â¦regulators pull out all the (back)stops as SVB goes from ski resort to last resort [Disclosures]( Silicon Valley blues (Justin Sullivan/Getty Images) Yesterdayâs Market Moves Dow Jones
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$24,285 (+9.62%) Dow Jones
31,819 (-0.28%) S&P 500
3,856 (-0.15%)
Nasdaq
11,189 (+0.45%) Bitcoin
$24,285 (+9.62%) Hey Snackers, Yesterday was a rough one for bank stocks, despite regulators swooping in to rescue depositors at two failed banks. Shares of US regional banks had their biggest plunge in three years, led by names like [First Republic]( (down 62%) and [Western Alliance]( (down 47%). âSystemically importantâ banks (aka: âtoo big to failâ) like [JPMorgan Chase]( and [Bank of America]( fared better, but were also down. Some investors now expect that recent bank failures will pressure the Fed to cool (or even pause) rate hikes. Traders are predicting a 25 bps hike at this monthâs meeting, down from expectations of 50 bps on Thursday. The February inflation report, which comes out today, will also influence the Fedâs next rate decision. Resort US regulators rush to limit banking contagion after Silicon Valley Bankâs collapse From ski resort to last resort⦠Earlier this month Silicon Valley Bank hosted a âsnow summitâ for tech CFOs at the Deer Valley ski resort in Utah. Last week, SVB tried to borrow from the Fed â a lender of last resort â to avoid collapsing (spoiler: it still collapsed). Hereâs a high-level recap of the second-largest bank failure in US history: - Who: Silicon Valley Bank was the go-to for tech startups, servicing about half of Americaâs venture-backed tech companies.
- Rise: SVB was flooded with deposits in 2021 as startups easily raised venture cash in an extra-low-interest-rate environment, parking their funds at SVB.
- Problem: Banks largely make $$ by making loans, but SVBâs clients were already flush with cash. Plus, interest rates on loans (especially short term) were super low.
- âSolutionâ: To earn a slightly higher interest rate on its loans, SVB invested most of its deposits into US Treasury bonds with long durations (think: 10+ years).
- Risk: If interest rates soared, the value of SVBâs bond portfolio would plunge (because its old bonds would be paying out at lower interest rates).
- Result: Interest rates did in fact soar. The market value of SVBâs bonds plummeted by $15B (and its savvy customers paid attention).
- Re-tweet: SVBâs close-knit clients chatted and pulled their cash out at the same time (on Thursday alone, they tried to withdraw $42B â a quarter of SVBâs total deposits).
- Reckoning: SVB ultimately couldnât meet withdrawal requests, the FDIC took control and declared it insolvent, and panic ensued ([Signature Bank]( also failed). Pulling out all the (back)stops⦠To avoid more bank runs, regulators announced an emergency backstop to ensure that all depositors at both failed banks would have access to all their funds (as of yesterday). The Fed is also creating a âBank Term Funding Programâ to offer loans to financial institutions who present high-quality securities (think: Treasurys) as collateral â instead of having to fire-sell securities during times of stress. - The FDIC guarantees customer deposits of up to $250K at every insured bank, but most of SVBâs and Signature Bankâs deposits were uninsured (think: tech companies with way more than $250K). Still, the FDIC said it would make all depositors at these two banks whole, regardless of account size. THE TAKEAWAY Panic can be a self-fulfilling prophecy⦠which is why the government is taking extraordinary measures to contain the damage. The three banks that failed this month (including Silvergate) had an unusually high concentration of deposits from tech and crypto companies. Regular folks werenât likely to have accounts there, and regular folks are also less likely to have uninsured deposits (aka: $250K+ in one account). Still, if companies are at risk of losing millions in deposits, then people are at risk of losing paychecks â and damage control could continue to be key to containing further contagion. CHAIN SVB's implosion depegged the second-largest stablecoin, highlighting crypto's dependence on traditional banking Cutting it close⦠Crypto had a weekend it'd rather forget. Circle, the biz behind USDC (the second-largest [stablecoin]( said on Friday that $3.3B of the stablecoin's US-dollar reserves were in the failed Silicon Valley Bank â which regulators had taken over earlier that day. With the future of SVB's deposits in doubt, crypto investors worried that USDC might no longer be fully reserved (aka: backed one to one with US dollars). - The drop: USDC, which was designed to always = $1, depegged over the weekend. The stablecoin fell to as low as 87 cents.
- The climb: Circle said it'd "cover any shortfall," and on Sunday the govât said all SVB depositors would be made whole. Yesterday USDC regained its $1 peg. Have crypto, will travel⦠While SVB's collapse sent shockwaves through crypto, it wasn't the first crypto-friendly bank to run into trouble. Last week crypto [mega bank]( [Silvergate]( said it'd shut down after a surge in post-FTX withdrawals. And on Sunday regulators moved to close New York's Signature Bank (over a fourth of its deposits were from crypto companies like [Coinbase]( and Paxos). Now, with three big crypto banking players off the board, the industryâs [scrambling]( to find alts. THE TAKEAWAY Crypto can't shake TradFi's grip⦠Circle's rough weekend is a reminder that crypto's fortunes remain tied to traditional finance (aka: TradFi). It wasn't just the stablecoin heavyweight that was forced to face this reality: bankrupt crypto lender BlockFi and Ripple Labs â the biz associated with the $19B XRP token â both had exposure to SVB. Still, some crypto fans see the recent bank failures as an argument for digital assets. Think: self-custodied crypto vs. bank-custodied dollars. What else we're Snackin' - [Prop22]( [Uber]( and [Lyft]( scored a huge win yesterday after a California court ruled the ride-hailers could keep classifying drivers as independent contractors (vs. employees, which wouldâve upended their gig-biz model).
- [Treat]( [Pfizer]( agreed to buy cancer-drug maker [Seagen]( for $43B. Seagen expects to make $2B this year from its line of cancer drugs, which Pfizer says it can deliver on a scale thatâs ânever been seen before.â
- [Saucy]( Chick-fil-A plans to spend $1B to expand its fried-chicken empire beyond the US. For decades rivals like [McDonald]( and [KFC]( have been adding locations in Europe and Asia, and the fast-food frenzy shows no sign of cooling.
- [Oscars]( "Everything Everywhere All at Once" became the most-awarded Best Picture winner since âSlumdog Millionaire.â It was the highest-grossing US release for indie production company A24.
- [Sign]( Mortgage rates fell to 6.5%, down from 7.5% just a week ago, after SVBâs collapse. The drop saves buyers $128/month in payments, and could lure prospective homeowners back to the market. ðª Thanks for Snacking with us! Want to share the Snacks? Invite your friends to sign up [here](. Snack Fact Of the Day As home prices soar, 3M US households making $150K+/year are still renting [Read more]( Tuesday - Consumer Price Index
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