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Bank of America Corp. CEO Brian Moynihan said this week’s flood of earnings reports from banks illustrates the health of the U.S. financial system despite the collapse of Silicon Valley Bank and Signature Bank last month.
Speaking on Bloomberg TV at the Bloomberg Sell-Side Leaders Forum 2023, Moynihan said the first-quarter updates from the financial sector provided some assurance to Wall Street.
“The capital, liquidity and earnings power of all these companies has been tremendous,” Moynihan said Thursday. “At the end of the day, the banking system reflects the economy in America and economies around the world. And you hope it’s in good shape. And it is. There’s no question it’s in good shape.”
For its part, Bank of America
BAC,
reported stronger-than-expected first-quarter results on Tuesday.
Moynihan said the word “crisis” it too strong to describe the events around the collapse of Silicon Valley Bank last month after a run on deposits. Signature Bank also went out of business for the same reason.
Bank of America was one of 11 banks to backstop a run on deposits at First Republic Bank
FRC,
last month by contributing to a $30 billion deposit at the San Francisco-based bank.
“There was a fair amount of disruption for a few weeks,” Moynihan said. “Certain business models were sorted through. But on the other hand you could see and we could see the stability in the other business models.”
While banks reported lower deposits this quarter, it’s not because of any further runs on deposits at other banks. Rather, it’s part of the U.S. Federal Reserve’s effort to tame inflation by constricting the money supply.
“Deposits have come down but that’s intended by the Fed taking money out of the system — its gotta come out of somewhere,” Moynihan said.
Moynihan said any potential regulatory changes as a result of the recent events should be done gradually over time, but that the system worked by covering deposits and finding buyers for Silicon Valley Bank and Signature Bank.
Moynihan said he didn’t have any insight into the current situation at First Republic Bank, but he said the company was caught with a liquidity crisis even though it had “great” asset quality of its balance sheet.
“That’s why we put the deposit in and it worked,” Moynihan said.
The Fed’s increase in interest rates has raised the cost of mortgages and car loans and impacting loan demand, he said.
“Overall loan demand is mitigating,” Moynihan said. “The economy is slowing down. The Fed tightening is having the intended impact.”
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