TWIN TIERS, N.Y. (WENY) — Over the past week, Americans have watched the collapse of big banks like Silicon Valley Bank and Signature Bank. During this past weekend, after news of these bank failures broke out, people lined up to take their money out, and were turned away. Once Monday rolled around, everyone got their money back, including bank customers who had more than $250,000, the limit of Federal Deposit Insurance Corporation.
If you are like the average American, who does not own a small to medium-sized business, Robert Hockett, an Edward Cornell Professor of Law, said there is no need to panic.
“The principal reason is the suddenness of the rate hikes by the Federal Reserve,” he said. “Jay Powell has hiked up the rates, essentially the predominant interest rates…economy-wide, by four-and-a-half percent in just one year.”
Professor Hockett said these rate hikes have never gone up this quickly, over the last 45 years. He believes Jerome Powell, the Chair of the Federal Reserve, is overdoing it. Why? Professor Hockett thinks the current rash of inflation that Americans are dealing with is not being caused by wages or salaries.
“Rate hikes basically work by essentially putting downward pressure on people’s wages and salaries…even to the point of making people unemployed,” he said. “What I think, what we’re doing, is we’re sort of using the wrong tools, here…Powell is treating this as sort of a wage or salary-driven inflation but, in fact, it’s partly supply-driven…there’s just been a lot of underproduction since the pandemic.”
With the two latest bank failures, do we have anything to worry about here in the Twin Tiers? Professor Hockett said it depends on who you are banking with. He said the recent ripple will probably encourage more people to place their money in big Wall Street banks, such as Chase or J.P. Morgan. In response to that to that course of action, smaller, regional banks will start to shut down.
“I think, what’s going to happen is…a lot of people like you or me might just go over, at least if they have more than $250,000, they might just go over and put their money in the big Wall Street banks and they’ll become even bigger,” he said.
Essentially, Hockett said the average American should not have to worry, unless they have more than $250,000 dollars in the bank.
“The only worry at all, I think, is for some businesses that might have more than that because their operating expenses are higher than that,” he said. “That would be small to mid-sized businesses.”
On Monday, President Biden wanted to reassure Americans that the banking system is strong, that their money is safe, and that the FDIC is there to protect their money. When it comes to the Silicon Valley Bank the government said everyone will get their money back, including those had more than $250,000.