Grygo is the chief content officer for FTF & FTF News.
The rapid collapse of Silicon Valley Bank and Signature Bank, and the troubles swirling around First Republic Bank, which offers private banking and wealth management services, are technically happening separately from global securities markets.
But actual regulatory and operational impacts and the contagion of panic are causing real ripple effects upon regulators, other banks, and other securities market participants.
For instance, the CFTC issued the following statement on March 16, about the swaps-related consequences of the bank failures.
“The Commission has been in contact with banking regulators following the recent failures of Silicon Valley Bank and Signature Bank concerning the transfer by the Federal Deposit Insurance Corporation (FDIC) of qualified financial contracts (QFCs) from the failed banks to newly established bridge banks, Silicon Valley Bridge Bank, N.A. and Signature Bridge Bank, N.A., respectively,” according to the statement.
“To the extent that the transfer of QFCs that are swaps would cause them to be subject to certain Commission swaps regulations (including business conduct, margin, clearing, and trade execution requirements), the Commission will not commence enforcement action for violations of such regulations resulting solely from the FDIC ordered transfers,” the CFTC says.
The CFTC also “recognizes that transfer of QFCs that are swaps to the newly established bridge banks may impact the ability of reporting counterparties for such swaps to fulfill their obligations under the Commission’s swaps reporting requirements. Reporting counterparties should use best efforts to fulfill their reporting obligations with respect to such swaps. The Commission will consider further action related to swaps reporting obligations as appropriate,” according to the statement.
For the SEC and the U.S. Justice Department, the sudden banking crisis apparently means an investigation of Silicon Valley Bank,” according to a report in The Wall Street Journal. In fact, early on in the crisis on March 12, SEC Chair Gary Gensler issued a statement, reminding people that the SEC was watching.
“In times of increased volatility and uncertainty, we at the SEC are particularly focused on monitoring for market stability and identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly. Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” according to the statement.
Financial services firms either are just feeling the impacts of these bank failures, are signing up new clients, and/or are among those responding by helping First Republic, which reports that it will receive “uninsured deposits totaling $30 billion on March 16, 2023, from Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, PNC Bank, State Street, Truist, and U.S. Bank.”
Jim Herbert, founder and executive chairman, and Mike Roffler, CEO and president of First Republic Bank, thanked the banks helping them, and added in a statement that “their collective support strengthens our liquidity position, reflects the ongoing quality of our business, and is a vote of confidence for First Republic and the entire U.S. banking system.”
First Republic “is focused on reducing its borrowings and evaluating the composition and size of its balance sheet going forward. Consistent with this focus and during this period of recovery, the Bank’s Board of Directors has determined to suspend its common stock dividend,” according to the bank’s announcement. Suspending the common stock dividend may also prove to have spinoff effects.
For the moment, the U.S. Treasury Department, Federal Reserve, FDIC and the Office of the Comptroller of the Currency have given their
approval to the collective support of First Republic Bank. In addition, media outlets have reported that the Fed has been quietly working with banks via its short-term borrowing program in bid to help banks get through this turmoil.
It’s safe to say that there will be more to come from SVB-Signature-First Republic saga, and a pivotal moment is set for next week on March 21 and 22 when the Fed meets to decide what’s next for interest rates.
The problem for the Fed is that it has made a commitment to bring down inflation. At the same time, interest rate increases may be exposing some major risk management and capital adequacy failings at poorly run banks. There may be some unexpected tradeoffs to come.
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