US regional banks: from the 2023 panic to liquidity reform

March 2023: three failures in seven weeks

Silicon Valley Bank was closed on 10 March 2023 by its state regulator, which named the FDIC as receiver. The bank showed $209 billion of assets at the end of 2022, making it then the second-largest bank failure in US history. The mechanism was not a borrower default: the rapid rise in rates in 2022 melted the market value of its portfolio of Treasuries and mortgage securities. By selling part of these securities at a loss to meet withdrawals, SVB triggered a crisis of confidence. Its clients, mostly tech companies with largely uninsured deposits, withdrew more than $42 billion in a single day. Speed, not size, was the real novelty. Signature Bank followed two days later. On 1 May, First Republic, $229 billion of assets and about two-thirds uninsured deposits, was seized then sold to JPMorgan, becoming the largest failure since 2008. SVB’s cost to the FDIC guarantee fund is estimated at about $20 billion.

The response: BTFP and stabilisation

On 12 March 2023, the Fed created the BTFP, an emergency facility lending for one year against Treasuries and agency MBS valued at par, thus disregarding unrealised losses. At its peak, the outstanding exceeded $165 billion. Coupled with the exceptional protection of SVB and Signature’s uninsured depositors, the measure stopped the contagion. The programme stopped lending on 11 March 2024 and was repaid in full a year later. No significant-sized bank has defaulted since. The underlying fragility did not vanish for all that: in early 2024, New York Community Bancorp wobbled on its commercial real-estate exposure, a reminder that unrealised losses and property risk remain on the regionals’ balance sheets.

Liquidity today: ample reserves, QT over

The quantitative tightening begun in June 2022 has ended: the FOMC stopped shrinking its balance sheet on 1 December 2025. The Fed’s balance sheet went from about $8.9 trillion in 2022 to nearly $6.5 trillion at the end of 2025, its securities falling by more than $2.2 trillion. In December 2025, the Fed judges reserves to have returned to an “ample” level and resumes Treasury-bill purchases, so-called reserve-management purchases, to keep them there; the standing repo facility moves to full allotment on 10 December, and the RRP has fallen back near zero. The system is therefore officially in ample liquidity, not scarce. This plumbing is detailed in our guide on Treasury liquidity, our read of the Fed balance sheet and our analysis of the repo market. Residual strains have not vanished: Jerome Powell warned there would be further failures among small and mid-sized banks, against the backdrop of commercial real estate and growing competition from non-bank actors.

Liquidity reform, the 2026 agenda

On 10 February 2026, the Fed, the OCC and the FDIC repealed their FAQs on the LCR and announced they would put regulatory changes out to consultation. On 3 March, at a roundtable in Washington, the Fed’s vice-chair for supervision, Michelle Bowman, and Treasury Secretary Scott Bessent, made the case for easing. Their argument: the current framework encourages liquidity hoarding. Banks hold high-quality liquid assets, HQLA, well above the minimum, because the LCR cushion is in practice unusable: a bank refuses to go below 100% and internally aims for 115 to 120%. As a result, per Bessent, about 25% of big banks’ balance sheet is tied up in safe assets, against nearly 10% before 2008, so much credit forgone. The path proposed: recognise in the LCR the borrowing capacity at the discount window against pre-positioned collateral, up to a cap (the industry mentions about 20%), and reduce the stigma attached to that window. FDIC chair Travis Hill defends the same idea, as well as a revision of the NSFR.

The counterpoint is substantial. The 2023 failures showed that a run can play out in hours, well within the LCR’s 30-day window, and that monetising assets on an emergency basis has its limits. Some therefore argue for a complementary five-day ratio. At this stage, nothing is set in stone: the work is at the speeches-and-roundtable stage, with no formal rule proposal published. The direction, though, is clear: make the cushions usable and depend less on a static stock of HQLA.

Reading

2023 came down to a poorly hedged duration risk, volatile uninsured deposits and supervision gaps. 2026 flips the question: the regulator now worries that the framework forces banks to tie up liquidity and lend less, while runs have become faster. Fed staff estimate that lowering internal LCR targets by ten points would free up about $350 billion of HQLA. The whole trade-off is there: make liquidity usable without reopening the door to flash panics.

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Primary sources: FDIC, “Lessons Learned from the U.S. Regional Bank Failures of 2023” and SVB material-loss review (Office of Inspector General, September 2023); Federal Reserve, page and FEDS note on the Bank Term Funding Program, policy-normalisation statements (end of tightening, announcement of 29 October 2025), Michelle Bowman speech “Liquidity resiliency, financial stability, and the role of the Federal Reserve” (3 March 2026), repeal of the LCR FAQs (10 February 2026), FEDS Note “The Central Bank Balance-Sheet Trilemma” (14 January 2026) and St. Louis Fed; Department of the Treasury, Scott Bessent’s remarks at the liquidity roundtable (3 March 2026); FDIC, Travis Hill’s remarks on reforming the regulatory toolkit (2026); Bank Policy Institute for BTFP statistics (peak above $165 billion); Reuters for the programme closure timeline. Figures and dates verified one by one.