Banking crisis week: SVB fails, BTFP launched, Credit Suisse bailout

The week of March 13-17 2023 delivered the most rapid banking crisis since 2008. Silicon Valley Bank's $42B deposit run on Thursday March 9 culminated in FDIC seizure on Friday March 10, with the Sunday March 12 joint Treasury/Fed/FDIC announcement invoking systemic risk exemption to cover all deposits and launching the Bank Term Funding Program. The BTFP allowed banks to borrow against Treasury and MBS collateral at par rather than mark-to-market, eliminating 2022 duration losses as a solvency issue.

Monday March 13 saw the S&P 500 close modestly higher as BTFP relieved immediate liquidity concerns, but regional banks cratered: KRE fell 12.3%, First Republic dropped 62%. Tuesday through Wednesday saw relative calm before the Credit Suisse stress hit Wednesday: 24% intraday decline on largest shareholder (Saudi National Bank) refusing further capital support. Thursday the Swiss National Bank extended a $54B credit line, and by weekend Credit Suisse was forced into UBS merger.

The week ended with the S&P 500 up 1.4%, a remarkable resilience given the banking shock. Tech stocks rallied 4.4% as yield declines (10Y fell 27 bps to 3.43%, 2Y fell 74 bps) boosted growth valuations. Gold gained 6.5% on financial stability premium. Bitcoin surged 36% on the week as "debanking" narratives drove crypto adoption. The Fed balance sheet grew $300B in the first week of BTFP, partially unwinding a year of QT.