macroVS Episode10: Prepping for the SVB aftershocks

What the official sector research and recent statements tell us about how to prepare strategically

Welcome to macroVS episode10, a monetary policy podcast where we let data derived from central bank language show us all the many ways in which advanced economies are diverging and decoupling from each other. 

macroVS Episode 10: Preparing for the SVB After-Shocks

We will be brief this week. We know that global macro and monetary policy strategists everywhere will be spending this weekend evaluating the likely impact of the Silicon Valley Bank closure in California yesterday.

It is a familiar, sad story.  Accelerated deposit redemptions triggered customer uncertainty regarding unrealized losses associated with Silvergate’s closure.  Generating cash to cover redemptions required selling US Treasury securities followed by a failed attempt to raise additional equity capital.  By noon on Friday, the bank was closed.

We are recording this podcast on Saturday afternoon, amid reports that HM Treasury in the UK is trying to limit the impact of SVB’s implosion which is eerily reminiscent of the post-Lehman moment in London (albeit at a much smaller scale.  Facebook’s stablecoin (Circle) has broken the buck, walking away from 1:1 redemptions which reminds some of us of the money market mutual fund side-effect of the Lehman collapse, again at a much smaller scale.

It is widely expected that Signature Bank and other small regional banks will come under pressure on Monday.

We shall all be watching the policy statements and actions like hawks next week.  Our system will capture and tag the language daily, as usual.

To be clear: market volatility and stress events need not generate a market meltdown.  Much depends on how policymakers, financial firms, and individual investors react next week.

Today’s macroVS podcast surveys the monetary landscape as it stood just as SVB was being closed on Friday.  The purpose: identify under-appreciated areas that can serve as red flags or accelerants in the current situation.