What To Focus on After a Debt Deal

While we all await a vote on the debt ceiling agreement, many are already shifting attention to the aftermath. Namely, how will the government replenish its coffers? Recent estimates suggest the Treasury will issue more than $1 trillion in T-bills—the word “deluge” is getting used a lot—and who buys them, and for how much, could potentially impact financial stability. American Banker discussed the permutations. Among them: If bank depositors withdraw funds en masse to buy new T-bills, that could put pressure on bank funding costs. However, Bank of America Securities analyst Mark Cabana says “money market funds are likely to account for a majority of the uptake,” according to the article, and “the impact on bank deposits will likely be minimal.”

Here are some other regulatory stories we are following:

OCC Ups the Ante. The recent bank failures have forced at least one regulatory body to take a much more aggressive stance against large banks that routinely fall short when it comes to risk management. “A bank’s inability to correct persistent weaknesses will result in proportionate, fair, and appropriate consequences,” said Michael Hsu, head of the Office of the Comptroller of the Currency. Penalties could include restrictions on growth and demands to bolster capital or vacate certain lines of business.

Q1 Grade = Incomplete. Federal Deposit Insurance Corporation Chair Martin Gruenberg labeled the banking industry as “quite resilient” based on the FDIC’s quarterly banking profile, released on Wednesday. But, Gruenberg stressed, the true impact of the bank failures and their aftermath may not be fully apparent until the end of the second quarter of 2023. “The banking industry continues to face significant downside risks from the effects of inflation, rising market interest rates, slower economic growth, and geopolitical uncertainty,” Gruenberg said. 

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