who last spring deemed NYCB strong enough to buy the remains of another failed bank. there is.for Moody’s finds It’s not good for regulators to have “multifaceted financial, risk management and governance challenges” emerging just a few months later.
