I keep hearing this avoid people like former senator Toomey (on Bloomberg TV today) that the 2018 deregulation had absolutely nothing to do with SVBs travails; rather its issues (most likely likewise Credit Suisses too) was because of financial and fiscal profligacy. I believed it would be helpful to wrap up the path of expected interest rates.
Figure 1: Ten year Treasury yield (black), and average projection from February 2023 Survey of Professional Forecasters (red), from November 2022 (blue), May 2022 (green), and November 2021 (tan). 2023Q1 observation for data through March 15. Source: Treasury via FRED and Philadelphia Fed SPF (numerous), and authors computations.
While as of 2023Q1, the 10 year rate of interest was 2.54 ppts above that anticipated in November 2021– over a year ago– it has to do with half a portion point below that anticipated in November of 2022.
To put it simply, even before the Russian invasion, banks need to have expected a rise in long term bond yields. Definitely by May 2022, the projection was such that the resulting surprise in Q1 was only half a percentage point.
Surely, had rate of interest not risen a lot over the past year, the SVB collapse may not have taken place so soon. However given the downturn in the tech sector, SVB (offered exempt to yearly stress tests, and liquidity requirements) would have probably encountered a run (Toomeys guarantees notwithstanding)
This entry was published on March 15, 2023 by Menzie Chinn.