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Goldman Sachs Research - FOMC, FED, US Treasury Announce Policies

Goldman Sachs Research - FOMC, FED, US Treasury Announce Policies

March 13, 2023

The seizure of Silicon Valley Bank by the FDIC on Friday was an alarm that reverberated throughout the US financial market and the world.

How could a bank that on Thursday was rated A1 by Moody's suddenly fall to such an extent that it had to be closed?  The event was concerning as it could cause a domino effect among other banks unless something significant was done to "shore up the defenses".   Who was next?  Investors of bank stocks reacted with a vengeance and it was expected that the government, FOMC, FDIC and US Treasury department would have to do something over the weekend to squash concerns about additional bank closings that could take place the following week.

The powers that be reacted over the weekend and by today (Monday) they set in motion certain actions that hopefully will quell any dissenting bank customers from conducting bank runs on their respective banks.  It appears that it worked.  The difference this time, versus the 2008 debacle, is that the taxpayer doesn't have to foot the bill and the investors and bond holders of the bank respective securities were on their own.  Frankly, that it how it should work out and I am glad that it did.

Yet, there was collateral damage that did take place with the SIgnature Bank of New York being closed by state bank regulators before the market open today.  Additional bank stocks and even Schwab took significant hits, despite the reassurance.   This is what we call "blood in the water" events.  The sharks, those individuals who try to take as much advantage of this news, short the market (bank stocks) to create even more fear.  Is it right?  This is not a moral question.  It's legal, maybe not fair, but this adds further fuel to the importance of investors being informed, knowledgeable and also reaffirms the reason why we have strong bank regulations and perhaps need even stronger ones.

I have included to reports for your review provided by Goldman Sachs Research:

FDIC, Fed, and Treasury Announce Policies to Stem Deposit Outflows; Removing Our March Fed Rate Hike Expectation

The FDIC, Fed, and Treasury report was issued on Sunday, March 12th.  Short and concise, good summation.

US Daily: Q&A on Our Call for a March FOMC Pause´╗┐

The US Daily report was released today and discusses some valid questions that Goldman Sachs responds to and also discusses the belief that the Federal Reserve will need to pause increasing rates at their March 21-22 meeting.  It also is brief and to the point.

Let's see how the week ends up for banks, but the first round goes to the regulators.