Aurelia Butler

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen told bankers on Tuesday that she is prepared to intervene to protect depositors in smaller U.S. banks suffering deposit runs that threaten more contagion amid the worst financial system turmoil in more than a decade. In a speech aimed at calming nerves rattled by two prominent bank failures this month, Yellen said that the U.S. banking system was stabilizing and steps taken to guarantee deposits in those institutions, showed a “resolute commitment” to ensure depositors’ savings and banks remain safe.”The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” Yellen told an American Bankers Association conference in Washington.”And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” she added in prepared remarks that drew a standing ovation from the assembled bankers after she delivered them. Yellen, speaking more than a week after the Federal Deposit Insurance Corp (FDIC) closed the failing Silicon Valley Bank and Signature Bank (NASDAQ:SBNY), said the “decisive and forceful” actions were strengthening public confidence in the U.S. banking system and protecting the American economy.In those cases, the Treasury, the Federal Reserve and the FDIC invoked “systemic risk exceptions” that allowed them to guarantee billions of dollars of uninsured deposits, and Yellen said the actions, along with new Fed lending facilities, reduced the risk of further bank failures.Yellen did not provide details on what further interventions may be warranted, but shifted emphasis toward smaller regional and community banks, which have sought protections to stop deposits from fleeing to larger institutions seen as “too big to fail.”In a U.S. Senate hearing last week, Yellen said universal deposit guarantees would only be granted to those at failing banks determined to pose a systemic risk. Some banking groups have called for congressional authority for temporary universal guarantees on all U.S. bank deposits, but the conservative Republican House Freedom Caucus opposes expanding deposit guarantees beyond the FDIC’s current $250,000 limit — a major roadblock to swift action to stem a deeper crisis.At a separate event, U.S. Deputy Treasury Secretary Wally Adeyemo also emphasized the importance of community and minority-owned banks as the department considers how to further strengthen financial stability.Yellen said a “dynamic and diverse banking system” was needed to support the U.S. economy, with large, mid-sized and small banks all playing a role in supporting households and small businesses and increasing competition in financial services.CONFIDENCE BEFORE RULE REVISIONSThe Treasury chief said she is currently focused on restoring the confidence of bank depositors, but will evaluate banking regulations to determine whether adjustments are needed to address the risks that banks face today, which are more focused on interest rates and liquidity than asset quality. She declined to speculate on what changes may be needed, adding that the Fed would examine why SVB and Signature Bank failed.She said the Fed’s discount window lending and new Bank Term Funding facility, which allows banks to borrow against certain bonds held at par value rather than diminished market values amid higher interest rates, were working as intended and aggregate deposit outflows from regional banks have stabilized.A move by large banks to deposit $30 billion into troubled First Republic Bank (NYSE:FRC) last week “represents a vote of confidence in our banking system,” Yellen added.Yellen said she was keeping in close contact with bankers, state and federal regulators, market participants and international counterparts about the banking situation.She added that the situation was “very different” from the 2008-2009 global financial crisis, when subprime mortgage assets put many banks under stress, and that the financial system is “significantly stronger than it was 15 years ago.” More

