Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
Earlier in the week I was a guest on TNT Radio, and we discussed the emerging banking crisis, and what lays behind it. Events since reconfirms our view this is a serious structural issue triggered by Central Bank’s reversal on rates, which have put many financial services players under stress.
Significantly, Central Banks are now trying to prop the system up. More finger in the dyke stuff?
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For the final time in Australia, I caught up with Robbie Barwick from the Citizens Party. We looked at the progress towards the establishment of a Public Bank in the light of recent failures, and the inquiry into Regional Banking.
Importantly, there are just two more weeks to get your submission to the Inquiry. Have your say! and support the transformational policy.
Make a submission to regional bank closures inquiry
Submissions to the inquiry are due by 31 March. All communities, organisations, businesses, and individuals impacted by the banks’ war on cash are strongly urged to make a submission, including to support a government post office bank.
A submission can be a formal representation from an organisation, or as simple as a letter or email, which explains to the Committee your experience and views.
Elderly and vulnerable regional bank customers, who are disproportionately affected, are especially encouraged to hand-write or type physical letters and mail them to the Committee through the post.
Mail your submission to the Committee at this address:
Committee Secretary
Senate Standing Committees on Rural and Regional Affairs and Transport
PO Box 6100
Parliament House
Canberra ACT 2600
Email your submission to the Committee at rrat.sen@aph.gov.au
Upload your submission, and get more information, at the inquiry website
For more information, phone the Committee on 02 6277 3511.
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So once again the banks get a helping hand from the FED, and depositors in the US are guaranteed to an unlimited extent. But what of moral hazard?
And the markets now do not expect further rate rises, despite the inflation pressures in play. Yet perhaps there is a bifurcation between liquidity and rates, so perhaps the markets are not reading things right.
And once again the FED and Treasury proved Free Market Capitalism is dead!
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Last Thursday the S&P 500’s bank index finished down 6.6% after hitting its lowest level since mid-October, its biggest one-day drop in over two years as Investors fled the sector after tech-industry lender SVB Financial Group launched a share sale to shore up its balance sheet due to declining deposits from startups struggling for funding and following crypto bank Silvergate’s decision to wind down operations.
Shares of SVB, whose operating segments include Silicon Valley Bank, slumped over 50% in their deepest one-day drop on record after the company announced a $1.75 billion share sale late on Wednesday. SVB is battling cash burn due to declining deposits from startups struggling with a venture capital funding drought.
Unlike most banks, which are helped by rising rates, SVB Financial is “generally hurt by them,” Oppenheimer says, as its deposit base is “generally made up of commercial customers who are rate-sensitive.”
The slump in SVB Financial further soured the sentiment on banking stocks, which have been pressured by a deeper inversion in the Treasury yield curve – a harbinger for a recession.
Morgan Stanley analysts said lower 2023 NII guidance at SVB is driven by cash burn among private companies that bank with SVB. This, according to the analysts, will cause SIVB to bring more higher-cost sweep accounts onto its balance sheet, paying roughly the Fed funds rate to do so.
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The S&P 500 slumped Friday, amid fears of contagion that swept through banking stocks as regulators closed SVB Financial to protect customer funds after the beleaguered bank’s effort to secure funding failed.
The S&P 500 fell 1.4%, the Dow Jones Industrial Average fell 1%, or 333 points, the Nasdaq Composite was down 1.8%.
SVB Financial Group was closed by regulators and its deposits placed under control of regulators to protect depositors following a run on deposits, after its parent company’s share price crashed a record 60% on Thursday.
In the latest update regarding the rapidly moving SVB Financial Group saga, the Federal Deposit Insurance Corporation (FDIC) said Friday that SVB has been shut down by the California Department of Financial Protection and Innovation.
The regulator, which appointed the Federal Deposit Insurance Corporation as receiver, revealed that the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB) to protect insured depositors. (250k)
“The FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank,” the FDIC said in a statement.
They added that all insured depositors will have access to their insured deposits no later than Monday, March 13.
The FDIC said it will pay uninsured depositors an advance dividend within the next week. For any remaining uninsured funds, depositors will receive a receivership certificate. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to certificate holders.
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The RBNZ Team lead by Adrian Orr was questioned in Parliament today, and we got more insight into the trajectory of rates, and the impact on households, with the debt servicing ratios set to rise higher than before the GFC! There was a sharp intake of breath!
In addition, there was a concession to the fact that if lending had been tighter, QE and money printing more controlled, then inflation would be lower. Is this the first time a Central Banker admitted this?
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Adrian Orr, RBNZ Governor said they were listing the Official Cash Rate by 0.5% today, with a peak of 5.5% still on the cards. The recent Cyclone may also add additional inflationary pressure.
He also highlighted the importance of cash – and branches – at a time of crisis, like when the power goes out. And the risks to social cohesion when this is ignored. Just wow!
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Join me for a live discussion with Meighan Wells about the state of QLD property, with a focus on Brisbane.
As the Principal of Property Pursuit and co-founder of the Home Buyer Academy and co-presenter of Your First Home Buyer Guide Podcast, Meighan is committed to excellence and the swelling list of satisfied clients as well as its multi-award-winning status is a testament to her ethics and hard work. In recognition of her expertise and high standards in the fast-growing buyer’s agency industry, Meighan was engaged to develop and deliver the education module for the REIQ course Acting as a Buyer’s Agent and is the former Chairman of the REIQ Buyers’ Agent Chapter.
In 2010, Meighan was awarded the highest honour for buyer’s agents when she was recognised as the REIQ Buyers Agent of the Year for the third consecutive year. As a recognised expert on the Queensland property market, Meighan is regularly featured in the media in publications including The Financial Review, The Australian, The Courier Mail, Sunday Mail, Sydney Morning Herald, Australia Property Investor Magazine, Your Mortgage Magazine, Realestate.com.au, Domain.com.au, Property Observer and more.
You can ask a question live.
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The RBA minutes today revealed they considered both 50 and 25 basis points rate hikes at their last meeting – but no thought of holding rates. So it was not a close decision, the RBA turned more hawkish.
And more rate hikes must be expected, while inflation won’t drop into 2-3% range until 2025.
So expect more rate hikes and higher for longer, with a following fall in wealth and output. This all aligned with the Governor’s comments last week to Parliament.
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The RBA Governor was before the Economics Committee in Parliament last Friday. Questions from members were more coherent, but the responses were similar to those in the Senate on Wednesday.
Two points of note were the distribution of debt (and so pain) across the community, and the question of whether the rate of increases mattered more than the end destination.
But I was not convinced by their answers…
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