Dear friends, welcome to SignalPlus Daily Morning News. SignalPlus Morning News updates macro market information for you every day, and shares our observations and opinions on macro trends. Welcome to track and subscribe, and follow the latest market trends with us.

Dear friends, welcome to SignalPlus Daily Morning News. SignalPlus Morning News updates macro market information for you every day, and shares our observations and opinions on macro trends. Welcome to track and subscribe, and follow the latest market trends with us.

latest news:

- Signature Bank was just closed at this time on Monday.

- FDIC, Federal Reserve and Treasury Secretary Yellen issued a joint statement to "protect all depositors", and depositors of SVB and Signature Bank will withdraw all deposits before March 13 (Monday).

- Taxpayers will not be liable for any losses related to SVB, and FDIC losses will be recovered through a special assessment of the bank.

- Shareholders and unsecured creditors will not be protected and senior management has been removed.

Key points in our opinion:

- The Federal Reserve announced the creation of a new Bank Term Funding Program (BTFP) to provide 1-year loans to eligible financial institutions that will be able to The way to mortgage its HQLA (high-quality liquid assets), including US Treasury bonds, government agency bonds and MBS, the current plan is 25 billion US dollars.

- That is, banks facing HTM/AFS losses will be able to get funds from the Fed at the current cost of about 5.25%, rather than trying to sell assets in the market or raise funds.

With the rapid development of the SVB incident, the relevant authorities quickly announced the action plan on Monday morning in Asia time. They canceled the upper limit of FDIC insurance and unconditionally rescued all depositors of SVB and Signature unprecedentedly; Dealing with "unrealized" losses on positions held in banks' HFM/AFS books equates to allowing financial institutions to be funded at about 5% of borrowing costs; finally, as part of the chain reaction, with Silvergate, SVB and now Signature Bank were shut down, and arguably all regulated cryptocurrency on-ramps in the U.S. were removed.

Below we do our best to summarize the current situation and how it got here:

- Following the global financial crisis, banking regulations imposed strict capital reserve requirements on U.S. banks, forcing them to deposit large amounts of reserve funds in a very limited pool of eligible fixed-income collateral, primarily covering U.S. Treasuries, government agency bonds and MBS.

- Banks are allowed to classify these holdings into HTM (held-to-maturity) or AFS (available-for-sale) portfolios, a classification that allows banks to avoid marking assets to market under accounting rules.

- However, the Fed's long-running quantitative easing and hyper-easy monetary policy has pushed interest rates to zero, prompting SVB and other banks to put customer deposits into longer-dated bonds, betting on interest rate risk in a "yield hunt".

- This move resulted in a very flat yield curve for most of the 2010s, turning the spread problem into a negative cycle.

- Meanwhile, SVB's assets have soared amid exponential growth in venture capital and start-up funding due to loose monetary policy, prompting management to bet even further on interest rates.

- Compared with other banks, SVB has the highest proportion of securities holdings in its assets and holds the most risky MBS and CMO products.

- Inflation has returned violently post-covid, leading to aggressive rate hikes by the Federal Reserve and global central banks over the past 18 months.

- Rising interest rates leave a huge hole in banks' balance sheets (and the Fed's own balance sheet) as bond prices move inversely to interest rates, rates rise, bond prices fall, interest rates rise sharply, and long-dated bond prices fall even more fall.

- Bank of America has unrealized losses totaling about $650 billion on rate and duration bets.

- SVB's equity raise and Peter Thiel's warnings shattered investor confidence a few days after Silvergate's bankruptcy drew attention to the uncertainty and scale of losses at bank HTM/AFS.

- 97% (!) of SVB's assets exceed the FDIC cap of $250,000, so this is by no means a retail bank.

- Regulators were forced to draw up a plan within 48 hours to protect depositors and stop a systemic bank run, instead of worrying about the moral hazard of using taxpayer money to bail out banks with poor investment decisions, as they usually do.

- Ultimately, FDIC/government bails out depositors at face value (moral hazard), Fed provides 1yr market rate line of credit to fund bank's bond losses, SVB's equity and bondholders receive no compensation, three America's "Crypto Bank" Disappears Simultaneously in 2 Weeks.

Ultimately, moral hazard issues aside, this was the best we could have hoped for over a weekend for system liquidity, although the long-term issues of HTM/AFS losses still need to be addressed and the event remains Investors are likely to continue to be stimulated to move their deposits to larger banks (G-SIBs) in the short to medium term.

Going back to the market reaction, the biggest reaction so far has been in the fixed income market, with the 2-year yield down about 60 basis points and the entire fed funds curve shifting down 55 basis points as the market again starts to expect a fourth quarter Cut interest rates; in addition, the probability of raising interest rates by 50 basis points at the March meeting fell back below 10% again, and the market now believes that the hidden dangers of the Fed's rapid interest rate hikes have finally begun to emerge in the system, and the Fed will be forced to suspend its actions.

Looking ahead, it is clear that CPI will be the next important catalyst to affect the development of the situation, however, our base case is that Powell will still maintain a 25 basis point rate hike in March, but there will be some upward movement in terminal rates in the dot plot Adjustment. How the market will react to this is still too early to tell, depends on the reaction of the stock market in the next few days, and the upcoming inflation data, however, we still prefer to remain cautious on the risk, because the Fed/FDIC action is actually to protect depositors and prevent bank runs, and there are many bond losses to be recognized in the process of stock declines and bank failures; moreover, regardless of the treatment announced today, we still expect depositors to still shift their deposits to G-SIBs ( large banks), leading to more deposit outflows and a further deterioration in capital positions, which need to be supported by raising funds through stocks and bonds.

In terms of cryptocurrencies, as Circle said that 25% of its assets exist in SVB, we are not surprised to see a lot of FUD sentiment over the weekend. USDC once decoupled to about 0.85, but it has rebounded close to parity at this time; ETH fell below 1400 It rebounded back to 1600, and in the past 72 hours, both long and short sides had large-scale futures positions liquidated. Let's ignore short-term volatility for now, there are already 3 major cryptocurrency and fiat currency channels (Silvergate, SVB, Signature) closed, which will have a further negative impact on mainstream investors' participation in cryptocurrency, and may even affect Circle's long-term Business model; on the other hand, the long-term value proposition of BTC and ETH as a store of value can be said to have improved, after all, a well-capitalized and fully compliant bank can fail within 48 hours. All in all, we believe the predicament is not over, the risk landscape remains highly volatile, and as we head into another tumultuous week, we will be sure to make sure our readers get the latest updates.

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