PacWest Bancorp is reportedly in talks with potential partners and investors regarding strategic options after a decline in shares, along with several other US regional banks.
This decline is contributing to fears of a worsening banking crisis and what some headlines are calling a “bank contagion.” Many of these banks have assets that are not worth their face value in the short term, and in the meantime, they need to raise cash because lots of them have deposit bases.
The Federal Reserve and Treasury have attempted to mitigate this crisis, but confidence in the banking system continues to be lost.
There is a call for deposit insurance on all of the assets of the bank and all accounts, especially for banks that are considered systematically important, to avoid a domino effect of banks falling.
Jay Powell came out yesterday and said the financial system is sound, but some are skeptical of this statement.
The limited thinking of the Federal Reserve and old notions about ensuring all deposits creating moral hazard contribute to the lack of confidence in the system.
While it’s unclear if we will officially be in a recession, there is a consensus that the economy will slow down.