Yesterday I agreed with Charlie McEliggott at Nomura that the Fed should and would keep hiking at 25bps increments.
It is make or break time for Markets—this Bank “insolvency / liquidity crisis”(see: $89B of FHLB issuance yesterday, as regional banks flooded into low-cost, floating-rate funding in light of deposit outflow crunch)is actually about bank “profitability crisis” and the viability of their models going forward, in an environment where you’re fighting the yield curve / NIM compression, seemingly facing forced capital raises, absorbing increased cost of funding / wider credit spreads……
And probably most-critically at the core of this issue for Banks:“structural” forces(money market rates and the “antiquated” RRPfacility)which perpetuate a bleeding “deposit flight” that spans across non-SIFIs / regional banks who are already hemorraging in the securities portfolios from the Fed’s aggressive-but-late hiking cycle, and well-beyond the idiosycratic dynamics from SIVB’s (and regulators, and accountants) stunning risk-management failure to acknowledge “hot money” concentration risk from their homogenous “VC / Founder /Tech” cash-burning deposit base, and all into a tightening cycle from an inflation overshoot versus a whopping maturity mismatch from their“long duration” portfolio
