Former Treasury Secretary Lawrence Summers said he was less worried about continuing turmoil in the US banking sector than he is about the partisan impasse in Washington over raising the federal debt limit.
(Bloomberg) — Former Treasury Secretary Lawrence Summers said he was less worried about continuing turmoil in the US banking sector than he is about the partisan impasse in Washington over raising the federal debt limit.
“We are probably over the vast majority of the banking traumas,” Summers said in an interview with Bloomberg Television’s David Westin. “I’m not highly alarmed by what’s happening in the banking sector.”
Summers spoke after a selloff in bank stocks Tuesday that suggested investor concerns about the future of a number of institutions remain in question after the weekend resolution of beleaguered First Republic Bank.
Summers, a Harvard University professor and paid contributor to Bloomberg TV, said there are still concerns about commercial real estate losses and what that will do to the “creditworthiness of several institutions.”
“We should keep some perspective on this,” Summers said. There is “every reason” to expect that deposits in the banking system “will be money good,” he said. At the same time, the government has demonstrated that, for lenders that are mismanaged and blow through their capital, shareholders are “going to get out with nothing,” he said — which has raised the risk of investing in some banks.
Debt Ceiling
The former Treasury chief said he was “more alarmed by what’s happening in the political sector,” with regard to the failure of Congress so far to raise or suspend the federal debt limit. It is now clear there is only a narrow window before “something very serious is going to happen” without lawmaker action, he said.
Treasury Secretary Janet Yellen warned on Monday that her department’s ability to use special accounting maneuvers to stay within the federal debt limit could be exhausted as soon as the start of June.
Read More: Yellen Warns Congress Treasury May Run Out of Cash Soon as June
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