Money is leaking from banks.
Wayne Cole provides an overview of the European and international markets for the day.
Asian stock markets have been uneven so far on Monday, while U.S. and European stock futures are higher, possibly as a result of the fact that no other banks failed over the weekend.
There is some relief that Silicon Valley Bank will soon be acquired by First Citizens BancShares Inc (FCNCA.O) (SIVB.O). There was also speculation that the Federal Reserve would broaden its recent bank lending program as a further measure to reassure depositors.
Money is flowing out of smaller banks and into bigger ones and money market funds, which have seen an inflow of over $300 billion in the past month, reaching a record $5.1 trillion. Bank of America notes that similar events in 2008 and 2020 were followed by Fed rate cuts. Futures now show an 88% chance that the Fed will stand pat in May, while a July cut is priced at over 90%.
Small bank deposits fell by $120 billion in the week to March 15, while borrowing jumped $253 billion, likely from the Fed. Capital Economics highlights that deposits across all banks have fallen by $663 billion in the past year as customers search for higher yields. Unless banks raise deposit rates to prevent this flight, they may need to rein in the size of their loan portfolios, potentially leading to a recession.
European banks face similar strains, with Deutsche Bank experiencing speculative stress and an increase in the cost of credit default swaps. Credit Suisse had to secure its liquidity by tapping the Swiss National Bank for “a large multi-billion amount.” Counterparties were demanding guarantees to keep doing business, highlighting the importance of trust in interbank lending.
On Monday, the German IFO survey for March is expected to be around 91.0. The Bank of Spain’s Governor Pablo Hernandez de Cos will deliver a speech on the economy, while ECB Board members Frank Elderson and Isabel Schnabel, and Andrew Bailey, Governor of the Bank of England, will also speak. Federal Reserve Board Governor Philip Jefferson will speak on “Implementation and Transmission of Monetary Policy.”
