This was yet another reminder why federal regulators like to close down banks on Fridays, as it gives them the entire weekend to come up with a resolution and avoid contagion. This is exactly what has now been achieved with Sunday's announcement by the Treasury, the Fed, and the FDIC that all depositors will have access to their funds this morning, along with the establishment of yet another new Fed lending facility for financial institutions.
Yet there are important lessons to be learned here. Silicon Valley Bank’s downfall has acted as a significant stress test of the financial system and comes as a cogent reminder that both credit and interest rate risks are very real, and highlights where there is some further work to be done with regard to regulatory supervision.
It is also further evidence that the recent Fed tightening cycle has been having a tangible impact on many parts of the economy, despite seemingly still strong labor market and inflation data, and it is the subject of this special edition of the Economics Weekly.
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Richard de Chazal, CFA, is a London-based macroeconomist covering the U.S. economy and financial markets.