Commentary
After Treasury Secretary Janet Yellen told the U.S. Senate on March 22 that federal bank regulators were not considering “guarantee of all deposits,” the stock market—and bank stocks more specifically—fell precipitously.
The very next day, Yellen seemed to have walked back her comments. In a speech to the U.S. House, Yellen said that regarding insuring customer deposits, the Treasury would “be prepared to take additional actions if warranted.”
Those two days demonstrate this: the viability of any financial system is based on trust.
If trust in the financial institutions isn’t there, all bets are off.
Take First Republic Bank, for example. The San Francisco-based institution has been one of the most respected franchises in banking. It had a roster of wealthy clients, and doled out mortgages and personal loans with very low interest rates—great for their customers—during the last several years that suddenly look terrible on the bank’s balance sheet now that rates and its funding costs are much higher….