WASHINGTON (Reuters) -The U.S. Treasury is continuing to monitor the health of mid-sized and regional banks and is considering what steps can be taken to further strengthen the country’s financial stability, Deputy Treasury Secretary Wally Adeyemo said on Tuesday.Adeyemo said “decisive action” taken by the Treasury, Federal Reserve and the Federal Deposit Insurance Corporation to protect depositors in Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) and ensure liquidity for other banks had stabilized the banking system, but a review of the banks’ failures was in order.”It’s … important that we review the failures of the two banks in question to ensure we have a set of rules and procedures for the banking system that continues to protect our economy and depositors across the country,” Adeyemo said at an event hosted by the U.S. Hispanic Chamber of Commerce.”We of course continue to monitor the current situation and consider what steps can be taken to further strengthen America’s financial stability,” he said, without elaborating.Adeyemo underscored the importance of small- and medium-sized community banks and minority-owned depository institutions for communities of color, given their strong track record in reaching underserved communities, and said the Biden administration was committed to protecting these institutions.”We know that smaller banks – those that would have been at greatest risk absent the steps we took – play a critical role in providing access to capital in Hispanic communities and other communities of color,” he said.Alice Rodriguez, who retired from JP Morgan Chase (NYSE:JPM) in September and is the immediate past chair of the U.S. Hispanic Chamber of Commerce, welcomed the public support for community banks expressed by Adeyemo and Treasury Secretary Janet Yellen during separate comments to bankers in Washington.”It’s really important – in order for minorities not to get really constrained on capital – for these institutions to continue to serve them. If the banks have challenges with outflows, they’re not going to be able to serve those communities,” Rodriguez told Reuters after a private meeting with Adeyemo and U.S. regional leaders attending the Hispanic business event.She said federal, state and local officials should increase their outreach to shore up confidence in regional banks, adding, “The reality is there’s always trust issues with government, particularly in the minority community.” More

LONDON/COLOMBO (Reuters) -Sri Lanka is ready to engage in debt restructuring talks with bilateral and private creditors to recover debt sustainability as “soon as possible”, state finance minister Shehan Semasinghe said on Tuesday.Sri Lanka this week secured a $2.9 billion programme from the International Monetary Fund to tackle its suffocating debt burden and its worst economic crisis in more than seven decades, which has disrupted imports of essentials from fuel to medicine and caused political turmoil. “The central bank will start engaging officially,” the minister told Reuters, after the IMF gave its final approval to the bailout, allowing much-needed disbursements and unlocking additional financing from multilateral lenders.”We want these (talks) finalised as soon as possible.””From today onwards, we will move forward to engage more with our creditors and to finalise the restructuring process,” he added. The minister did not directly reply when Reuters asked if the country would engage in parallel negotiations with both bilateral creditors – such as China, India, and Paris Club nations – and overseas bondholders, in order to speed up talks. The IMF deal is a key step as the country aims to rework a substantial part of its $84 billion worth of public debt.In its programme published this week the fund specified that Sri Lanka’s authorities are “weighing different options” on how to treat local currency debt under local law. However, asked on the parameters of a domestic debt overhaul, Semasinghe said it was “too premature to comment on it” as a final decision on whether such a restructuring would take place had not been taken. Local currency debt is equivalent to almost $38 billion or 45% of public debt and well above the $11.5 billion Colombo owes to official creditors and $13.3 billion to private bondholders. Semasinghe also added that “it’s not on the table right now” to request additional financing from the IMF through the food shock window or the Resilience and Sustainability Trust (RST).NEW INVESTMENTThe IMF expects the economy to contract 3% in 2023 and expand 1.5% next year, with growth accelerating to 3% by the end of the programme in 2026. Inflation, which stood at 57.2% at the end of 2022, will fall to 5.2% in 2026, the country’s programme with the IMF says. The government is set to eliminate energy subsidies this year, the programme added.Speaking about the prospect of attracting additional financing on the back of the IMF programme, the minister said the government was now looking for new investments. “We had a reasonable amount of inquires coming in but due to the programme not being unlocked, we weren’t able to move further,” he said, without providing any further details.The government will launch a new department focused on external trade and investments and improve coordination of different government agencies. “We want to create a more investor friendly environment,” he said. The World Bank has ranked the country 99 out of 190 on its ease of doing business rating. Semasinghe, second in charge at the Finance Ministry after the president, who holds the post of finance minister, also said the government would ramp up tax collection through digitalisation, though had no plans to add levies. Tax receipts have been a struggle for the country, with revenue collection amounting to just 8.4% of GDP in 2022 – one of the lowest in the world, according to the IMF. The government has raised value added taxes and corporate income tax, while slashing the relief given to individual taxpayers. “Everybody who is liable to pay taxes will pay taxes,” said Semasinghe. More

