(Bloomberg) -- Former Treasury Secretary Lawrence Summers criticized Washington regulators and US banking giants for not having already figured out a solution for the beleaguered lender First Republic Bank.
“I’m surprised and disappointed that this situation has continued to linger as long as it has, with the bank’s stock down 95%” and credit gauges deteriorating, Summers said on Bloomberg Television’s “Wall Street Week” with David Westin. “I hope that between the banks, the FDIC, the other public authorities, that the best way forward will be found within the next week or 10 days.”
First Republic plunged further on Friday morning amid concerns that the FDIC — Federal Deposit Insurance Corp. — may take over the lender, as it did with Silicon Valley Bank and Signature Bank last month. The bank has been hit by an exodus of deposits amid concerns about lower-yielding assets and the need to pay more for its funding.
Summers, a Harvard University professor and paid contributor to Bloomberg TV, called on regulators to make clear that uninsured depositors in First Republic “are going to be OK,” warning of the danger of contagion to other banks.
“These are things like forest fires, it is much easier to prevent them than it is to contain them after they start to spread,” Summers said. He didn’t offer a preference for either an FDIC takeover or “some private sector oriented” workout. “But we need to figure out the answer to that question as quickly as possible and move on.”
Meantime, Summers reiterated his view that an economic slowdown will be necessary to quash inflation. He also said that there were perhaps 70% odds of a slowdown occurring within the coming 12 months.
The former Treasury chief highlighted that fresh data Friday underscored that wage gains are running too hot to be consistent with getting inflation back to 2%. The employment cost index, a broad gauge of wages and benefits, increased 4.8% in the first quarter from a year before, the report showed.
Summers predicted the Federal Reserve would raise interest rates again next week, and suggested it be open to another move in June.
“It’s pretty clear that the Fed has to go ahead and move rates in May,” he said. “Given the emerging credit problems, I think June is very much an open question.”
(Updates with comments on Fed, economy starting in sixth paragraph.)
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