Svb, the bank failure and the shock on the markets: what to do with houses, shares, government bonds (and the dollar)

Bank failures, alarmed markets and Fed countermeasures

The bankruptcy of the 16th American bank, Silicon Valley Bank and the small Signature Bank caused a sensation on the stock and bond markets around the world, even if the strong fluctuations of these days in the stock exchanges and fixed income markets are also affected by the many crises involving cryptocurrency platforms. With the rate hike in 2022, the securities in the portfolio depreciated and in the case of Silicon Valley Bank there was a run on the branches, especially for unsecured deposits exceeding $250,000.
In unanimous opinion the Fed intervened quickly and promptly: banks can have access to up to $25 billion of funding – against collateral securities that will be valued at par (100). That is to say at the full redemption value they would have at maturity and without incurring the losses that the bonds would incur – if sold on the market for cash – due to the increase in interest rates. After six consecutive increases in US rates, which went from zero to 4.75% in one year, the bonds have in fact depreciated by up to 20%. Thanks to this Fed measure, banks will not lose money if they sell their portfolio securities.
The safety net is working: after an initial loss of 3-4% world stock markets have recovered. The Milan Stock Exchange closed Tuesday with a sharp rise of 2.36 after -4% on Monday, even if the Ftse Mib failed to return beyond the threshold of 27 thousand points. Strong increases also for Europe, with Paris gaining 1.86%, Frankfurt 1.82%, London 1.7% and Madrid 2.27%. The Btp-Bund spread was also down, closing the day at 185 basis points, with the yield on the Italian 10-year bond at 4.26 on the secondary market. The American indices are positive.

Mar 15, 2023

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