UK chancellor Jeremy Hunt has said that the Bank of England should remain focused on taming “dangerously high” inflation, despite the strain placed on the global banking sector by rising interest rates.Data to be published on Wednesday is expected to show UK inflation at close to 10 per cent, and Hunt on Tuesday said he had told BoE governor Andrew Bailey to do “what you think is necessary” to bring down prices.Asked whether fighting inflation was still the priority at a time of banking stress linked to higher interest rates, Hunt told the House of Lords economic affairs committee: “Yes it is. The prime minister’s first priority is to halve inflation.”Investors have bet that the US Federal Reserve will be constrained in its ability to raise interest rates by fragility in the banking sector, but Hunt took a hawkish stance in evidence to the cross-party group of peers. He confirmed that he had discussed with Bailey the impact of higher interest rates on the banking sector but said taming inflation — which he described as “dangerously high” — was key. “We need to do everything we can to maintain our focus on bringing it down,” he said.“I only ever say to him: “Please do what you think is necessary — as indeed you are legally bound to do under the Bank of England Act,” added Hunt. Jeremy Hunt, giving evidence to the economic affairs committee, said: ‘ he prime minister’s first priority is to halve inflation.’ © UK Parliament/PAHunt accepted that the speed of recent interest rate rises was “the root cause of the volatility we have seen in recent months” and said it was important to fight inflation “in a way that maintains as best we are able stability in financial markets”.But he added: “Inflation is itself destabilising. It’s not an answer to say we are suddenly going to change our minds and says it’s acceptable to have a rate of inflation that is as destabilisingly high as 10 per cent.”The BoE’s Monetary Policy Committee will set interest rates on Thursday, just 24 hours after the latest data on inflation, with a consensus view among economists that it could nudge just below 10 per cent.Bigger falls in inflation are expected to follow in the next few months as last year’s surge in energy costs comes out of the year-on-year comparisons. But Hunt said that roughly 6.5 percentage points of the inflation number comprised “core inflation”, driven by non-energy factors such as pay rises.Lord Macpherson, former permanent secretary to the Treasury, said the BoE should focus relentlessly on curbing inflation. “The BoE mustn’t subordinate its monetary to its financial stability objective,” he told the Financial Times. “Otherwise inflation will remain higher for longer, as in the end will interest rates.”Meanwhile Hunt defended his planned City of London regulatory reforms, promising that he would not do anything to undermine financial stability. “We won’t unlearn the lessons of the financial crisis,” he said.The chancellor also defended the Swiss government’s handling of the $3.2bn rescue-takeover of Credit Suisse by UBS, which wiped out $17bn of its bonds, upending the normal “hierarchy of claims” for investors.Hunt said compromise had been needed to complete the sale, which represented “the best possible outcome”. “I wholly support the decisions made by the Swiss authorities that made the purchase by UBS possible. In the circumstances, I think they took the right decision,” he said. Hunt added that he had been assured by the BoE that the UK banking system was “immensely stronger” than it had been before the 2008 crash, but cautioned: “We have to remain vigilant.” More

Businesses have been encouraged to pay more into their employees’ pension pots in a move to meet a shortfall in retirement savings. The Living Wage Foundation, a charity that campaigns for fair pay, launched a new “living pension employer” standard on Tuesday in a move to increase employer pension contributions from 3 per cent of employees’ wages to 7 per cent. Combined with the current 5 per cent minimum for employee contributions, the voluntary initiative aims to raise pension contributions to 12 per cent of annual pay.“Many workers are unable to prioritise pension saving, which risks storing up a future crisis of millions unable to afford even the basics in retirement,” said Katherine Chapman, director of the Living Wage Foundation. The scheme complements the foundation’s “real living wage” initiative.The new standard aims to increase pension savings for the low paid at a time when many have cut contributions to meet the rising cost of living.Nearly one in 10 savers had stopped or reduced pension contributions in the past six months, according to polling company Savanta Comres. In a recent survey it found 42 per cent of those who cut contributions blamed rising living costs. Fewer than 20 per cent of workers in a defined contribution scheme are saving at least 11.2 per cent of pay over their career, according to a study published by the Resolution Foundation. More

