Paper’s front page presents a range of crises, for haves and have-nots
The front page of Monday’s Globe illustrated how misguided government priorities have become. One story detailed cuts in federal SNAP benefits, which would leave those who already have little with even less (“End of emergency aid staggers needy families”). That so many among us are food insecure is abhorrent, but the idea that government is retracting a helping hand to them is even more so.
Another piece talks about health insurers reducing reimbursements to doctors for telehealth appointments (“Uncertain future for telehealth”). Patients, of course, pick up the tab, especially those with less expensive, high-deductible plans — meaning those who can least afford it.
The article on the Silicon Valley Bank failure is a different story, with the federal government wasting no time guaranteeing deposits over the usual $250,000 limit (“US vows to protect deposits of SVB”). Startups are valuable entities, but they are risky by nature. So the failure of a bank that specializes in startups shouldn’t be surprising.
Still, bailing out its depositors is the right thing to do; it’s why the Federal Deposit Insurance Corp. was created in the first place. But doing so while Supplemental Nutrition Assistance Program recipients go hungry and patients pay more out of pocket for a video visit with their doctor rubs me the wrong way. Can’t we do all three? Yes, we can, and we should.
There’s a reason the banking business is regulated
Regarding the Silicon Valley Bank meltdown, the system worked. The Federal Deposit Insurance Corp. stepped into its designated role to clearly protect small and big depositors of SVB despite the aggressive tech-focused lending and investment positions of the bank’s management.
There’s a reason that banking is a regulated business: to protect the depositors (not management or shareholders) of a major financial institution, and to protect against the potential fallout of a systemic meltdown. I realized early in my career as the CEO of a bank the enormity of the responsibility to the public.
Everyone complains about the complicated process to deal with a bank, but please realize there’s a safety and soundness reason for every cumbersome step. The industry outliers only make it more complicated for other banks and clients once their cutting-edge business model implodes.
Banking is all about public trust. The FDIC acted strongly, swiftly, and correctly.
The writer is the retired CEO of Century Bank.
It’s surprising that the Fed, with its rate hikes, did not see this coming
Maybe it’s time for a review or a slowdown of the Federal Reserve’s ambitious efforts to control inflation. It is a bit surprising that the Fed, with its legion of talented technocrats, may not have appreciated the impact a dramatic increase in interest rates would have on the banking system, especially when there is an abundance of liquidity.
The conditions are unusual; however, the real concern should be the risk of an adverse movement in the relative values of assets and liabilities, not the value of credit. Banks today for the most part are dealing with an unusually large sum of deposits that must be invested. The preferred method of deploying those funds normally is as loans — commercial, residential, etc. But today, banks can prudently lend only so much; therefore, the balance of the funds ends up as investments, such as Treasuries and bonds. In a stable rate environment, the interest rate spread is manageable. But with a significant increase in rates in a short period of time, those low-rate investments lose value and affect profitability.
Many banks are feeling the squeeze, and institutions such as Silicon Valley Bank that experienced a massive increase in deposits in a relatively short period are probably affected the most. Over time, the investments mature and the funds (assets) probably would be invested into higher-rate securities or even loans. Inflation is a concern, but maybe a more dovish approach to increasing interest rates would be prudent.
The writer was a longtime commercial bank lender, now retired.