2 February 2024

The US Federal Reserve Building in Washington on May 2, 2023.

US Federal Reserve (Fed) Chairman Jerome Powell raised interest rates on Wednesday (May 3) for the tenth time in just over a year, but he did not rule out a pause. outcome of the Fed’s monetary policy committee. So everything went as planned, with the cost of money rising in one year from 0% to more than 5%. The central bank continues to raise rates – from 5% to 5.25% – to combat persistent inflation, even if it has fallen (4.6% in March, excluding energy and food).

Wasn’t that once too much? Because, while Mr. Powell fights inflation, bank failures multiply, with the debacle, since mid-March, of three establishments victims of the credit crunch. The latest bankruptcy is that of First Republic, an establishment in San Francisco (California), taken over in disaster by the giant JP Morgan, Monday 1er May at dawn. Admittedly, it is permissible to blame the bad management and the bad supervision of these banks, but the hour is not any more with these questions: they are victims of the rise in the rates and the panic of the savers.

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“The US banking system is strong and resilient”, assured the Fed in its press release on Wednesday. Except that, two hours later, after the closing of the markets, the Bloomberg agency revealed that another establishment was in turmoil, the Pacific Western Bank. After losing 5 billion dollars (4.5 billion euros) in deposits out of 32 billion in the winter of 2022, this small bank based in Beverly Hills, a wealthy district of Los Angeles, is looking for capital or buyers. .

The action lost up to 58% of its value in informal trading after the close of markets on Wednesday evening, valuing the bank at $330 million, ten times less than at the start of March. Zions and Comerica, two other regional banks, were yielding more than 10% after the close, and no one can claim that the crisis is under control.

“zombie banks”

The chief economist of the association of real estate developers, Lawrence Yun, judged with the chain CNBC that this increase in rates was “harmful and unnecessary”. According to him, regional banks “become zombie banks, unable to lend even to good companies, as they are more concerned with restructuring their balance sheets to ensure their survival”.

So far, Mr. Powell has refused to correlate the level of rates to the banking crisis. He believes that financial conditions for banks have improved – investors are fleeing to risk-free Treasuries and driving down market rates, which lowers funding costs for banks.

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