I keep hearing people like ex-Senator Toomey (on Bloomberg TV today) repeat that deregulation in 2018 has nothing to do with SVB’s misery; rather its problems (and presumably Credit Suisse’s) are due to monetary and fiscal profligacy Caused. I thought it would be useful to review the path of expected rates.
figure 1: Ten-Year Treasury yield (black), with forecasts for February 2023 (red), November 2022 (blue), May 2022 (green), and November 2021 (tan) from the Survey of Professional Forecasters median value. Data observations for the first quarter of 2023 ending March 15. Sources: Treasury via FRED and Philadelphia Fed SPF (various), and authors’ calculations.
As of the first quarter of 2023, the 10-year rate was 2.54 percentage points higher than the November 2021 forecast (more than a year ago) and about half a percentage point lower than the November 2022 forecast.
In other words, even before the Russian invasion, banks should have expected higher long-term bond yields. Of course, by May 2022, the forecast is such that the surprise result in the first quarter is only half a percentage point.
Of course, the collapse of SVB might not have happened so soon if interest rates hadn’t risen significantly over the past year. But given the downturn in the tech sector, SVB (which is exempt from annual stress tests and liquidity requirements) could see a run (despite Toomey’s assurances).
