I believe fednow is the ground work for the fed digital coin that is coming..and is being set in place as banks are in trouble with the now normal interest rates..
It will be what they pivot to when the dollars reserve currency is severely threatened or has collapsed..
Just like the dollar since ww2, use it and we will be your friend, don't and we will try (and usually succeed) to turn the world against you..
The argument seems to be that at this point Banks are in a very dangerous situation.
If something undermines their depositor confidence and they start making withdrawals, it doesn't take long before the bank has to start have to sell their bond assets to cover and at this point the bonds they bought at zero interest rate are worth far less at this rate and they would have to book a massive loss. Which lowers their capitalization, which risk gov take over if they can't capitalize, which causes more depositors to withdraw. Wash rinse repeat.
A lot of what happened at Silicon Valley Bank was that a lot of people have gotten complacent about keeping above the FDIC insured limit. After two decades of the free money experiment, people have come to believe nothing really bad could happen. When they started to get nervous and decided to pullout some of their money to diversify to other institutions to stay under the FDIC limit, SVB suddenly had to sell their bonds to raise case cash, but booking massive losses. And the gov had to step in quick.
It exposed an underlying vulnerability that many banks are sitting on massive loses that they have not yet booked because they don't have to until they sell the assets which at this point worth way less than they paid for them. It's a stealth banking crisis. They can pretend it doesn't exist as long as they don't have to raise capital (for instance due to increase depositor withdrawal.)
I guess they are just treading water hoping rates will go back to zero or they can amortize those loses over more time and de-risk slowly.
Another bad thing is as people start to become nervous, they are moving more money out of the smaller banks into the mega banks that they feel are safer if only because they would be considered to big to fail by the gov. Which is probably true, but gets us back to a state we didn't want to with mega banks being too big to fail and the lack of diversification adding to the systemic risk.
[Edit]
Don't get me started but we will rue the day we changed the Mark-to-Market rules. It might have been a temporary fix and maybe justified in the first months of the GFC, but to leave it that way has allowed massive risk to seep into the system again.
Many banks have massive loses that they are pretending don't exist because they are allowed to list their assets at whatever number they like and not what the assets are worth if they had to liquidate assets today for some reason. It's like turning your back and closing your eyes on a grizzly you happen upon in the forest in the hopes if you just don't see the bear and don't acknowledge its existence then surely it won't eat you.
