Curious what prompted US stocks to swoon lower around 2:45pm, having traded closely around the unchanged line? It may have been a reported by Reuters according to which the Office of the Comptroller of the Currency said that the U.S. banking system has “strong capital and liquidity” and is “well-positioned” to manage more adverse market conditions.
If this sounds suspiciously close to what Steven Mnuchin said the weekend ahead of the Christmas Eve market massacre when, inexplicably, the Treasury Secretary announced that US bank liquidity levels are sufficient and that he had spoken to bank CEOs and summoned the Plunge Protection team, is because it is. Readers will hardly need a reminder that the market’s response to Mnuchin’s statement was one of shock: after all, nobody had even suggested that there may be any concerns with US bank, so Mnuchin’s statement stunned everyone, and prompted question about what if anything may be wrong with US banks for Mnuchin to try to “calm” markets in such a bizarre way which was last deployed during the financial crisis.
Well, now it was the OCC’s turn.
In a statement to Reuters, OCC spokesman Bryan Hubbard said the banking regulator was monitoring the effects of falling stock markets on the nearly 1,300 institutions it oversees and would share any relevant systemic information with fellow supervisors through the appropriate interagency forums.
“The federal banking system … is strong with capital and liquidity near historical highs and improved earnings and risk management. From this strength, the federal banking system is well positioned to manage more adverse market conditions.”
He added that OCC expects supervised institutions to understand exposures within their portfolios and take appropriate action to mitigate any risks, although just like in the case of Mnuchin, it was not at all obvious why the OCC would address bank liquidity levels all of a sudden: after all not even the biggest market skeptics have warned about bank liquidity, or solvency for that matter.
Hubbard also explained that possible risks could include adverse effects on liquidity, pricing, or terms for corporate loans and bonds.
And with this odd warning hitting out of the blue, stocks promptly faded any gains for the day, and have been sliding ever since as traders once again wonder just why in the span of under 10 days we have gotten repeat assurance that “banks are fine” and “well positioned” for a crisis, when nobody was wondering the opposite in the first place,
In any case, a few more “assurances” such as this one and the investing world will observe first hand just how prepared for a crisis US banks truly are.
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