Source: Finance Association
Author: Niu Zhanlin
① The Federal Reserve has issued a series of private warnings to lenders with assets between $100 billion and $250 billion; ② Regulators will impose strict deadlines to resolve the issues, and if banks fail to resolve these issues quickly, they will take enforcement action.
US regulators are quietly asking regional lenders to step up their liquidity planning as part of increased supervision after three banks went bankrupt earlier this year.
According to people familiar with the matter, the Federal Reserve has issued a series of private warnings to lenders with assets between 100 billion and 250 billion US dollars, including$Citizens Financial (CFG.US)$,$Fifth Third Bancorp (FITB.US)$with$M&T Bank (MTB.US)$etc., the notice covers everything from capital and liquidity of lenders to technology and compliance.
As it turns out, the US banking sector remains vulnerable to issues that have led to the collapse of several small lenders, including Silicon Valley Bank. These challenges include depreciating bonds, investor panic, and rising costs for customers to withdraw their deposits and finance.
As a result, Moody's and S&P Global Ratings downgraded a number of US banks this month, as well as their ratings outlook, on the grounds that multiple pressures have made banks difficult. Fitch also warned that dozens of US banks, even J.P. Morgan, are at risk of being downgraded.
Earlier this year, Federal Reserve Vice Chairman Barr vowed to “improve the speed, strength, and flexibility of supervision.” Since then, banks of all sizes have been subject to more extensive supervision, and this action is also part of increased supervision.
These undisclosed warnings usually require a response from the bank's board level, which includes a timeline for corrective action. Remediating these actions may be costly for banks that have received these warnings, but if left unaddressed, they could escalate into harsher accusations or public actions.
The head of the financial services team at Kilpatrick Townsend & Stockton Law Firm said: “Regulators will be imposing strict deadlines to resolve the issue. If banks can't resolve these issues quickly, they will take enforcement action.”
Regulators are also closely reviewing the relevant banks' IT systems and compliance functions. In some cases, these reviews will require banks to address certain deficiencies.
Regulators required lenders to ensure quick access to the Federal Reserve's discount window, which meant that Silicon Valley banks and signature banks were unprepared, ultimately hastening their collapse. Generally speaking, the Fed's discount window is designed to provide emergency liquidity to banks that originally have healthy balance sheets, but banks have always been reluctant to use this tool because it may cause investors to worry that banks have serious problems such as poor liquidity management or financial stress.
Additionally, regulators are requiring banks to provide evidence that they can easily liquidate their sellable portfolios in the event of an emergency to raise cash.
Barr said in May that recent pressure on the banking sector shows that we need to be vigilant when evaluating and dealing with risks. As a result, regulators are redoubling their efforts to assess banks' preparedness for credit, liquidity, and interest rate risks.
James Stevens, co-head of the Troutman Pepper Financial Services Group, said that regulators have clearly increased their attention to anything related to bank liquidity, deposits, or financing. I have not experienced anything like this before.
Editor/Somer