It was carnage last week. Of course, SVB is no Lehman Brothers, but nonetheless the S&P 500 regional banks index lost 18%, in its worst week since 2009. Contagion ensued. Broader markets made big moves and broke several key support levels along with some fairly large trend lines. Things got so bad that people bought bonds and yields dropped so precipitously that some dared to speculate that the fight against inflation is over.
Could this be the latest piece in a domino effect that entails bank runs, corporate meltdowns, and the entire sector to fall? Doubtful, as too small is the impact of the frothiest end of the market and a bailout of some sort seems likely. However, after all the cross holdings, the margining, and the leverage have come under intense scrutiny, there will be pain for those that are exposed.
The Fed made it quite clear it needs to break something to get this ever so sticky monster they created under control. If that means people who leave large sums of cash uninsured at a bank that engages in high-risk lending go out of business, then caveat emptor. As for the rest of us, we shall be left wondering, how will Liverpool ever make it to the big dance after losing to Bournemouth? Yes, Bournemouth.