What does Trump 2.0 mean for the economy?
From tariff imposition to tax reduction, economic populism’s vision of Trump’s vision is about to be tested.
The economy is becoming stable, employment opportunities are very high, consumers and business confidence are increasing, while inflation and interest rates have increased to a great extent.
Overall, it is a very favorable background for banks, such as the growing balance in the FDIC insurance fund and the failures of just two banks in 2024 out of more than 4,500 institutions. The industry posted a shared net income of $ 65.4 billion in the quarter ending September 30, for which the latest information is available, and about 93% of the bank is profitable.
But still, there is no reason for caution, Martin Grunberg said, who resigned from the post of Bank Regulatory Federal Deposit Insurance Corporation Chairman at the end of President Biden’s term, head of the new agency by Donald Trump. Change for appointment began. . Gruenberg has criticized the complaints that FDIC has emerged as an anti -workplace that has sexually harassed and other misconduct.
In a conversation on January 14 at Brookings InstitutionGruenberg, while reviewing the three latest banking trauma of the last half -century, said that many factors that had caused a lot of disaster before this could happen again.
The first crisis was marked in the early 1980s due to failures between banks and efficiency. The second was a mortgage crisis that brought more banks down and put the economy in a deep recession around 2008-2010. Then there was a severe failure of three major regional banks, including the Silicon Valley Bank, whose offices were in Arizona.
He said, “I am surprised how many common threads through them, even the difference between specific contexts and details.”
Non -banks’ growing and anxious role
The disturbing factors that Gronberg cites include interest rates risks for banks, the risks of liquidity, too much leverage, inadequate investment, very rapid development for some banks, depending on the high amount of non -insured deposits and There are new financial products that were not well understood. .
There are many similar factors today, including financial institutions that are not banks and thus are out of their regulatory monitoring with little transparency and surveillance. In some cases, the risks are now high, Gravanburg said, seeing that today’s largest banks are much larger, more complex and more deeply connected.
For bank customers, and especially depositors, an important way of debate reflects the growing role of non -banks. These companies had assets worth $ 20.5 trillion in the United States, which was cited by the Financial Stability Board in a speech of 2023, against US banks’ $ 23.7 trillion.
These non -banks include stock and bond mutual funds, mini -market mutual funds, hedge funds, insurance companies and non -bank lenders, many of which have complex relationships with traditional banks.
As far as the risks are concerned, some investors will assume that the stock fund comes with reservations like a bank deposit account, but the differences are not always so clear, such as mini -market mutual funds and mini market deposit accounts in the bank. With So the importance of understanding your property.
In 2024, two bank failures were in the First National Bank of the Republic First Bank in Pennsylvania and Lindsay’s Lindsay in Oklahoma. A credit union, Alliance Credit Union of Florida, also failed last year.
Should Deposit Insurance Coverage increase?
In his conversation, Grunberg asked if FDIC insurance reservations were sufficient. The fund insures the bank deposits, Mainly $ 250,000 per deposit in each company (With credit unions supporting a similar federal fund). Gruenberg said the amount was last raised to $ 100,000 in 2008, and may need to be raised again.
Although most consumers will not collide against this limit, especially since they can get more coverage by spreading their reserves in multiple banks, this is a different story with business consumers. For example, large companies can easily exceed $ 250,000 in a deposit account that is dedicated to meeting payroll payments, Gruenberg said.
The failure of the Silicon Valley Bank was related to the high proportion of non -insured collectors who fled rapidly when the cracks appeared.. At that time, about 90% of the bank’s deposits were uncomfortable.
Despite this fear, non -insured deposits are growing again. The FDIC is estimated to be more than $ 7 trillion, which will represent more than 40% of all banking deposits.
Gruenberg describes another possibility, providing blanket insurance coverage to all deposits, as less likely as it will result in a lot of costs for banks, which pay the premium assessment to support the FDIC insurance fund. Do
When Brookings senior colleague Aaron Klein was asked what he had at night, Gronberg cited two important issues. There is a possibility of a shock, such as an amazing increase in interest rates, which can lead to disaster on the economy and the banking sector. The second is the development of non -banks and the spread of non -insured deposits (above $ 250,000) in mainstream banks.
“We should not allow the relative stability of the (banking sector) to fall into a false sense of happiness,” said Gronberg. “I’m worried that the memories are short.”
Reach the author at Russ.wiles@arizonarepublic.com.
