[Original Author, by Nigel Ng]
The biggest piece of news now that everyone’s talking about is the banking ‘crisis’. But is it really a crisis? The SVB problem was very idiosyncratic. Unprofitable, moonshot tech, VC, and crypto firms were convinced to put their deposits in a bank in a similar industry – all of which relied on low interest rates. SVB also did not hedge their duration as most banks do, and were exposed negatively to an increase in interest rates. There was some spillover to other small banks given how much market capitalisation they have, and even to EU banks like Credit Suisse.
Fundamentally, other banks are still strong, and deposit outflows are moderate. They also have the support of the central banks and treasury. I strongly doubt this situation is systemic, and we can slowly go back to normal. However, it is possible that fear takes over and banks have to tighten lending even more. Given how commodities have been trading lower, the Fed can then cut to spur growth and encourage lending. This school of thought will need some confirmation via weak US data. As of now, that has yet to be seen.