Higher income and risks together tests bank regulators

Significance

The failures of First Republic, Credit Suisse, Signature Bank and Silicon Valley Bank (SVB) have put bank asset prices and deposits under pressure despite rising bank profits. With deposits falling, regulators are seeking to bolster confidence in banking among customers and investors.

Impacts

• Rapid Fed rate rises were always going to raise stresses, implying a lack of foresight by policymakers focused too narrowly on inflation.
• Falling confidence in banks leads to customers withdrawing deposits, leading to falls in bank loans and a negative effect on the economy.
• Falling investor confidence and a need for safe havens is boosting assets like gold that often perform poorly when rates are rising.
• Mergers and acquisitions will rise as banks face pressure to embrace digital technology, and pay better deposit rates.