Which party will prevail?
The Silicon Valley Bank dilemma, the second largest collapse of a financial institution in US history, kept the global business world on tenterhooks over the weekend. By midday on Saturday, Twitter users seemed to have agreed that the bank should be allowed to fail while ensuring that depositors were protected. This was indeed the course of action taken. With only until 6pm ET on Sunday to act before the stock markets opened, Janet Yellen and her team stepped in to save the day. With Secretary Yellen’s approval, the FDIC was able to execute the resolution of Silicon Valley Bank in a way that protected all depositors’ funds and allowed them to dispose of their money as of March 13. Significantly, the taxpayer did not incur any losses as a result of the bank’s resolution.
But the story continues with “That’s not all!”. Over the weekend, the third largest financial institution in US history also collapsed. Signature Bank, headquartered in New York and closely tied to the real estate and crypto sectors, was shut down by regulators on Sunday after failing to find a buyer or other solution to stabilize its balance sheet.
Signature Bank attracted attention when crypto exchange FTX collapsed towards the end of last year. FTX had accounts at Signature Bank that accounted for less than 0.1% of total deposits, according to the company. Following FTX’s collapse in December, Signature Bank announced plans to divest itself of up to $10 billion in deposits from digital asset customers.
The very next day, Silicon Valley Bank depositors regained access to their full account balances and are currently looking for new banks to place their capital. Two trends can be observed in the market: First, investors are opting for safety, as evidenced by the sharp one-day decline in the yield on two-year government bonds since 1987 earlier this week, which resembles the Black Monday crash. Second, more regional banks are getting squeezed as depositors flock to reputable banks, leading to even more weight being given to the bigger banks. This change in the banking ecosystem raises the question of whether further consolidation is desirable.
TFC is watching this situation very closely and sees it as an excellent opportunity, as we currently have no position in this area. We will wait for the optimal time to maximize our profits. The battle between the FED and other factors such as inflation rate, unemployment rate, interest rate hikes and recession that we have been hearing for some time continues. Inflation is currently one of the most critical data points for the economy. In February, the consumer price index rose 6% from a year earlier, and although year-on-year inflation has fallen since its peak in June, prices remain high. The Fed was expected to raise interest rates by 0.25% at its March meeting, but recent problems in the banking system have raised questions about how to proceed. It is a delicate balancing act: lowering inflation while avoiding structural instability is a difficult task.
TFC Team
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