Financial Sector Stress Continues… What Does it Mean for Investors??
In summary, while all these current banking crises are disconcerting, we continue to believe that we are NOT facing a similar issue as we experienced in 2008-2009. The main cause of that crisis (i.e., leveraged and securitized loans with defaulting borrowers) is very different from the current landscape. Most, if not all, U.S. domestic major banks appear to be much more well capitalized. Late last week, in a sign of trying to instill more confidence in the banking system, 11 of the largest financial institutions collectively deposited $30 billion into First Republic Bank. From what we currently know, this latest crisis appears to be caused by one bank’s (SVB) utterly gross mismanagement and the involvement of another two banks which were too heavily involved with crypto businesses. However, all this being said, we can’t rule out the possibility of further contagion. Remember, in the short term markets are driven by fear and greed and computerized trading that is very momentum driven.