The Silicon Valley Bank failure, originally considered a one-off event, is escalating and spreading. On Sunday afternoon, UBS, with significant liquidity and financial backstops from the Switzerland National Bank (SNB), bought Credit Suisse (CS) for about a third of its most recent market cap. The purchase may settle markets, but it potentially opens pandora’s box […]
The FOMC will announce its Fed Fund’s rate policy decision this Wednesday. Given the recent events in the banking sector, we return to the question posed Friday in Fed Mandates or Financial Stability: Will the Fed aggravate inflation by ignoring its Fed mandate and focusing on financial instability? The ECB’s rate decision last Thursday provides […]
Heading into next week’s FOMC meeting, the Fed’s big dilemna is whether to address recent financial instability or adhere to their Fed mandates. Per the San Francisco Fed: “Congress has given the Fed two coequal goals for monetary policy: first, maximum employment; and, second, stable prices, meaning low, stable inflation.” The Fed’s mandates argue the […]
Shares of Credit Suisse and other large European banks traded sharply lower yesterday. This occurs only a few days after European leaders expressed little concern that U.S. banking problems would spread across the Atlantic. Credit Suisse Bank, down nearly 25% yesterday, appears to be the culprit. Credit Suisse, a foreign bank domiciled in Switzerland, has […]
Less than a week after Jerome Powell was pounding the table on Capitol Hill, arguing the Fed must stay aggressive in its inflation fight, the market thinks the Fed is about to make an abrupt pivot and drop the Fed Funds rate rapidly. The graph below compares expectations for Fed Funds on March 7 (light […]
On Sunday afternoon, the Fed and Treasury rode the rescue with the Bank Term Funding program, BTFP, the latest bank bailout. The government staring at potential bank runs shored up banks and helped comfort depositors that their money is safe. The facility will save some banks from selling underwater bonds and taking losses in order […]
Banking is relatively simple, they raise deposits and lend money. To do so successfully, a bank must manage a few risks. First, they need to duration hedge to address the difference between short-term deposit rates and the interest rate they lent money stays positive. Second, they hedge the credit and price risk of their assets. […]
The chart below showing delinquent consumer loans is concerning but misleading. At first blush, the number of delinquent consumer loans is nearing the peak of the 2008 recession. That stat should be very worrisome on its own. However, the amount of consumer loans has more than doubled since 2008. Therefore, the percentage of delinquent consumer […]
Over the last twelve months, the Fed has been tightening policy at its most aggressive pace in over 40 years. The Fed’s tightening actions include raising the Fed Funds rate by 4.50% in twelve months and performing $95 billion monthly QT. As the graph below shows, the increase in Fed Funds occurred at nearly double […]