It’s close to impossible to apply brakes to the economy without breaking something
— even if investors and policymakers never tire of fantasies about soft landings, immaculate deleveragings or Goldilocks scenarios.
JPMorgan estimates that the Fed might end up lending as much as $2 trillion to banks. That would spell the end of Quantitative Tightening (QT).
The authorities have redefined the meaning of the word “systemic.” If losses on SVB’s uninsured deposits posed a systemic risk, then every medium-sized bank that screws up is a systemic risk.
Is there a parallel for the authorities’ intervention? Several commentators cast their minds back to the rescue of Continental Illinois in 1984, the largest bank failure in US history until the 2008/2009 financial crisis.
Paul Volcker, then Fed chairman, was persuaded to protect the bank’s uninsured deposits for the sake of financial stability.
As Volcker later recalled, he had intended “a rescue where, as a formality, some of the private banks put some money in with us so it looked like a private rescue.”
This is what had been done in the case of First Pennsylvania in 1980. However, no banks could be induced to participate in a rescue of Continental Illinois.
The authoritative historian of the Fed, the late Allan Meltzer
Jay Powell recalls his time as a young official at the Treasury in January 1991, when it was the Bank of New England that was about to go under.
Niall Ferguson Bloomberg19 mars 2023
Every hiking cycle over the last 70 years ends in recession or a financial crisis - Continental Illinois Ronald Reagan
‘It’s not going to be different this time,’ Morgan Stanley strategist says
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