Summers Says No Systemic Banking Risk
02 mins 35 secs
This is your market minute. Larry Summers was not surprised by the bank run and subsequent shuttering experienced by Silicon Valley Bank. But he did think that the dip in stock price of some of the country's largest banks was an overreaction.
Somers added that bank accounting might not be fully acknowledging the macroeconomic shifts in the inflationary environment and the deteriorating impact that has on bank standings.Before concluding, he did not see any systemic risk to the banking system. As long as depositors could still make withdrawals.
Less striking than uh the fact that you saw substance potential moves even in the country's largest banks in their stock prices. I think there may well be an element of overreaction in that. But I think it's important to recognize that when banks have long-term securities, even if the banks don't plan to sell them that when interest rates go up, they have lost asset value and deposits which are shorter term, have not lost asset value.And therefore the banks in a sense are in a worse position uh than they were before.
So I think in general bank accounting probably doesn't fully capture some of the risks associated with this pattern of borrowing short and lending long.And I think there's gonna be issues here for regulators to look at,but look what is absolutely imperative is that however, this gets resolved, depositors be paid back and paid back in full.
And I don't see anything in any aspect of this situation.That would be a basis for that being called into question. And as long as, uh, that's true,I don't think there will be risk to bank asset values in the light, but I don't see if this is handled reasonably and I have every reason to think it will be that, uh, this will be a source of systemic risk.Transcript
Larry Summers was not surprised by the bank run and subsequent shuttering experienced by Silicon Valley Bank, but does not see any systemic risk to the banking system, as long as depositors can make withdrawals.