A Discussion on Regional Banks
Earlier this year, it looked as if we were on the potential verge of a banking crisis in the United States. The second, third, and fourth largest bank failures in US history occurred in the Spring.
In August, in response to the recent bank failures, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency jointly announced a proposal to require additional regulations for banks with assets of $100 billion and greater. This is down from the current threshold of $700 billion or for banks who do business internationally.
Each of the three particularly fast-growing banks that failed in the Spring of 2023 shared common characteristics. Each experienced rapid growth, had a niche client base, invested in longer dated bonds when interest rates were low, and each had a “run on the bank” whereby a large concentration of uninsured deposits were held. Some issues appear to be specific to the underlying banks, whereas other issues could be more problematic for the entire sector.
There are many moving parts to this saga. For those looking for a more in-depth understanding of the banks and what occurred, please continue by listening to the speech shared with the Greater Houston Pachyderm Club back in July. As you will hear, it is our belief that one must first understand the workings of the Federal Reserve and its actions to better understand the banking situation. Some of the thoughts back in July appear to be moving closer to fruition today.
Thank you for your interest.