What does SV Bank Failure Mean for the US? Inflation!

Mar 13, 2023
bank run northern rock

The resolution currently in progress of SV Bank means that we are going to have higher inflation than seen in decades going forward.

What happened:
1. SV Bank was taken over by the regulators.
2. Regulators guarantee ALL depositors will receive their money in full, not just accounts up to the standard FDIC limit of $250K.
3. So regulators are truly worried about a widespread financial crisis and panic.
4. Therefore, to the market, panic is justified – and amplified by other bank failures in the past few days as depositors are lining up in old-school bank runs.

What this means:
1. To stop more panic, regulators must guarantee deposits and ease the economy.
2. So the Treasury will likely print (shorthand for issue bonds) to safeguard the system.
3. One problem - because of the debt ceiling, they can't print at the moment.
4. Therefore, they will force the Federal Reserve to help, which the Fed is doing through the Bank Term Funding Program.
5. Since the Fed is already helping to stop the crisis, they are already aligned with the Treasury.
6. The biggest way the Fed can prevent more failures is lowering interest rates.
7. Therefore, the Federal Reserve will lower interest rates, because it is pointless for the Treasury to work hard to stop bank failures if the Federal Reserve is going to keep raising rates and kill banks that way.
8. Therefore, lowered interest rates will happen, which then means the inflation fight is over - inflation has won!

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