This is the consequence of the Fed having left monetary policy too loose for too long

Gillian writes an excellent piece that adds colour to the root cause discussion on SVB. It captures a thought process set of risks not addressed by Dodd-Frank, OSFI or British regulation which all more broadly focus on discrete individual FI’s and less the systemic risks in the market that few want to touch.

Already I sense the market participants are glossing over the crisis and suggesting it is contained.

I disagree and am doing my own analysis to test that hypothesis. It is time consuming and results in one rabbit hole uncovering two more rabbit holes and so on.

I need to do more analysis and a longer post to follow shortly. I can say I am leaning towards money management offerings from banks that contain unexpected risks tied to the flawed thinking that deposits are good and safe while only lending is judgemental and risk based. The truth is more nuanced and produces unintended and unexpected results.

More to come after I digest my research … stay tuned.

Giillian Tett FT

The first is that the events around SVB were akin to the blowing up of a gigantic “carry trade”. This is the phrase that financial traders invoke when they borrow cheaply in one asset (say, a currency or short-term bond) to invest in a higher-yielding one (such as a different currency or longer duration instrument).

Bankers rarely describe themselves as rabid carry traders — they prefer to think that banks perform carefully controlled maturity transformations (that is, turning deposits into loans) for their clients, with asset-liability management.