Sri Lanka’s government wants to finalise plans to resolve its debt crisis by the end of the year, the country’s president has said, urging creditors to quickly reach a compromise or risk creating more economic peril. In his first interview since the IMF approved a $3bn, four-year lending programme on Monday, Ranil Wickremesinghe said the deal and his long-term reform plans were the country’s “last chance” to open up an economy beset by shortages of food, fuel, medicine and foreign currency during 2022. “I would like to see the agreements by the end of the year,” Sri Lanka’s president said, referring to deals with its bilateral and commercial creditors that the country now needs to negotiate. “But what I like, and what can happen, are two different timelines.”The IMF is set to disburse an initial tranche of about $330mn, with the arrival of the rest of the funds contingent on Sri Lanka making progress towards a preliminary deal to restructure its debt.However, elements of reaching that deal are out of Colombo’s control, with Sri Lanka relying on an easing of tensions between China, the country’s main bilateral lender, and other creditors for progress to occur. The president acknowledged “geopolitics” could affect his government’s ambitions. The IMF deal, which was first tabled in September, could only be approved after Beijing dropped its resistance to a planned restructuring earlier this month. The wholesale market in Colombo. Sri Lanka last year became the first Asia-Pacific nation to default on its debt in two decades © Chamila Karunarathne/EPA-EFE/ShutterstockOther troubled debtors that also owe large amounts to China, such as Ghana and Pakistan, are closely watching Sri Lanka’s negotiations. Colombo owes about $40bn in foreign debt to bilateral creditors — including China, India and Japan — as well as commercial bondholders, along with about another $40bn in domestic debt, according to IMF figures.“The whole issue is whether [our bilateral creditors] will be on one platform or whether we’ll talk with China and with the Paris Club members separately,” Wickremesinghe said, referring to a group of bilateral lenders that includes Japan and western European nations.He said he expected that the Chinese “will come along” with a debt deal, notwithstanding tensions between Beijing and others over the size of the potential writedown China might be asked to swallow. “There’ll be a lot of shadow boxing but, other than that, at the end of the day, neither side can afford to take a very rigid stance,” Wickremesinghe said. “There has to be compromise.”Beijing, whose importance as lender to developing economies has surged over the past decade, has forged its own path with cash-strapped creditor nations during the emerging debt crisis.It has so far proved reluctant to treat debts along the lines put forward by western lenders, arguing that global norms concerning restructuring need to be updated. Critics, including the US, say this has slowed down the ability of countries such as Zambia to recover from debt crises.Sri Lanka last year became the first Asia-Pacific nation to default on its debt in two decades.Shortages of foreign currency on the island of 22mn led Sri Lanka to become a symbol of the havoc caused by high global inflation and economic mismanagement. Mass protests forced Wickremesinghe’s predecessor, Gotabaya Rajapaksa, to flee the island. Many also held Wickremesinghe, who was prime minister at the time, among those responsible for the country’s crisis. His house was set ablaze during the unrest. “I lost my whole collection of books and antiques,” he said.

Since he ascended to the more powerful post of president in July, Wickremesinghe’s government has raised taxes as part of its commitments to the IMF. Analysts said seeing out the IMF programme could prove challenging, with reforms — including privatising its state-owned telecoms company, airline, hotels and other assets — considered politically contentious. “I would like to see the government get out of business except for the financial sectors,” Wickremesinghe said. Without his government’s 25-year reform programme, Sri Lanka’s economy would “have no future”. Additional reporting by Mahendra Ratnaweera More

