What’s Going On Here?The fallout from Silicon Valley Bank’s (SVB) collapse kept rumbling on Monday. What Does This Mean?The collapse of SVB last week sent a wave of anxiety through the global economy, but policymakers have wasted no time in stepping in to steady the ship. US regulators already pledged full protection for all deposits – a good thing given that over 90% of them were above the typical $250,000 insurance cap. And the Federal Reserve (the Fed) has opened its coffers too, extending loans on generous terms to banks at risk of failing. Things weren’t much different across the pond: there, the Bank of England arranged for HSBC to swoop in and scoop up SVB’s British business, saving customers’ necks. That speedy coordinated response suggests that policymakers remember the lessons of 2008 – meaning the bank's tech-startup customers can breathe a sigh of relief. Why Should I Care?The bigger picture: Banking blues.
Those moves haven’t placated all investors, and smaller regional banks are paying the price: just look at First Republic whose share price plummeted on Monday. But even if the packages do end the fallout, this debacle will still make life harder for the industry as a whole: after all, regulators’ oversight is probably about to get stricter, which comes with higher costs. And with banks likely to do whatever they can to hold onto deposits (including offering higher rates), that’s a recipe for lower margins.
For markets: The fickle Fed.
Some analysts reckon the Fed's new funding programme marks a temporary return to economy-boosting measures, after the relentless rate hikes of the past year. And experts are betting the central bank won’t add to the burden after recent events: just days after a 0.5-percentage-point hike looked likely, Goldman Sachs has now said it doesn’t expect any increase at the Fed’s next meeting. Some pundits think rates could even be cut if banks’ share prices keep on nosediving. | 