Policy in Flux: One Year After the Regional Bank CrisisPolicyinFlux:OneYearAftertheRegionalBankCrisis

One year has passed since Silicon Valley Bank’s downfall, an event that preceded the collapse of two other regional banks and triggered fresh volatility across financial markets as investors faced the possibility of new risks emerging. While a broader crisis was averted, the policy picture in Washington is still developing. Tom Porcelli, Chief US Economist at PGIM Fixed Income, and James Sonne, Head of Government Affairs at PGIM, update investors on what to expect going forward.

• Policy proposals: The RECOUP Act, which would have granted regulators greater authority to oversee risk management practices inside banks, did not come up for a vote and is unlikely to be considered this year ahead of the presidential election. Deposit insurance was also the subject of policy proposals with some lawmakers favoring an increase to the FDIC’s limit of $250,000 per depositor—a topic that has received attention on Capitol Hill previously.
• Regulatory action: Regulators continue to take a closer look at liquidity risks in the banking sector and beyond, including the role that social media could play in triggering a bank run. There have already been changes in the day-to-day supervision of banks, and regulators appear likely to create a broader proposal to address concerns that emerged after SVB’s collapse.
• Banking sector challenges: As investors witnessed with SVB, Signature Bank and First Republic Bank, interest rates created new challenges in the sector. Commercial real estate lending has also drawn attention given the sizable role that regional banks play in that market, but Federal Reserve Chair Jay Powell has been steadfast in saying the central bank does not view CRE-related challenges as a systemic event.