Please find below the 4 charts that explains the Silicon Valley Bank Crisis and its impact on investments. 

1) Largest US Bank Failures:

1) Silicon Valley Bank & Signature Bank are the 2nd and 3rd largest bank failures in U.S. history.

2) Washington Mutual was the biggest bank failure which happened in 2008.

3) Federal Reserve and FDIC have now guaranteed the deposits at both the banks to prevent the contagion risk.

2) Who is responsible for this Banking Crisis?

Largely, US Fed is responsible for the current banking crisis.

In 2021, when Inflation was at 7%, Fed maintained interest rate at 0% and said that inflation was transitory. 

In 2022, Fed went from too easy to too tight too fast on interest rates.

We haven’t seen an interest rate tightening cycle like this in the last 50 years.

3) Quick change in expectations for US Fed Rate:

1) In Jan of 2023, we were expecting Fed rate hikes till July 2023 and the rate cuts by the end of 2023.

2) After SVB Crisis, rate cut beginning in June 2023 is priced into expectations for Fed rates.

This is good for equity markets because lower Fed rate makes the equity market attractive. 

4) The US 10 Year Yield Corrects:

US 10 Year Yield has fallen from 4.07% to 3.67% in the last few days due to recent banking crisis..

We may see the end of hiking cycle by US Fed. March meeting could be a small hike or no hike

Fed is most probably not going to hike rates & rescue banks simultaneously.

*Source – CNBC

Read more similar articles in our blog – https://alphacapital.in/blog/

Best Regards

Dr. Mukesh Jindal CFA, CFP, CAIA, Ph.D.

Alpha Research