13.03.2023 – Silicon Valley Bank is history – the biggest banking collapse since Lehman Brothers in 2008 could have devastating consequences for the global financial market. Because like the shock wave after an explosion, the crisis is now working its way forward. However, policymakers appear to be taking decisive countermeasures.
At the banks, the fear of contagion was palpable. As a representative of many other institutions, we show you here the hourly chart of Deutsche Bank. If panic breaks out, banks – and not only them – are short candidates. If the situation calms down, we should see a strong recovery. Because gaps are just waiting to be closed. Especially if the Federal Reserve backs away from its tightening to prop up the banks. Already, Goldman Sachs expects the Fed to call off what was supposed to be a March rate hike. So keep an eye on the real-time news!
Source: Bernstein Bank GmbH
SVB collapsed in a flash last week, with clients pulling out $42 billion in just one day. The bank still ranked 16th in the U.S. industry. Presumably, SVB was a victim of the Fed’s interest rate hikes and could no longer service liabilities. The Federal Deposit Insurance Corporation (FDIC), the financial regulator, closed the institution on Friday. The Bank of England said Friday they will place SVB’s U.K. arm into insolvency proceedings. In Germany, SVB has no subsidiary and only a small branch. Bafin reported Friday that it was keeping an eye on current developments.
The next bank closes
Analysts quickly hastened to assure that SVB had pursued a very specific business model with startups after all. There was no risk of contagion, they said. However, Signature Bank in New York was also shut down by the state regulatory agency on Sunday. The bank was also exotic and heavily involved in the cryptocurrency business. Now customers there have also withdrawn their funds in a big way. Previously, Silvergate Capital, which was active in the same business, had already collapsed.
Only 48 hours
Star investor Bill Ackman, head of hedge fund Pershing Square Capital Management, judged on Saturday that the authorities had only 48 hours to avert a panic. If not, he predicted a bank run at small, non-systemic banks. Specifically, “By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is – an unsecured illiquid claim on a failed bank.”
Here comes the cavalry
Clearly, policymakers have recognized the danger. U.S. Treasury Secretary Janet Yellen, Fed Chairman Jerome Powell and the FDIC said Sunday night that all depositors would be fully protected and could access all their money. Actually, deposits are only insured up to $250,000 through the FDIC deposit insurance fund. But a new tool called the Bank Term Funding Program (BTFB), unveiled Sunday night, is now expected to kick in. It’s based at the Fed and provides the funds for SVB and Signature customers to withdraw their money today, Monday. And customers of banks that could potentially wobble further are also to be protected. The FDIC also hopes to find a buyer for SVB.
Our bottom line: hedge your bets, expect the impossible. We’ll know more soon: the Federal Reserve announced a special meeting of its Board of Governors for today, Monday. The situation brings tremendous opportunities for traders because of the expected large swings in the market. Bernstein Bank wishes good luck and good nerves!
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