Instant view: US intervenes to shore up SVB deposits, stem financial fallout
"The actions by the Fed to shore up the banking system with its new Bank Term Funding Program , is a decisive step. It will help stem volatility and significantly limit the threat of contagion. By allowing banks to post Treasuries and other government debt at par, will help lenders avoid distress sales and in turn honor deposits.
"The market turbulence sparked by SVB has upended rising market expectations on the Fed rate path. We have US CPI due on Tuesday, which adds to the uncertainty over the FOMC meeting next week with the market pulling back from expecting a 50bp hike. The situation is evolving, but volatility looks set to remain elevated in coming days."It was imperative that regulators stepped in and decisively acted before markets around the world opened for the week.
"But it's too soon to give an all clear. Stock and bond holders in SVB and Signature are likely wiped out. That's a lot of money that simply evaporated, which has to hurt someone. It won't fully remove the worries about what other banks might be in trouble. Referring to whether it could change the Federal Reserve's rate tightening path, he said: "Before these bank collapses you would have thought 50 basis points was in play? Does these banks rolling over change that? I don't think so. At the end of the day, the whole idea of what the Fed was doing was eventually going to break things.
"Terminal rate expectations should remain below the peaks reached during Powell's testimony last Tuesday, with a more cautious approach likely in the aftermath of this meltdown.""There is going to be a lot of to'ing and fro'ing in the market in the next little while to see if the measures work. The market is still quite nervous and this will take time to play out.
If all bank deposits are now insured, why do you need banks? This could feed into the debate about central bank digital currencies.""These are strong moves. In particular, the shift to accepting collateral at par rather than marking to market means that the banks that have accumulated more than $600 billion in unrealised losses on their held-to-maturity Treasury and MBS securities portfolios – and didn't hedge the interest rate risk – should be able to ride out the storm.
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