SVB Aftermath: How Biden, Markets, & Rates Reacted

Biden Reassures the People

On Monday, President Joe Biden assured the public that the banking system is secure, and highlighted the measures taken to minimize the consequences of Silicon Valley Bank (SVB) and Signature Bank both closing over the weekend. In the afternoon, Fed Reserve Chairman Jerome H. Powell said that “a thorough, transparent, and swift review” of Silicon Valley Bank would be released by May 1.

During a televised address, Biden expressed his gratitude for his administration’s swift action over the past few days, stating that Americans can be confident in the safety of the banking system.

The president’s statement follows an announcement by federal regulators that they will implement emergency measures to safeguard all depositors who had money in SVB and Signature at the time of their closures, providing coverage beyond the standard $250,000 insured deposits.

Federal regulators stated any losses incurred by the government’s fund would be recovered through a special assessment on banks and that U.S. taxpayers would not be footing the bill.

Markets React to Biden’s Reassurance

In one of the most substantial single-day drops since the beginning of Covid-19 lockdowns in March 2020, a key bank share index dropped as much as 8.7%. The S&P 500 Banks Group index then fluctuated, finally ending 6.99% lower.

U.S. stocks rebounded after a volatile morning, but bank stocks remained in decline — one of the most affected, First Republic Bank (FRC), was down 61.83% at Monday’s close.

How This Could Impact Interest Rates

There is a growing discussion about whether the Federal Reserve should ease its rigorous interest rate approach in order to prevent further vulnerability of banks — especially given the expectations of another 50 basis point hike after Powell’s latest testimony.

On the one hand, the Fed pausing its rate strategy could exacerbate inflation, which is already 6.4% in the U.S. on an annual basis. Persistently high inflation could be problematic for consumers, leading to a decline in Americans’ standard of living.

On the other hand, if the Fed continues with its current strategy, the risk of damaging the broader economy could increase. Rising interest rates reduce the demand for goods and services, which could result in companies hiring fewer workers, laying off staff, and possibly triggering a recession. The Fed meets next week.

The full impact of the bank closures and the government action will continue to unfold in the weeks and months to come. Follow this and all of the latest news impacting the market at On the Money by SoFi.

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