Earlier this month the U.S. Federal Reserve in a report to Congress gave what has become a standard reassurance: Banks were strong and the overall financial system in solid shape.
In crises dating back to the 2007-to-2009 housing collapse, the Fed has shown a willingness to react quickly if problems start to spread, and can often ease financial stress just by saying it is ready to act.
"Will uninsured depositors be made whole? If so, when, and what does the path in markets look like until then? If not, what are the direct...and contagion effects?" Karim Basta, chief economist for III Capital Management, wrote on Sunday, mapping out the potential trail from SVB's collapse to broader macroeconomic implications.
The initial sense was that SVB's problems were "idiosyncratic," as Bank of America analysts put it, with others noting that markets still looked at the largest financial institutions as immune from fallout. Those firms in particular are buffered by the higher levels of capital under reforms enacted a decade ago to cushion them against failure.
SVB's collapse appears driven by the sort of rate and funding dynamics the Fed watches for in semiannual reports devoted to financial stability and in documents like the Monetary Policy Report to Congress delivered earlier this month.
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