Neel Kashkari, President and CEO of the Federal Reserve Bank of Minneapolis, speaks during an interview with Reuters in New York City, New York, May 22, 2023.
Mike Segar | Reuters
Neel Kashkari, the President and CEO of the Federal Reserve Bank of Minneapolis, has expressed his support for implementing stricter measures on regional banks, as he believes that the recent crisis they faced may not be fully resolved.
When asked about his stance on proposals to increase capital requirements for banks with assets exceeding $100 billion during a town hall meeting, Kashkari stated, “Personally, I don’t think it goes far enough. While it’s a step in the right direction, I believe we should take more significant actions.”
As Kashkari delivered his remarks, regional bank shares experienced a decline. The SPDR S&P Regional Banking ETF (KRE) dropped by 2.4% around midday.
Kashkari, known for his prominent role in the Troubled Asset Relief Program, which provided support to banks during the 2008 financial crisis, expressed concerns that if the Federal Reserve continues to raise interest rates, it could exacerbate problems for smaller banks.
The fundamental issue behind the crisis was duration risk, as confidence issues forced certain banks to sell assets to meet withdrawal demands. Banks that held longer-term Treasury bonds faced capital losses due to rising interest rates and falling bond prices.
While Kashkari did not indicate the Fed’s readiness for further rate hikes, he acknowledged that “we’re a long way away from cutting rates.”
“Currently, it appears that things are relatively stable, and that banks have managed to weather the storm reasonably well,” he stated. “However, the risk lies in the potential scenario where inflation is not entirely under control, and we are required to raise rates further in order to bring it down. In such a case, banks could face more losses than what they are currently experiencing. And these pressures could resurface in the future.”
When questioned about the causes behind the failures of banks like Silicon Valley Bank in March, Kashkari responded with “all of the above,” indicating that both higher interest rates and mismanagement contributed to the collapses.
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