Rep. Warren Davidson, R-Ohio, told Newsmax on Monday that the Biden administration managed to “buy some time” for banks after the collapse of Silicon Valley Bank, but said banks must “make themselves whole” in about a year.
Davidson, who sits on the House Financial Services Committee, said on “Wake Up America” that President Joe Biden is “going to try to hold fear at a minimum so that he can create some sort of calm.”
“That was obviously the effort over the weekend for the Federal Reserve to intervene and say, ‘Hey, we’ve got depository insurance fund that tries to keep the banks solvent,'” Davidson said. “I think that’ll buy some time so that banks that do tap those kinds of funds will probably become rapid acquisition targets.”
Davidson also said that “certainly more banks could fail. That’s why we’ve got so much regulation on banks, and when you look at what the root issue is, fundamentally you have a mismatch between the value of money, so when banks take their deposits a lot of the assets they hold on their books are U.S. treasuries.”
Davidson said that in December 2020, “the Federal Reserve was saying, ‘We expect rates to stay super low for a really long time.’ At that time, it was 0.1%. Today, interest is at 4.5%. All of this is set by the Fed and … when there’s a demand for withdrawals, the banks have to generate cash. So when they sell those bonds that they were hoping to hold to maturity, and they liquidate them to get cash to hand out to their … customers have to take a big discount.”
Davidson added: “So the bond essentially gets priced as if it would have to pay out at 4.5% or markets wouldn’t be functioning correctly. So this backstop that the Federal Reserve did is basically to make them whole as if they were able to sell the bond at full face value instead of taking the discount.
“So that’s really what it is: it’s an insurance on the bonds that banks sell. And in that way, the banks essentially have a year to be able to make themselves whole. But that’s why it will be a sign of distress and probably result in those banks who need to tap those facilities becoming targets for acquisition.”
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