The fallout has already caused financial markets to drastically reverse their bets that the Federal Reserve will hike rates by 0.5 percentage points at its next meeting later this month, reducing the likelihood of such a rate hike from 80 percent to 40 percent early last week.
The White House has also moved to reassure markets and bank customers, with US President Joe Biden’s Council of Economic Advisors Chair Cecilia Rouse saying she has “complete faith and trust” in regulators and that banks are more resilient than they are now at the time of the 2008 global financial crisis.
“US Treasury Secretary Janet Yellen has spoken to our regulators, the Federal Reserve and the Office of the Comptroller so they can monitor the situation,” Ms. Rouse said. “And they are very aware of these risks. They have better tools than they had in 2008 and the banking sector is more resilient.”
The president also spoke with California Gov. Gavin Newsom about the Silicon Valley bank and “efforts to address the situation,” the White House said.
The collapse of the Silicon Valley bank on Friday (Saturday AEDT) has experts predicting that many depositors will start moving their money from regional SVB-like banks to larger commercial banks on Monday, prompting a new round of bank runs becomes.
Photos of people queuing outside SVB banks and other regional banks recently acquired by SVB across America have been posted on social media. Star hedge fund manager Bill Ackman said he expects “more bank runs to start” on Monday.
Mr Ackman said he was told by a trusted source that depositors would only receive about 50 percent of their deposits on Monday and Tuesday, with the balance based on realized value over the next three to six months.
“If this proves true, I expect there will be bank runs in a large number of non-SIBs from Monday morning [sytematically important] banks. No company will take even the slightest risk of losing a dollar in deposits because there is no reward for that risk,” said Mr. Ackman.
Hedge funds and banks have reportedly been buying deposits from the SVB, according to Bloomberg.
Banking analysts from Autonomous Research said that while the SVB had some unique characteristics – such as a dangerously high concentration of venture capital deposits – its failure was largely indicative of the health of other banks’ deposits.
“The bad news is that almost all banks are facing securities books and deposit outflows. However, both problems struck [SVB] on a much larger scale than other banks,” said Autonomous analyst David Smith in a note to clients.
“While [SVB’s] The situation was unique in many ways, in others it was simply an amplified version of macro issues around rising interest rates and pressures on industrial deposits, affecting all banks to varying degrees.”
Analysts noted that SVB’s peers such as First Republic Bank and Signature Bank were “among those with comparatively worse deposit trends” and experienced the heaviest deposit outflows.
The US Federal Deposit Insurance Corporation, which placed the bank under receivership on Friday, is expected to lay off most of the bank’s 8,500 employees. That would come on top of the tens of thousands of corporate layoffs over the past two months from the likes of Google, Amazon and Microsoft and Facebook owner Meta.
Official payroll figures released on Friday (AEDT Saturday) fell short of some economists’ expectations, pushing the headline unemployment rate to 3.6 percent from 3.4 percent – the first rise in six months.
Monthly wages also rose at the slowest pace in a year, fueling financial markets’ sentiment that the Federal Reserve must now hold back on a possible 0.5 percentage point hike in interest rates at its March 21-22 meeting.
Deutsche Bank US economist Brett Ryan said the jobs numbers weren’t final enough to sway the Fed and the central bank would stick with a 0.25 percentage point rate hike to 5 percent later this month.
“While there are some preliminary signs of a slowdown, they are far from clear at this point. The February jobs report is unlikely to sway Fed officials one way or the other regarding their past preferences.”
More importantly, Tuesday’s official inflation report (Wednesday AEDT) is likely to be the determining factor in the Fed’s decision to accelerate the pace of tightening.
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