INSTANT VIEW-U.S. intervenes to shore up SVB deposits, stem financial fallout
But, fairly or not, the episode will contribute to higher levels of background volatility, with investors watching warily for other cracks to emerge as the Fed's policy tightening continues. "Terminal rate expectations should remain below the peaks reached during Powell's testimony last Tuesday, with a more cautious approach likely in the aftermath of this meltdown." SHANE OLIVER, HEAD OF INVESTMENT STRATEGY, AMP CAPITAL, SYDNEY: "There is going to be a lot of to'ing and fro'ing in the market in the next little while to see if the measures work.
The U.S. government announced actions to shore up deposits and stem any broader financial fallout from the sudden collapse of tech startup-focused lender Silicon Valley Bank (SVB), sending U.S. stock futures higher.
Following are comments from analysts and fund managers: MATHAN SOMASUNDARAM, FOUNDER, DEEP DATA ANALYTICS, SYDNEY:
"Even if they bail them out, it's basically saying that most of these banks are carrying much higher risk than most people thought. Referring to whether it could change the Federal Reserve's rate tightening path, he said: "Before these bank collapses you would have thought 50 basis points was in play? Does these banks rolling over change that? I don't think so. At the end of the day, the whole idea of what the Fed was doing was eventually going to break things.
"The fact that at the first sign of something breaking, everyone screams bailout, is a bit premature. The Fed cannot do bailouts or rate cuts or any kind of pivot 'till they get inflation down so in theory they have to keep tightening and let the weakness play out." JUN BEI LIU, PORTFOLIO MANAGER, TRIBECA INVESTMENT PARTNERS, SYDNEY:
"It was a big failure and clearly caused investors concern, but we thought it was very company-specific and about exposure to the pointy end (of markets). It's not a systemic issue, at least at this point "If the Fed is going to protect the depositor, its probably nothing beyond what's happening to companies directly involved."
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO: "We think the steps taken by the Fed, Treasury and FDIC will decisively break the psychological 'doom loop' across the regional banking sector - and should help negate the likelihood of a funding squeeze in global markets. But, fairly or not, the episode will contribute to higher levels of background volatility, with investors watching warily for other cracks to emerge as the Fed's policy tightening continues.
"Terminal rate expectations should remain below the peaks reached during Powell's testimony last Tuesday, with a more cautious approach likely in the aftermath of this meltdown." SHANE OLIVER, HEAD OF INVESTMENT STRATEGY, AMP CAPITAL, SYDNEY:
"There is going to be a lot of to'ing and fro'ing in the market in the next little while to see if the measures work. The market is still quite nervous and this will take time to play out. "It seems investors are on edge thinking if this bank has hit trouble, maybe there are others that will be in trouble, too. If it turns out to be a storm in a teacup and it's over in a week, then the Fed next week will return to what it does which is looking at data and contemplating a 25 or 50 basis point increase in rates. If there are still reverberations, then it would be hard to do a 50 basis points hike even if CPI and retail sales figures justify it."
NICOLAS VERON, SENIOR FELLOW, THE PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS, WASHINGTON: "This is a bailout and a major change of the way in which the U.S. system was built and its incentives. The cost will be passed on to everyone who uses banking services.
It's possible that the issue is that deposits have never moved so fast and that is what formed the basis of this decision – the outflows at SVB were without equivalent. If all bank deposits are now insured, why do you need banks? This could feed into the debate about central bank digital currencies."
ECONOMISTS AT CAPITAL ECONOMICS: "These are strong moves. In particular, the shift to accepting collateral at par rather than marking to market means that the banks that have accumulated more than $600 billion in unrealised losses on their held-to-maturity Treasury and MBS securities portfolios – and didn't hedge the interest rate risk – should be able to ride out the storm.
"Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age. But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work." HOWARD NEEDLE, PORTFOLIO MANAGER AT WELLESLEY ASSET MANAGEMENT, NEW YORK:
"In the short-term a bailout should reduce panic but longer term it can't be great for the larger money center banks who will face more stiff competition from regional banks, emboldened by the Fed support, as they can now act more aggressively to gain and retain clients or deposits." JON SAKODA, FOUNDER OF EARLY-STAGE VENTURE FIRM DECIBEL PARTNERS, SAN FRANCISCO:
"This is a huge step in restoring confidence in the startup community. Before this move many startups were planning emergency measures which would have likely led to more layoffs and furloughed employees. The government's actions have provided much needed certainty that everyone can make payroll on Monday." MICHAEL PURVES, CHIEF EXECUTIVE OFFICER AT TALLBACKEN CAPITAL ADVISORS:
"What investors have to expect coming into tomorrow and beyond is that we are going to be dealing with a lot of event risk. There are still going to be lingering questions with other regional banks. "Under such a such a scenario, it's hard not to expect very high-rate volatility. If that happens it's really hard to think we'll have an equity rally."
GREG MCBRIDE, CHIEF FINANCIAL ANALYST, BANKRATE: "While the Fed has talked about a lot in the past year, until today it has been in the context of monetary policy. But today the Fed acts in the capacity of an even more important role, the lender of last resort, to make sure banks and credit unions have access to whatever cash they need without needing to sell high-quality assets that may be trading for less than face value due to the sharp increase in interest rates.
"Still to be determined is the fate of the assets of Silicon Valley Bank. Whether one buyer, or multiple buyers, emerge is still to be determined as of the moment."
(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)