Chart of the Week
A classic run on the bank occurred late last week causing Silicon Valley Bank (SVB) to go into receivership by regulators. Losses on SVB’s bonds caused investors to question the health of its balance sheet. The chart below shows how little deposits the bank held were insured, making it more susceptible to withdrawals. Because SVB was mainly a business bank, most of its deposits were over the $250,000 limit. The Federal Reserve and Treasury guaranteed all deposits of the bank to prevent further contagion in the system. Any losses to the FDIC to support uninsured depositors will be recovered by special assessments on the rest of the banking sector. Equity and unsecured debt investments in the bank are not protected and senior management was fired. A similar situation occurred with Signature Bank in New York on Sunday as it also failed.
What We’re Reading
Silicon Valley Bank Failure – JPMorgan
Regulators Act to Shore Up Banks – Reuters
The Surprising Effects of Remote Work on Demographics – The Atlantic
Too Many Employees Cash Out Their 401(k)s When Leaving a Job – Harvard Business Review
Podcast of the Week
How the Federal Reserve Grew More Powerful Than Anyone Ever Imagined –Odd Lots, Bloomberg
The Past Week
Overshadowed by the banking world, the jobs report delivered a strong gain of 311,000 new jobs. The unemployment rate moved higher from 3.4% to 3.6%. On Tuesday, inflation came in at expectations though core inflation was hot.
The Week Ahead
The big question investors have is what the Federal Reserve will do at its meeting on March 22nd. Just a week ago, markets anticipated an increase of 0.50%. Now the question is will it keep with a quarter point increase to maintain its fight against inflation? Or will it error on the side of stability and pause hikes to allow the financial sector to digest the major changes over the past week?
We will continue to monitor events in markets and provide updates.
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