Big news here, even if there isn’t yet an explicit guarantee. Treasury Secretary Yellen indicated policymakers may intervene to protect depositors at smaller banks. It is also reported that US officials are studying ways to temporarily extend FDIC insurance to all depositors. This news should be well received by the market and banks. James Politi reports in the Financial Times: Janet Yellen will signal further US government backing for deposits at smaller American banks if needed, a shift that seeks to protect parts of the country’s banking system struggling in the recent financial … [Read more...]
About Jeremy Jones, CFA
Who’s to Blame for Banking Vulnerability?
In Barron's, Viral V. Acharya and Raghuram Rajan explain how quantitative easing may have left the banking system vulnerable to volatility. They conclude: There is plenty of blame to go around. But leaving aside the banks’ risk management and bank supervisors’ apparent failures, there are deeper questions. Why did uninsured deposits grow so rapidly during the pandemic? Why are banks so heavily invested in long-term securities portfolios? Why are we seeing bank runs so soon after the Fed flooded the system with liquidity? Part of the answer lies in quantitative easing, a form of monetary … [Read more...]
Mortgage Market Not Expected to Settle Down Soon
The collapse of Silicon Valley Bank and Signature Bank has created volatility in mortgage markets, and according to Jennifer Hughes in the Financial Times, that volatility isn't expected to settle down overnight. She writes: The market volatility triggered by the failure of three banks in the past week has spooked traders in economically vital US mortgage-backed securities, leaving other lenders, usually important buyers, on the sidelines. The $11tn market for bundles of US home loans was already feeling the strain of last year’s soaring interest rates, which pushed up MBS spreads — the … [Read more...]
Were Silicon Valley Bank’s Motivations for Taking Losses Pure?
Below, the WSJ provides an account of how a plan hatched by Goldman Sachs to raise capital at Silicon Valley Bank (SVB) went south. What seems to be glossed over in this account and many others is SVB’s motivation for wanting to pull forward losses on a large portfolio of Treasury and agency mortgage-backed securities (MBS). Yes, SVB bought some longer-term bonds, and those bonds were held at an unrealized loss, but why recognize the losses all at once? The bank was apparently bleeding deposits, but there was no indication that the situation was unmanageable. What seems to be missed … [Read more...]
Major Rail Merger Gets Approval
A merger between rail giants Canadian Pacific and Kansas City Southern has been approved by regulators at the Surface Transportation Board. Esther Fung reports: A federal regulator has approved withconditions a merger between Canadian Pacific Railway Ltd. CP 6.23%increase; green up pointing triangle and Kansas City Southern, a $28 billion deal that would create the first freight rail network linking Canada, the U.S. and Mexico. “The merger is expected to offer more efficient and reliable service…and to improve the overall quality and availability of rail transportation services to the … [Read more...]
Credit Suisse Announced “Material Weaknesses” In Its Internal Controls
Owen Walker reports for the Financial Times that Credit Suisse has announced: “'material weaknesses' in its internal controls over financial reporting." Walker writes: Credit Suisse said it had identified “material weaknesses” in its internal controls over financial reporting, the latest blow to a bank battling to revive its fortunes. In its annual report on Tuesday, Credit Suisse said “management did not design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements”. The bank said its full-year 2022 … [Read more...]
Is Deposit Insurance a Solution or a Problem?
In The Wall Street Journal, Charles W. Calomiris makes the case that deposit insurance encourages risky behavior and makes the banking industry less safe. He writes: Silicon Valley Bank’s failure makes many Americans grateful for deposit insurance, which protects accounts holding $250,000 or less. But the SVB episode also illustrates the dangers of deposit insurance. A banking system dominated by government insurance, plus too-big-to-fail protection that effectively insures all deposits at the largest banks, lacks essential market discipline, is systemically unsafe, is more likely to see … [Read more...]
What’s Going On with Banks and Are My Deposits Safe?
You have likely seen the news that Silicon Valley Bank failed last Friday and was taken over by the FDIC. On Sunday, the FDIC also took over Signature Bank and announced policy measures intended to shore up confidence in the banking system. We don’t have all the details on the Silicon Valley Bank failure yet, but it looks like extremely poor judgment by management ultimately led to the collapse of the bank and acted as the catalyst for a classic run on other banks. So what happened? Like all banks, Silicon Valley Bank (SVB) owned a portfolio of bonds (mostly Treasury and … [Read more...]
Will Japan Keep Buying U.S. Treasuries?
After a buying spree, investors are wondering if Japanese investors will continue to buy U.S. Treasury bonds. Kate Guguid reports for the Financial Times: Japanese investors have piled into foreign debt this year — but analysts have warned that the revival in demand from one of the cornerstones of the US Treasury market is unlikely to last. Data from Japan’s ministry of finance reported this week showed that investors bought ¥4.1tn ($30bn) of foreign debt in February, the largest total since September 2021. That follows net buying of ¥1.1tn in January, and marks a pause in the dramatic … [Read more...]
GM’s Electric Vehicle Push Stalls
Efforts by General Motors to ramp up electric vehicle production have not been working out. Mike Colias reports for The Wall Street Journal: General Motors Co. Chief Executive Mary Barra has called 2023 a breakout year for the company’s electric-vehicle push. It is off to a slow start. The Detroit auto maker is dealing with the slower-than-expected rollout of two high-profile electric vehicles, the GMC Hummer EV and the Cadillac Lyriq, increasing pressure on Ms. Barra after GM lost EV market share to rivals last year. More than 15 months after GM began building theelectric GMC Hummer … [Read more...]
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