Following the recent collapse of Silicon Valley Bank and Signature Bank along with Credit Suisse ill-timed demise last week, regulators and business leaders have gone out their way to publicly assure consumers that banks are safe.
The potential for “contagion” throughout the financial system is now slim after the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Treasury came together to act as a buffer, for both uninsured and insured, at SVB and Signature, regulators have said.
Treasury Secretary Janet Yellen informed lawmakers on the Senate Finance Committee last week after the second- and third-largest bank failures in history that Americans “can feel confident” about their funds held in the bank.
On Wednesday, Citigroup CEO Jane Fraser told the Economic Club of Washington D.C that the banking system is “sound,” and both large and local banks are “well-capitalized,” going onto say that “this is not a credit crisis,” Reuters reported.
Stephan Weiler, who is an economics professor at Colorado State University and co-director of the Regional Economic Development Institute said that significant losses will only occur for banks if deposits withdraw their funds in droves and they have to sell assets.
“As long as people aren’t all coming in at the same time and demanding that their deposits back, you’re okay,” Weiler told Fortune on Thursday.
JPMorgan’s analysts who were led by Nikolaos Panigirtzoglou noted recently that $1 trillion in deposits were withdrawn from the “most vulnerable” U.S. banks following SVB’s collapse.
“So the chances of facing those unrealized losses are going up,” Weiler cautioned, and that could result in even more bank runs.
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