Market Insights: 20/03/2023

“Stand by me nobody knows the way it’s gonna be”

Failure of Tech friendly banks – Silicon Valley & Signature – and demise of private banking crown jewels – First Republic Bank & Credit Suisse – sent shockwaves through the global banking system instilling fears of a contagion.

Nobody knows how this film “Bank Run 2023” will play out, but our sense is that if it does it will be “short and extreme” because while bank run seldom happens, when it does, it’s no marathon, rather a sprint. Regardless, it accelerates or not, there are likely to be long term economic consequences from banking channel.

With that in mind, in our latest Market Insights, we first cover the US regional fallen angels, the importance of US regional banks, and what this regional banking crisis may portend for US economy. With the help of T-Accounts we then map the flow-of-funds that may have taken place among US regional banks, US big banks, and the FED, along with base and worst-case scenarios for banking sector.

Furthermore, we try to make sense of recent price action and signal from financial markets. Last but not the least, we try to preempt reaction function of policy makers given the situation at hand and the signposts that may help investors in navigating this uncertain environment.

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