Joint Press Release – Federal Reserve Board

The recent failure of Silicon Valley Bank (SVB) and Signature Bank (SB) has created waves in the financial community and what it may mean for the U.S. banking system. The Treasury, Federal Reserve, and FDIC issued a joint statement March 12, 2023 to address making depositors whole.  The joint statement may be read HERE.

In addition, we would like to pass along a comment received by Christine Calderon, Client Strategist, BNY Mellon Wealth Management and Mohamed El-Erian, chief economic adviser for Allianz. 

First, Christine Calderon shared that with the collapse of Silicon Valley Bank completely overshadowing the strong jobs report, many are wondering if this is the beginning of a broader contagion in the banking sector similar to the financial crisis in 2008.  The short answer is probably not, since SVB was a highly specialized bank serving almost exclusively the venture capital community.  They didn’t have a diversified deposit base like most retail banks and, as a result, they were subject to very unique risks. 

With that said, the collapse clearly did trigger a general “risk-off” mentality among investors.  Under normal circumstances, a strong jobs report combined with hawkish comments from the Fed should have sent bond yields higher.  But the flight to quality following the SVB news actually sent bond yields lower and all but eliminated the possibility of a 50 bps rate hike later this month.  The silver lining (if you can call it that) of the second largest bank failure in U.S. history is that it is likely to be highly deflationary, at least in the short term.  The fear created by the collapse should have a chilling effect on consumer and business spending temporarily, which will hopefully moderate inflation further and give the Fed room to slow the pace of rate hikes.

Per Mohamed El-Erian, “lots of chatter today about the possibility of generalized US banking system stress due to SVB troubles. Three summary things on this:

      1) While the US banking system as a whole is solid, and it is, that does not mean that every bank is;

      2) Due to the volatility in yields after the prior protracted period of leverage-enabling policy, the most vulnerable institutions

          currently are those vulnerable to both interest rate and credit risk; and

      3) Contagion risk and, therefore, the systemic threat, can be easily contained by careful balance sheet management and

          avoiding more policy mistakes.”

We partner with Pershing LLC (owned by BNY) as our custodian for personal investment accounts.  A few facts about BNY include:

      1. BNY Mellon, N.A. is the highest credit rated financial institution in the United States.

      2. BNY Mellon, N.A. is regulated by the Office of the Comptroller of Currency, which is part of the U.S. Department of the

          Treasury. 

      3. Our reputation as a safe, secure organization is one of the many reasons we were named the master custodian of the US

          Government’s Troubled Asset Relief Program (TARP) during the 2008 financial crisis.  In times of turmoil, BNY Mellon is a

          bastion of stability.

      4. Governments, sovereign wealth funds, corporations, and various institutions entrust BNY Mellon to Custody and Administer

          an estimated $46 trillion or roughly 1/3rd of the world’s assets at any given moment.

Reach out to our team should you have questions.