Morning Report: Markets bounce on Silicon Valley Bank deal

Vital Statistics:

S&P futures4,027 25.25
Oil (WTI)70.71 1.44
10 year government bond yield 3.50%
30 year fixed rate mortgage 6.30%

Stocks are higher this morning after First Citizens reached a deal to buy parts of Silicon Valley Bank. Bonds and MBS are down.

First Citizens Bancshares reached a deal with the FDIC to buy Silicon Valley Bank’s deposits and loans. The two banks are roughly the same size in terms of assets and loans. This deal is causing a rally in the regional banks this morning and bonds are getting clobbered. Deutsche Bank is also up this morning.

First Republic is rallying this morning on news that regulators are considering an additional lending facility.

Deposit outflows eased last week, as the top 25 banks gained about $120 billion in deposits, while 850 smaller banks lost $108 billion.

In the upcoming week, we will get housing prices via the FHFA and Case-Shiller numbers, consumer confidence, GDP, personal incomes and outlays, and the University of Michigan consumer sentiment which will have the inflationary expectations numbers. Note that GDP is the final revision of the fourth quarter numbers, so they probably won’t have much of an effect on markets. It is stale data.

Over the weekend, Minneapolis Fed President Neel Kashkari said that the chances of a recession have increased due to the turmoil in the banking sector. “It definitely brings us closer right now” — that was Minneapolis Fed President Neel Kashkari’s response to a question, during a interview, on whether the latest turmoil in the banking sector could bring the U.S. closer to a recession. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch. And then that credit crunch, just as you said, would then slow down the economy,” he said.

I discussed Neel Kashkari’s comments and also an interesting exchange between ex-Treasury Secretary Larry Summers and ex-Fed President Daniel Turullo in my weekly Substack piece. Check it out, and please consider subscribing.

16 Responses

  1. Good personal piece from Glenn Greenwald on the ongoing health crisis his husband is experiencing.

    I suspect a lot of married people will relate here:

    ” A Few Thoughts on Gratitude — and Our Family’s Ongoing Health Crisis

    Glenn Greenwald”


  2. Brent, I think your Substack piece today was one of the best you’ve done. This in particular:

    “In an interview for Bloomberg TV, former Treasury Secretary Larry Summers asked ex-Fed Governor Daniel Tarullo about the Fed’s stress tests, and it turns out that the Fed’s stress tests didn’t really look at what happens during a rapid increase in interest rates. The operating assumption is that the banks will be stressed during a recession, and interest rates fall in recessions. The current situation of rising interest rates during an expansion was not looked at. Since Treasuries and mortgage backed securities are treated as Tier 1 capital, they were considered more or less as riskless.”

    It’s annoying that no one with a larger platform is pointing this out and instead it’s all “Trump’s fault for changing the law in 2018”.


    • Thanks! Much appreciated!

      TBH, I was floored when Summers told Tarullo he had heard that the current situation wasn’t included in the Fed stress test and Tarullo confirmed it.


      • That actually makes perfect sense to me for the reasons you articulated about the cyclical nature of financial and economic knowledge.

        Fighting the last war and all that.

        And of course, the government oversight process is so polarized at this point that there’s little chance of an insight like that being revealed in a Congressional hearing.

        I’ve been irritated at the disconnect with all the talking heads saying that SVB was “reckless” for buying all those Treasury securities, since as you note they are considered the safest things next to cash itself.


        • jnc:

          I’ve been irritated at the disconnect with all the talking heads saying that SVB was “reckless” for buying all those Treasury securities, since as you note they are considered the safest things next to cash itself.

          The recklessness wasn’t the type of security, it was the duration of them. Managing duration risk is very, very fundamental to managing interest rate risk. Every treasury group at every corp in the nation does it. It is astonishing to me that they (and others?) failed on this front.


  3. No mention here of another school shooting?

    JNC, Greenwald’s experience is true for many of us who have lost or taken care of loved ones due to long illnesses. Good for him sharing his emotional journey but generally emotional journeys are not acknowledged or even welcome in some quarters……………..especially in regards to women sharing theirs.


  4. Men are so much better at being women then actual women are, they’re being celebrated during Women’s History month.


  5. Well, that’s interesting.

    Federal agents were dispatched to Taibbi’s residence the very same day that the investigative journalist appeared before the Select Subcommittee on the Weaponization of the Federal Government, also chaired by Representative Jordan.


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