Englund

 When bad things happen in banking, limits on deposit insurance turn out to be meaningless. This is no time for lectures on moral hazard, former US Treasury Secretary Lawrence Summers said ahead of the raft of US policy initiatives announced on Sunday to stabilize the financial system in the wake of the collapse of Silicon Valley Bank. Maybe, but might we at least be allowed a brief lament? As it is, the sight of depositors being made whole will surely give larger bank customers comfort that they can put their cash in whatever lender is willing to give them the most favorable terms. It provides a disincentive for both depositors and banks to be prudent. There’s no reward here for SVB customers who banked more carefully. The policymakers and economists will say the whole of society would have been way worse off if there was a banking crisis.  But what happens next time, especially if the next failure is bigger than SVB? Who will pick up the tab for a blanket emergency guarantee...

 Credit Suisse and BNP Cited by US for Issues in Living Wills Fed and FDIC also identify shortcoming in BNP Paribas plan The feedback letters are based on the watchdogs’ reviews of roadmaps submitted in 2021. These resolution plans were mandated as part of the Dodd-Frank legislation passed following the 2008 financial crisis. Bloomberg 16 December 2200 https://www.bloomberg.com/news/articles/2022-12-16/credit-suisse-cited-by-us-for-deficiencies-in-living-will-plans Living Wills (or Resolution Plans) https://www.federalreserve.gov/supervisionreg/resolution-plans.htm CNBC Explains: Bank living wills A bank’s living will is a mandatory annual report required by regulators.  The Federal Deposit Insurance Corp. and the Federal Reserve aim to ensure no bank’s failure can create systemic collapses elsewhere and living wills are supposed to provide a clear path through bankruptcy and possible liquidation. APR 14  2016 https://www.cnbc.com/2016/04/14/cnbc-explains-bank-living-will...

Banks avoided debilitating losses in large part because the Fed and the Treasury pledged trillions of dollars to stabilize markets and help borrowers make good on loans.  Authorities successfully pushed for more capital in the aftermath of the 2008 financial crisis, but never went far enough.  Capital levels have waned along with political will: As of June 2021, that tangible equity ratio stood at around 6.4%.  Fed all but ended the formerly annual “living wills,” challenging banks to explain how, if they were failing, authorities could dismantle them quickly with minimal collateral damage.  Now, for the largest institutions, the full plans are required only once every four years. Imagine trying to wind down Lehman Brothers in 2008 using instructions drafted in 2004. Bloomberg Editorial Board 14 september 2021 https://www.bloomberg.com/opinion/articles/2021-09-14/biden-faces-a-choice-on-the-federal-reserve-s-head-of-bank-supervision IMF Basel Lord Turner https://engl...

FT 20 December 2017