The threat of a credit crisis that creates damaging shockwaves across the global financial system has overtaken inflation as investors’ biggest worry in the wake of a spate of US bank collapses.Almost a third of fund managers highlighted a “systemic credit event” as the biggest risk to markets, according to Bank of America’s closely watched monthly survey, which canvassed the views of investors overseeing a combined $621bn of assets. The survey was carried out in the wake of the failures of Silicon Valley Bank and Signature Bank, but before the Swiss government forced through a takeover by UBS to rescue ailing lender Credit Suisse.The troubles in the US banking system sparked an investor stampede out of the sector, which until February had been among the most favoured by global asset managers. Fund managers moved to a net 3 per cent underweight in the US bank sector, a drop of 22 percentage points since last month. “Contagion risks across US regional banks drove investors out of the US bank sector this month at the fastest pace since Russia’s invasion of Ukraine,” said Michael Hartnett, chief investment strategist at BofA global research.The KBW bank index, a broad US banking benchmark, has dropped 27 per cent since the start of February. The shift in investor sentiment echoes comments by BlackRock chief executive Larry Fink, who earlier this month warned about the risk of a “slow rolling crisis” in the US financial system “with more seizures and shutdowns” following SVB’s failure.Investors also retreated from the European banking sector during March as the crisis at Credit Suisse intensified after it admitted to “material weaknesses” in internal controls over financial reporting. Saudi National Bank, the biggest CS shareholder, then ruled out providing any more financial assistance in a blunt vote of no confidence in the beleaguered Swiss lender.Just over a third of global fund managers also worry that the most likely source of a systemic crisis lies in the “shadow-banking” sector where less regulated players, such as private credit managers, have grown hugely in size over the past decade and become significant competitors to established banks.Concerns that problems are brewing elsewhere were evident with a net 46 per cent of fund managers describing their perception of counterparty risks as “above normal”, a jump of 25 percentage points since last month to the highest level since the early stages of the Covid-19 pandemic in May 2020. A net 42 per cent of fund managers also said they expected a global recession this year, the first increase in this measure since November 2022. “Regardless of whether more financial institutions run into trouble, it is looking increasingly likely that we will see a bigger tightening of credit conditions which will weigh on economic activity,” said Vicky Redwood, a senior adviser at Capital Economics. More

LONDON (Reuters) – This month’s U.S. banking system turmoil and renewed recession worries have left global investor confidence at one of the lowest levels in the last 20 years, and that does not even account for this week’s demise of Credit Suisse.A monthly survey carried out by investment bank BofA following the collapses of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY), but before Sunday’s Credit Suisse takeover, showed the perception of risk levels worsening dramatically. BofA’s self-compiled “Financial Market Risk Indicator” of investor worry levels jumped to 7.7, leaving it just off the extreme highs of last year amid the Ukraine war and above both its global financial crisis and COVID outbreak peaks.European fund managers are particularly gloomy. Even though their questionnaire closed before the weekend woes at Credit Suisse, nearly a third of them had said “a systemic credit event” was now the biggest risk for markets.That was up from only 8% in the February survey and knocked inflation off the top spot for the first time in nine months. With the Silicon Valley Bank turmoil fresh in minds, the U.S. “shadow banking” sector was cited as the most likely source of danger.Other surveys told a similar story.In Germany, a monthly poll from the ZEW economic research institute showed a large fall in investor sentiment there. “The international financial markets are under strong pressure,” and the high level of uncertainty is reflected in the economic expectations, ZEW President Achim Wambach said. The collapse of U.S. mid-sized lenders Silicon Valley Bank (SVB) and Signature Bank, followed by the demise of 167-year-old Credit Suisse, have left investors concerned about other potential bank crises.BofA’s survey showed recession and stagflation risks are also rising again.Just over half the 212 funds it surveyed globally expect weaker world growth and though 84% see inflation going lower, 88% now think stagflation – the phenomenon of anaemic growth and high inflation – is the most likely macroeconomic outcome in the next 12 months.Among Europe’s money managers, a net 61% expect the region to sink into recession in the next year, up from 55% in February. A net 42% also expect a global recession, up from 24% last month. More