US banking tremors are evolving

Through practice rather than through legal change, the authorities have signalled that the $250,000 ceiling on the state guarantee of individual deposits has been replaced by unlimited coverage. 

The trick is simple. The Federal Reserve just declares a systemic risk exception.

Notwithstanding an impressively resilient labour market, the US would soon find itself tipped into an otherwise avoidable recession with limited fiscal and monetary policy options. The likelihood of further policy mistakes would be material. 

And all this just as the slower-moving stress in the non-bank financial sector becomes more evident.

Mohamed El-Erian FT 10 May 2023

Higher capital requirements would reduce the losses the FDIC endures when banks fail, but those would similarly reduce bank profitability and drive deposits and lending outside the regulated banking sector.

How shadow banks threaten the global economy


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