This analysis is by Bloomberg Intelligence Analyst Senior Government Analyst Nathan R. Dean. It appeared first on the Bloomberg Terminal.
US policymakers’ Silicon Valley Bank and Signature Bank deposit backstop will open debate on the regulatory risks of regional banks. Congress will likely revisit a 2018 law that loosened regional bank capital and liquidity rules, but any deal would be difficult. Regulators could also tweak existing requirements for banks with over $250 billion in assets.
What’s at stake for regional banks?
Capital, liquidity rule changes.
While a 2018 bipartisan bill — known as the Economic Growth, Regulatory Relief and Consumer Protection Act — loosened financial regulation for banks with less than $250 billion in assets, it’s likely Democrats will call for revisiting those thresholds in response to Silicon Valley Bank’s demise. Yet we note in the short term Congress will more likely focus on hearings. Coming to a consensus on eventual legislation will be difficult. The bill raised what was known as the systemically important threshold — and its subsequent higher prudential standards — for banks over $50 billion in assets to banks above $250 billion in assets. (03/13/23)
And…
Deposit insurance increases.
FDIC insurance, which protects deposits up to $250,000, will likely be the subject of debate on whether that threshold should increase. The limit was raised from $100,000 as part of the Dodd-Frank Act. We believe some Congressional policymakers will call for the $250,000 limit to be raised. Yet we should note that corporate firms, which tend to have deposit limits well over the current threshold, may push policymakers to think of other backstops, similar to the recently announced Bank Term Funding Program (BTFP), which is designed to provide additional liquidity during times of stress. (03/13/23)
What Else?
‘Holistic’ review of bank capital.
A ‘holistic’ review of bank capital requirements currently underway at the US banking regulators will likely refocus its attention on regional banks. This changes our view in which we thought most focus would be on the investment banks. While some capital and liquidity changes for banks under $250 billion are locked into law, regulators may turn their attention to tweaks within the existing framework — likely the liquidity coverage ratio and net stable funding ratio. Yet we should note that such changes could take years. More information should come out in the next few weeks as policymakers state their intentions.
Solar growth unlikely to pause on Silicon Valley Bank collapse
The FDIC’s decision to fully protect customers of Silicon Valley Bank suggests there will be a minimal impact on US solar developer Sunrun, which had cash deposits totaling less than $80 million at the failed bank. Rivals SunPower and Sunnova both confirmed they had limited financial exposure to the bank. In addition to concerns about deposits, Silicon Valley Bank was an active lender for so-called community solar projects, and while the bank’s collapse might be a slight headwind for such community projects, they only comprised a few percent of the overall solar market.
Assuming there aren’t cascading effects from SVB’s failure, we believe US solar installations could expand 35-50% in 2023 with the fast pace of growth underpinned by the Inflation Reduction Act.
Bloomberg
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