Good morning. I’m senior reporter Phil Rosen. 

As regional bank stocks tanked yesterday, contagion remains top of mind, and commentators are warning of more risks to the financial sector. 

But as much as banking has drawn our attention the last few days, don’t forget today we’re due for a new economic data point, with February’s inflation data out at 8:30 a.m. EST.

Still, no matter what the Consumer Price Index clocks in at, it’s possible that the failures of Signature Bank and Silicon Valley Bank already convinced Jerome Powell to take his foot off the gas.

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1. Here’s our starting point for today: More banks are likely to fail — even if the events of the last few days don’t mark a Lehman-style event. 

The market’s telling us that confidence in many regional banks is evaporating, with shares of a handful of firms seeing dramatic drops in yesterday’s session. 

On top of that, Treasury Secretary Janet Yellen and President Joe Biden have communicated that the government is prepared to let financial institutions and their shareholders go under. 

Here’s what Yellen had to say:

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking. And the reforms have been put in place means that we’re not going to do that again.”

Meanwhile, there’s still a risk of contagion. With the government rescuing Signature and Silicon Valley Bank depositors, not all the downside has been contained, according to Wharton finance professor, Itamar Drechsler. 

“One obvious issue is that the plan treats the two banks, SVB and Signature, as a special case, in the hopes that this will not have to be done for many other banks,” Drechsler told me. “But then it leaves the incentive for uninsured depositors at other banks to run.”

And it’s not like other banks aren’t facing the same predicament that drove SVB to collapse — a higher interest rate landscape is making risk-free government bonds yield more than their debt. 

“What we understand so far is that this capital was completely mismatched from a duration perspective, as the bank invested in longer-dated treasuries and other fixed-income securities such as mortgage-backed paper,” Gateway Credit investment chief Tim Gramatovich told me. 

“This continued on even though the Fed was …read more

Source:: Business Insider


More banks could soon fail – but that could end up being good news for stocks

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