MIAMI: Former US Secretary of Treasury Steven T. Mnuchin has called for greater clarity and bipartisan legislation after the collapse of the Silicon Valley Bank.
“We don’t know if there’s another bank failure whether the government will or won’t guarantee all the depositors,” Mnuchin said at the Future Investment Finance forum in Miami.
“You could be a well-run midsize or regional bank today and you’re at a complete disadvantage because people are moving money to the money center panic. So, I think we need bipartisan legislation.”
“We shouldn’t have unlimited insurance, but we now need clarity because it’s unfair,” he said.
Talking about the recent collapse of SVB and the shockwaves experienced throughout the banking industry, Mnuchin explained that compared to the 2008 financial crisis, which “was about credit, a much more complicated issue to work through,” this event was a result of many missteps that could have been avoided.
“This banking crisis is all about interest rate risk, and this is simple, basic risk management 101.”
During the panel, Mnuchin discussed several key points about recent events in the sector, including the potential risk of a financial crisis caused by the Fed’s interest rate hikes and how this would impact the economy.
“The problem is most of the people we have in the financial markets in the US have never seen, quote, high-interest rates,” he said.
“Most people have been used to interest rates, short-term interest rates between zero and 2 percent. So you know, 4 percent, 5 percent is high on a relative basis.
“The economy is going to adjust pretty significantly. But as I said earlier, this is risk management 101 that a lot of people just got used to having low-interest rates forever.”
The discussion also covered the relationship between the US and China, including the need for better communication and coexistence.
“China is the second largest economy in the world. We have a responsibility to figure out how we deal with China in a proactive way,” Mnuchin said.
He added that although there were “legitimate national security issues with China, there’s a whole bunch of things that we should be doing with China, and we need to figure out how to coexist in the proper way.”