StanChart chief says Fed’s SVB deposit guarantee a ‘moral hazard’

The Fed’s decision to guarantee non-insured depositors of Silicon Valley Bank is “the most wonderful example of moral hazard we’ve come across for quite a while”, says Standard Chartered chief Bill Winters.

Winters’ remarks, made on Friday at a Hong Kong financial conference, come after US regulators pledged to protect deposits at failed Silicon Valley Bank and Signature Bank.

He added that there appeared to be “non-viable business models remaining, at least in the US”, with other banks that had similarly narrow customer bases.

The StanChart chief’s remarks are part of the debate over expanding US bank deposit guarantees, particularly if there is further deposit flight as a result of the current turmoil.

The Biden administration is facing pressure from investors, entrepreneurs and some lawmakers to step in more forcefully to ensure all depositors are made whole, or risk other banks coming under pressure as customers rush to stash cash in larger institutions.

Bank shares slid this week after Treasury secretary Janet Yellen ruled out a broad expansion of deposit insurance to protect savers with balances above $250,000 in the near term.

Winters added that the Credit Suisse collapse and subsequent takeover by rival UBS has rattled the market. “At the end of the day, the common feature is lack of confidence . . . the issue isn’t so much does the regulator have confidence in our solvency, but it’s does the market have confidence in our liquidity?”

The wipeout of Credit Suisse’s $17bn AT1 bonds triggered by its takeover deal has “profound” implications for the global bank regulations, he said, and raised questions about how regulators should assess the health of banks.

“My observation to the three banks that have failed, is that they would appear to have been solvent,” Winters said.

“There’s a lot of focus on the hierarchy question. But it’s not the big question. The big question is how do you wipe out $17bn of AT1s in a solvent bank without a review process?

“I think it had very profound implications for the regulation of banks and for the way banks manage themselves.”