<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=228149342841576&amp;ev=PageView&amp;noscript=1">

Leaders in Lending | Ep. 101

What the Collapse of SVB Means for Deposits and Interest Rate Increases

In this episode, we speak with Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal, who shares his take on the collapse of Silicon Valley Bank and Signature Bank and gives us a glimpse into what the future of finance may hold.



Nick Timiraos

Nick Timiraos is chief economics correspondent for The Wall Street Journal and is based in Washington. He is responsible for covering the Federal Reserve and other major developments in U.S. economic policy. Previously, Nick covered the Treasury Department and U.S. housing and mortgage markets, including the government's response to the foreclosure crisis and its control of finance companies Fannie Mae and Freddie Mac. He contributed to the Journal's presidential election coverage in 2008 and joined the Journal in 2006. Nick is the author of "Trillion Dollar Triage" (Little Brown, 2022), which chronicles the U.S. economic-policy response to the Covid pandemic.



The Wall Street Journal

The Wall Street Journal was founded in July 1889. Ever since, the Journal has led the way in chronicling the rise of industries in America and around the world. In no other period of human history has the planet witnessed changes so dramatic or swift. The Journal has covered the births and deaths of tens of thousands of companies; the creation of new industries such as autos, aerospace, oil and entertainment; two world wars and numerous other conflicts; profound advances in science and technology; revolutionary social movements; the rise of consumer economies in the U.S. and abroad; and the fitful march of globalization.

Key Topics Covered

  1. An outlook on the future of deposit insurance
  2. Navigating crises in the financial sector
  3. Macroeconomic balancing tools utilized by the federal government


The recent collapse of the Silicon Valley Bank has been one of the most significant bank failures since the global financial crisis and the second-largest bank failure in the history of the United States. 

With ripple effects spreading around the globe, this bank failure has thousands of experts diving deep into the details to identify exactly where things went wrong, what the collapse means for the future and how we can avoid similar failures.

In this episode, we speak with Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal, who shares his take on the unfolding events and gives us a glimpse into what the future of finance may hold. 

Join us as we discuss:

  • An outlook on the future of deposit insurance
  • Navigating crises in the financial sector
  • Macroeconomic balancing tools utilized by the federal government

An outlook on the future of deposit insurance

The state of Silicon Valley Bank raises questions around deposit insurance — what did history teach us and what’s next?

Regulators stated that after the financial crisis of 2008, they had tried to address “too big to fail.” However, as the 16th largest bank in the country, Silicon Valley Bank was not in that category. As a result of the run, the bank had a quarter of the deposits go out the door in one day, around $42 billion in withdrawals.

This situation is not a new problem for regulators.

What history shows us 

In January of 1991, the Fed was in the thick of resolving the bank failures from interest rate increases in the 1980s. 

“The Bank of New England was failing, and they were discussing what to do with the uninsured depositors.” Timiraos said, “This was the 33rd largest bank in the country; it was going to be the third largest bank failure in the country at the time.”

There was much back and forth about what to do with uninsured depositors, but they eventually decided on the backstop of depositors without dissent “People are surprised this happened. But this is not surprising if you look at the history; this is how policymakers have responded to this topic.”

What’s next?

At the time of this discussion, March 16th, no one has bought Silicon Valley Bank. 

“People begin to say, ‘wait a minute, this thing that I thought had great value, the value is gone, the depositors fled.” Timiraos said, “That leads to questions around other similarly situated, midsize regional banks. And that's a concern because deposits are seen as sticky and are now seen as flighty, at least for these regional players.”

We have an unstable equilibrium as deposit rates have stayed low, and the FED has raised interest substantially; there's a gap we can close by raising deposit rates. However, that could create negative funding spread for banks or lower margins.

Only time will tell what the overall result of this bank failure will look like. 

Navigating crises in the financial sector

The world is still feeling the waves of economic impact from COVID-19, and the financial sector is no exception.

The Fed went all in with support after the COVID shock in preparation for the inflation that swept through in 2021, a contrast to the concerns before COVID, when growth was weak worldwide, and there was less room to stimulate. 

“That's the concern now, you can't — if you're the Fed, your job is to maintain price stability and maximum employment. But the Fed has already said you can't have great employment if you don't have price stability. If you don't have real wages going up, what good is a job?” Timiraos said.

What does the 2% target for inflation mean?

The Fed set a numeric inflation target of 2 percent. Before the 1990s, the Fed did not disclose what they were doing with interest rates; it was a mystery. 

Today, they recognize the benefit of releasing such information. If people can make more educated guesses, interest rates are more likely to move and reaction functions improve.

Timiraos cited Ben Bernanke, former Chair of the Federal Reserve of the United States, “Ambiguity has its uses in games like poker, but monetary policy is a cooperative endeavor. If we tell people what we're trying to do, we improve our odds of achieving it.” 

That's where the 2 percent inflation targeting came from, and it has since become a global standard.

Macroeconomic balancing tools utilized by the federal government

Before the banking challenges, the Fed had two mandates and one silent mandate:

  • Fighting inflation
  • Supporting maximum employment
  • Creating financial stability

Financial stability was positive, and unemployment was at 3.6 percent in February. They were ready to focus all-in on fighting inflation. However, as stability wanes and unemployment rises, there's discussion around trade-offs. How do we manage these trade-offs?

“One way they can manage it — and you hear some people talking about this as well — we never said we have to get to 2 percent tomorrow.” Timiraos said, “You can get to 2 percent over time. Many of their forecasts and projections are consistent with getting there by 2025.” 

The banking problems are a wildcard for the Fed. If they can find the right tool for the right job, their odds of success rise.

If monetary policy is the chosen tool for dealing with macroeconomic management, then other methods may need to slip onto the scene — that’s where macroprudential tools can intervene in the markets with a continued focus on interest rates and bringing inflation down.

“If the banking crisis gets bad, then you are going to have much tougher conversations and decisions around that,” Timiraos said.

Stay tuned for new episodes every week on the Leaders in Lending Podcast.


Stay tuned for new episodes every week on the Leaders in Lending Podcast