Fed Decision - Aiming for Stability
The Road So Far
Over the last two weeks, the FDIC assumed control of
Silicon Valley Bank and Signature Bank. Both banks had
experienced losses in their fixed-income portfolios and
were unable to attract sufficient capital to meet the
withdrawals of their depositors1
.
In an effort to increase confidence in the banking system,
US regulators provided banks with access to capital
through several lending facilities. They also guaranteed all
of the deposits of the two banks beyond the $250,000
FDIC insured level. A few days later Credit Suisse, the
second-largest Swiss bank, experienced its own funding
crisis. The Swiss National Bank (the central bank of
1 While meeting regulatory requirements.
Switzerland) hastily arranged the sale of Credit Suisse to
UBS (the largest bank in Switzerland).
This set the stage for the Fed’s interest rate decision on
March 22, 2023. The Fed had already raised by 4.5% over
the last year in an effort to lower inflation. This rapid
increase in interest rates was a significant driver of the
recent stresses in the banking system.