ERIC COMPTON, A BANKING ANALYST AT MORNINGSTAR
"Overall, I think this is a good indicator for the banks. I think a lot of the uncertainty for the banks after earnings was around how hard and how quickly the regulators would crack down on the industry in general. To me, the fact that the regulators specifically call out that this will be a several year process with an appropriate phase in period is key. We expected this would be the case, and was one reason we were not worried about imminent capital raises for the banks we cover. I think many investors were worried about the regulators dropping the hammer on the whole banking industry, quickly. This signals that will not happen. Banks will have time to adjust to the new rules.
Another thing that stood out to me was the regulators
don’t seem to be considering counting losses on HTM (held to
maturity) securities against capital ratios. This is good! Some
of the most bearish investors were worried that this type of
rule change would happen, while we were pretty skeptical of
this, and it looks like it indeed will not happen."
MORRIS PEARL, A FORMER MANAGING DIRECTOR AT BLACKROCK AND THE CHAIR OF PATRIOTIC MILLIONAIRES "The regulators knew about the problems at SVB months in advance. Despite that, the bank failed which shows there is a need for better supervision.
Usually, regulators are trying to walk the tightrope where they do not want to be overly restrictive and limit growth. But recent events show we need to take a closer look at the existing rules and strengthen mechanism to restore confidence in regional banks."
INSTITUTE OF INTERNATIONAL BANKERS CEO BETH ZORC "The IIB commends the Federal Reserve's timeliness of producing its report on SVB. Consistent with our mission, IIB will work to ensure a continued level playing field for internationally headquartered financial institutions operating in the U.S. Preserving this principle will further the significant contributions of these institutions to the American economy." JACOB S. FRENKEL, CHAIR OF LAW FIRM DICKINSON WRIGHT'S GOVERNMENT INVESTIGATIONS AND SECURITIES ENFORCEMENT PRACTICE GROUP "Such transparency and candor is healthy to identify needed regulatory fixes to reduce the likelihood of further collapses. Nevertheless, regulatory oversight of bank practices also depends on the competencies and strengths of the individuals tasked with conducting the examinations and supervision.
Regardless, this assessment will not temper the aggressive
federal civil and criminal investigations that are well underway
and likely will lead to actual cases."
MAYRA RODRIGUEZ VALLADARES, A FINANCIAL RISK CONSULTANT WHO
TRAINS BANKERS AND REGULATORS
"Reading the report, one can wonder how this bank did not fail
before. I was not surprised the Fed had warned SVB about its
poor interest rate risk management.
What is more of a surprise is the Fed had also warned SVB about IT, operational risk, internal audit and even problems with Current Expected Credit Loss measurements, considering the Fed and the California regulator knew SVB had poor compliance and internal controls with the Bank Secrecy Act and anti money laundering back in 2016.
Clearly, bank examiners and off-site supervisors were not
empowered to bring these issues to decision makers at the Fed to
act. The former administration seemed eager to undo Dodd-Frank
Act"
DAVID SMITH, A BANK ANALYST AT AUTONOMOUS RESEARCH
"The report confirms the theories that market observers had been
suspecting and the need for improving capital and
liquidity requirements for mid-sized banks will be addressed.
At this point, broader banking concerns around the health of
the financial system have come down slightly. But it will help
shore up relative weaker points in the regulatory and
supervisory system which can make the banking system more
resilient."
TIMOTHY COFFEY, AN ANALYST AT JANNEY MONTGOMERY SCOTT LLC
"The report doesn't tell us anything we didn't know about
regulatory risks in the bank and the system which the regulators
were also aware of. It does suggest some regulatory enhancement
for certain banks - such as a limit on capital distribution or
clamp-down on company executive pay for some banks - which would
incentivize the management not to take risks and avoid getting
into situations like we saw with SVB and First Republic."
Following are comments from market participants and analysts
on the bank's fast-evolving situation:
WAYNE SCOTT, REGULATORY COMPLIANCE SOLUTIONS LEAD AT NCC GROUP
SOFTWARE RESILIENCE
"Should the bank fail, it is hard to predict the impact it will
have on other regional banks right now. But it is safe to say
that any collapse usually has negative effects on the market and
the wider economy."
"There are similarities between SVB's situation and what is
happening with First Republic Bank: both are affected by the
rapid movement of very large sums of money."
"SVB presented a risk to the short-term cash flow of the
tech industry. A potential First Republic Bank failure could
similarly present a risk to the long-term investment strategy of
high net-worth individuals."
"There's potential for contagion to spread within financial
services following such a failure. That contagion would become
troubling."
JOHN GUARNERA, SENIOR CORPORATE ANALYST AT RBC BLUEBAY ASSET
MANAGEMENT
"With FRC, it's an evolving situation, different approaches are
being trying to resolve their current situation and so it's hard
to know definitively what the end game is here or not the end
game. But I will say that you know the situation probably seems
tenuous."
"It feels isolated, than the rest of the regional bank
system, feels like it's in a different place than where FRC
is."
(Reporting by Nupur Anand, Chris Prentice, Niket Nishant,
Jaiveer Shekhawat, Saeed Azhar, Tatiana Bautzer; Compiled by
Manya Saini; Editing by Krishna Chandra Eluri and Maju Samuel)
