Were the seeds of Silicon Valley Bank’s collapse planted by the Federal Reserve’s rapid rate increases? That is one of the debates ranging online over the weekend.
Michael Green, chief strategist and portfolio manager for Simplify Asset Management, is in the camp that it is the Fed’s fault.
“Who really owns the failure of SVB? The Fed,” Green wrote on Substack.
“By hiking rates in a totally unprecedented manner less than a year after assuring market participants that they were not going to hike rates until 2024, they created conditions that predictably led to the second-largest bank failure in U.S. history,” Green wrote.
On Sunday, Sheila Bair, the former FDIC chair, retweeted an opinion piece she wrote in December calling for the Fed to pause interest-rate hikes to assess their full impact on financial-system stability.
Also see: Rep. Katie Porter blames rising interest rates for SVB crash, and raises oversight questions
On the other side, Jim Bianco, president of Bianco Research LLC, said bond bulls had to take some of the heat.
The management of SVB
SIVB,
might have listened to “non-stop droning” from Wall Street and Fintwit that inflation had peaked, and the Fed would pause, pivot or step down, he said.
“In other words, should they have known all the bond bulls were full of it. And not the bond bulls are mad at them for following their advice,” Bianco said.
The Fed has raised its benchmark rate by 4.5 percentage points over the past year. The sharp rise in interest rates have caused losses in SVB’s bond portfolio.
Efforts to raise capital in new funding seemed to have sparked a “old-fashioned bank run,” Bair said in an interview on MSNBC over the weekend.
The Fed is also letting letting its balance sheet shrink by a maximum of $95 billion per month, under a program dubbed “quantitative tightening.”
Chris Whalen, chairman of Whalen Global Advisors, said the program was not tuned in to the impact of quantitative tightening on financial markets.
Source: https://www.marketwatch.com/story/did-the-fed-plant-the-seeds-of-destruction-of-silicon-valley-bank-51bad7a5?siteid=yhoof2&yptr=yahoo