Phew. Hey there. Senior reporter Phil Rosen here. Before we jump into the newsletter, the Silicon Valley Bank saga is continuing to unfold, so let’s quickly break down the latest.
The big story this morning: HSBC has bought the UK arm of collapsed SVB in a last-minute deal for 1 British pound, or $1.21. The UK government and the Bank of England facilitated the private sale, British Chancellor Jeremy Hunt said on Twitter: “Deposits will be protected, with no taxpayer support”.
Also, if you haven’t heard, Signature Bank yesterday became the third bank to fail in the past week, after Silvergate shut down its bank voluntarily.
The Treasury, Federal Reserve, and FDIC made a joint statement Sunday evening, effectively saying that all depositors for SVB and Signature Bank would be made whole, and that a new facility, the Bank Term Funding Program, would be created to provide liquidity for firms under stress.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” policymakers added.
Meanwhile, as the two banks fell under regulatory control, First Republic issued a message to clients aimed at calming nerves, saying it still had strong liquidity.
In any case, some folks on Wall Street have been telling me that we can chalk up much of the turmoil to our departure from the easy-money era.
More than a decade of near-zero interest rates allowed companies to borrow money freely, and as far as repercussions go, what we’ve seen so far could mark only the tip of the iceberg.
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1. The fall of SVB and Signature bank means the Fed’s aggressive interest-rate hiking regime has now taken sizable casualties.
The tumult is a byproduct of the central bank’s 1,700% increase in rates that took place in less than a year, and it could mean more once-stable institutions could be turned inside out in the coming months.
“When you raise interest rates quickly, after 15 years of overstimulating the economy with near-zero rates, to not imagine that there’s not leverage in every pocket of society that will be stressed is a naive imagining,” Lundy Wright of Weiss Multi-Strategy Advisors told me.
This new rate cycle delivers a “perfect storm,” according to Deutsche Bank analysts, who told clients last week that SVB epitomizes all the risks worth fretting over in the shifting policy era.
In a Sunday note to clients, Goldman Sachs’ research team pulled back their Fed policy forecast in response to this weekend’s bank failures.
“In light of recent stress in the banking system,” the analysts wrote, “we no longer expect the FOMC to deliver a rate hike at its March 22 meeting with considerable uncertainty about the path beyond March.”
In any case, the risk of contagion may not be all that high, as my colleague Matthew Fox writes, given that banks have become extremely well-capitalized since the Great Financial Crisis.
And according to …read more
Source:: Business Insider