Banking crisis week: SVB and Signature seizures, Fed BTFP

The week of March 13-17 2023 was the most consequential banking stress event since 2008. Silicon Valley Bank ($209B assets) was seized by the FDIC on March 10, the prior Friday. Signature Bank ($110B) was seized Sunday March 12 under systemic risk exemption. The Fed launched the Bank Term Funding Program (BTFP) Sunday evening, allowing banks to borrow against Treasury and MBS collateral at par value rather than marked-to-market prices.

Monday March 13 saw regional banks (KRE) fall 12% despite the interventions, as First Republic Bank fell 62% on fears it was next. Midweek, a consortium of 11 major US banks announced $30B in uninsured deposits into First Republic to stabilize it. Credit Suisse emerged as the European contagion node on Wednesday, requiring a $54B Swiss National Bank credit line before ultimately being forced into a weekend UBS merger.

The S&P 500 gained 1.4% on the week despite the turmoil, a remarkable resilience reflecting market pricing that the Fed would be forced to pause tightening. The 2Y Treasury yield fell 75 bps on the week, the largest weekly decline since 1987. Fed funds futures repriced from 40% probability of a 50 bp hike at the March 22 meeting to 50% probability of a pause and 25 bp. The ultimate outcome was a 25 bp hike, but the banking stress effectively capped the cycle at 5.25-5.50%.