A decrease to target would equal a month-on-month inflation of around 0.15%, while current figures of CPI and core CPI are at 0.4%. On Wednesday, the US inflation print was in line with expectations but still well above the Fed’s target of 2%. This is likely to persist, provided the balance sheets of larger institutions remain robust and assuming there are no other ticking time bombs that are currently being overlooked. The impact of these bank failures on the global financial market has been minimal, as regulators intervened quickly, and all client deposits were made whole. Unfortunately, such transparency remains a black box for outsiders and is not mandatory.
However, with greater transparency regarding their asset-liability management, the problems would likely have been detected much earlier.
The Fed’s rapid increase in interest rates made the eventual downfall of these institutions inevitable. Thirdly, their client base was highly concentrated with deposits exceeding the $250k insured by the Federal Deposit Insurance Corporation, leaving them vulnerable to withdrawing their funds during a bank run. Secondly, these banks had an incentive to inflate the asset side of their balance sheets with high-duration bonds and mortgages held at amortised cost, making them immune to rate changes in their statements and as a consequence they were able to increase revenues without impacting PnL volatility. The failures of First Republic, Silicon Valley, and Signature Bank (representing three of the largest bank failures in US history) were primarily caused by three factors.įirstly, regulations for small and mid-sized banks in the US are less strict compared to those for the nation’s largest banks.
In contrast to the 2008 financial crisis, which was characterised by high-risk mortgage-backed securities, the current situation is relatively straightforward. This has led to speculation about which regional bank might be next, with PacWest Bancorp and Western Alliance making headlines this week.
Last week, US regulators announced that JPMorgan Chase would acquire all assets and deposits of First Republic Bank, which had experienced a sustained bank run.
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