In the wake of the Silicon Valley Bank collapse, it is becoming even harder for average Americans to borrow money, according to Guy Williams, president of Gulf Coast Bank and Trust.
Williams spoke with WWL’s Newell Normand this week about what he has called a regulatory “overaction,” to recent bank collapses and how it may impact the economy.
“Well, first, the crisis of banks going out of business is over,” he said. “But what is happening is none of the regulators want to be embarrassed by having a problem in the future.”
So, these regulators are now putting pressure on American banks to raise liquidity and capital. To do that, banks reduce lending.
“And it’s being done against a backdrop of the Federal Reserve actually taking money out of the economy,” said Williams.
From March 2022 to last month, the Federal Reserve Bank increased interest rates nine times in an effort to curb inflation, which had risen 5% in the 12-month period ending in March. Another rate hike is expected next month. This approach makes it more difficult to borrow money, and credit card rates are already at record highs, putting a strain on American families.
“Because they missed the boat on Silicon Valley, I think we’re going to end up, unfortunately, with a bit of an overreaction,” Williams explained of the regulators pressuring banks. He said it could make it even more difficult to borrow money.
“How would they rate the Federal Reserve itself?” asked Normand.
“Newell, that’s the worst part,” said Williams. “The Federal Reserve, from its start in 1914 to today, had never lost money. And now they're losing money so quickly that by October they’ll have no net worth.”
However, he also said the bank can’t go out of business.
“The Federal Reserve has a direct line to the Treasury,” he said. “And what happens when the Federal Reserve doesn't make money. It just erodes equity. But in October, which is probably when they’ll get to the point of getting rid of all of their equity, they’ll debit a fictitious account called Deferred asset… it’s just an imaginary bookkeeping entry that just says, ‘Yeah, we don't have any positive net worth anymore.’ Assets are now exceeded by our liabilities and hopefully at some point in the future we’ll get back to that and they probably will. But yeah, it’s an interesting approach to business, not something anyone in the private sector could get away with.”
Listen to Williams and Normand’s full conversation here to learn more about the banks, as well as a Wall Street Journal case study of pension bailouts, the state of the labor force, and other economic and financial news.
Check in Monday for a deep dive on the debt ceiling, which the House of Representatives passed a bill to raise Wednesday. CNN reported that this legislation is expected to be “dead in the water” in the Democratic-lead Senate.
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