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BTFP, stands for Bank Term Funding Program

 This will allow banks to borrow from the Fed using Treasury bonds as collateral and valuing them par.

 If the existence of the BTFP serves to calm the banks’ clients down, it doesn’t have to commit the money; 

if the pressure intensifies, it might have to come up with much more than $25 billion. 

If all goes to plan, however, the outcome will be to make bank depositors (not just SVB’s) bear the bulk of the cost.

Investors have spent months betting that a shift in the economy will cause the Fed to pivot — make a sudden move to cutting rates rather than raising them. This has always been unrealistic. 

A true pivot requires a danger to financial stability. The cliché is that the Fed must tighten until something breaks. Now that something’s broken, it’s far more plausible that the Fed will change course.

There is an argument that SVB was a unique situation with little implication for the rest of the banking system

One word that is familiar from the GFC which most of us had hoped never to use again is contagion. 

As Kambiz Kazemi points out, it was only on Monday last week that SVB made the Forbes list of America's Best Banks for the fifth consecutive year. 

Banks are usually valued as a ratio of their book value (the equity on their balance sheet once liabilities are subtracted from assets). Friday’s selloff brought the bigger US banks’ share prices just below book value, so concern is rising. This it still not comparable to the horrors of 2008:

Moral Hazard

This brings us to the debate that boiled over during the GFC. It’s about moral hazard, the concept that people will take greater risks if they’re confident they’ll be bailed out when things go wrong. How and when should regulators take a stand against it?

The disastrous response to the Lehman bankruptcy encouraged traders that the government would have no choice but to bail out further miscreants.

The 2008 implosion left another issue. Virtually nobody was punished. Indeed, prosecutors under the Obama administration barely even tried to hold bank executives to account. This was a moral outrage that makes it far harder to persuade the public at large to support bailouts.

John Authers Bloomberg 13 mars 2023


Yellen Said "No Bailout" But It's a Huge Bailout of the Banking System

We have the Second Rescue of the Banking System in 15 Years. 

That is a free link to a WSJ article.

Here's a flashback hoot of the day. On June 27, 2017 then Fed Chair Janet Yellen said she expects "No New Financial Crisis in Our Lifetimes"

 Once again, the Fed kept interest rates too low, too long, encouraged speculation, then bailed out the banks.

Spare me the sap about this was a depositor bailout not a bank bailout. When you value assets at par so that banks don't have losses, what the hell is it.

Mish 13 March 2023


Summers “I don’t think this is a time for moral-hazard lectures” Silicon Valley Bank

Silicon Valley Bank collapse could spark the next financial crash – but we cannot bail out failed bankers again

There is a real risk of a full blown bank run.

If anyone thought that we could gracefully exit from more than ten years of near-zero interest rates, unlimited amounts of printed money, and double-digit inflation, without any form of pain, they have just had a very rude awakening.

Instead, they only really have one option. Depositors have to be protected, and with public funds if necessary. If you have money in the bank you need to be able to get it out. 

Anything else guarantees a full-blown collapse in confidence in every form of financial institution, and very quickly in paper currencies as well. 

But unlike 2008 and 2009, the banks themselves should be closed. If bondholders and shareholders lose their shirts, then that’s just bad luck. We can’t return to bailing out failed bankers all over again.

Even more importantly, we can’t return to easy money to paper over the cracks in the system. A decade of that was more than enough. 

Matthew Lynn Telegraph 11 March 2023

Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken. 

Rolf Englund blog 5 december 2009

SVB employees received bonuses hours before bank shutdown, reports say

CNN 12 March 2023

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