Uncertainty within the financial device could presumably dampen the economic system


Steve leesman joins us now with more on those efforts we have not seen anything like this Steve in a long time no but tell her that was an excellent explanation and and while the worst has been avoided it appears both banking stocks and fixed income markets trading with continued uncertainty continued concern over whether enough has been.

Done to fix the financial system Krishna guhav evercore isi writing today banks will remain under pressure from less stable and more expensive deposits attention will also turn to other parts of the financial System including insurers and Bank interest rates swap counterparties carrying large unrealized Mark to Market losses.

Concern about the economic and financial Fallout of svb's demise showing up in a massive fall in the outlook for Fed rate hikes the year-end funds rate now trading around four percent folks last week it traded as high as 570 so 170 basis points of expected easing has now come to the uh into the market here's what's been done just to underscore what.

Tyler said they guaranteed deposits at svb including the uninsured deposits creating an implicit but not an explicit guarantee for other uninsured depositors at Banks they shut down signature created a new fund at the FED to finance back Bank assets and the ease lending rules at the fed's emergency discount window so there are two opposing impacts.

On the economy lower rates including lower mortgage rates and higher valued Bank collateral could be inflationary could help economic activity but a need for banks to pay higher interest rates and depositors and overall uncertainty in the financial system could dampen the economy Tyler you know Steve one of the great lessons of investing always is to.

Diversify but this seems to be a bank whose corporate treasury did not diversify sufficiently in other words they had too much of one kind of security and that would be long-dated treasuries at precisely the wrong time is that that is one of the things but not the only thing that it's that it's at the heart of this debacle.

Tell her I hate to correct you in in an amusing some some amusing way because they also had long-dated mortgage-backed Securities a lot of that too so um they made two mistakes uh they had a long day and security as well long dated security I just wanted to add that it was also mortgage backs and treasuries.

Um and the importance is they didn't they had they didn't have a diversified depositing base depositor base uh they did not hedge the risk uh and they also had you know a large percentage of their deposits were uninsured so very flighty deposits there were at least four things that went wrong uh it's unclear to me why so many uh companies kept uh so much.

Uninsured money at this account the question is whether or not uh having the fed's blessing and the FED not saying anything or the supervisor is not saying anything made people feel confident in this bank it was indeed the 16th largest at 209 billion dollars of assets everybody did banking there if you were as you said at the top of the the.

Segment Tyler if you were in the business you did your banking at Silicon Valley all right Steve leesman thanks very much we appreciate it

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3 thoughts on “Uncertainty within the financial device could presumably dampen the economic system

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