Actionable market insights delivered weekly
Idiosyncratic or Systemic?
Do you believe the current banking ‘crisis’ is idiosyncratic or systemic? The short answer is it’s still far too early to know. Hopefully it’s more of the former and less the latter. Because if it’s the latter, that’s a problem. Last week’s issues will become multiplicative (vs additive). 2008 was a global systemic banking crisis…. this is not 2008. At least not yet…
The Fed Must ‘Choose their Poison’
The collapse of SVB and tightening financial conditions has put the Fed in a very difficult spot. For example, prior to the collapse they had a green light to raise at least 25 bps. Not now. Tightening rates could cause further pressure in the banking sector. However, if they choose not to – what signal does that send. There are no easy choices…
Markets Suffer Worst Week for 2023
Markets are in a state of panic. A small regional bank – Silicon Valley Bank – suffered a bank run this week. Over $42B was withdrawn in the space of just two days. What happened? On the surface it looks like very poor risk management – where SVB was effectively forced to sell long-term bonds which were underwater. Call it a margin call. Their interest rate risk was not adequately hedged. More details will come out in the coming days… however this sell off is taking the entire sector down with it. Is it warranted?
First Major Casualty
This week saw the second largest banking collapse in US history and the first since 2008. Silicon Valley Bank – with a market cap of $18B only 4 weeks ago – collapsed Friday after a furious bank run. SVB’s collapse was far less to do with the Fed raising rates – it was all to do with poor risk management – forced to sell their holding of treasuries at a loss. But this is nothing we have not seen before….