The recent banking stress has been a real test of capital and liquidity regulations enacted after the 2008 crisis.
While the banking system has been able to absorb the failure of three regional banks without creating systemic issues, banks have also been active in trying to enhance their liquidity positions by parking maturing securities in cash and accessing the Federal Home Loan facility. They are also more aggressively competing with certificates of deposit and engaging in deposit splitting. On the deposits front, the banking industry has witnessed large outflows, more significantly in the case of smaller banks, whereas money market funds seem to have benefitted.
Regional bank stocks are down by approximately 28% year-to-date (YTD), reflecting deep concerns among bank equity investors that the US banking system remains vulnerable to deposit runs, given that there is still $8tn of uninsured deposits.
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