The last 36hours have been an emotional roller coaster for investors. The collapse of banks such as Silver gate bank, and Silicon valley bank have sent the markets in to a violent downward spiral.  Un like the 2008 banking collapse that sent the world economy to its knees due to mismanaged risk, this banking failure is due to recent Central bank rate hikes. There is a lot of miss information making the rounds so lets get this right. When a bank takes on deposits it needs to put that money to work.

One of the time tested a bank can earn yields on its deposits is to buy long dated Treasure notes. This is something that almost every business looking to earn yield does. Its important for banks to earn yield on deposits because the bank's clients need to earn something on their money other wise they will take it to a different bank. Buying long dated treasury yields has always been looked as less risky than other investments. In todays climate when central banks trying to fight inflation by the increase of rate hikes this makes long dated treasury notes worth less and in some cases worthless all together. This is where Silicon Valley Bank ran into trouble. when depositors came looking for their deposits. There was no market to sell the bonds back to. The recent rate hikes made a traditional risk free investment very risky.

Treasury secretary Yellen said the federal government would not bailout banks. The question Friday evening was now what banks hold these long dated notes and how much are banks holding. Upon further review it was clear that this issue would spread to many banks moving forward as many banks have bought long dated Treasury notes and the fallout could cause them to become insolvent as well.

Treasury secretary Yellen has since walked back her statements about not bailing out troubled banks and now given her support to not only paying the funds owed to FDIC insured accounts but also whatever amount is owed over. The Fed chair Jerome Powell has called for an Emergency meeting on Monday at 11:30 to discus matters this could likely represent a pivot form the fed. After all why spend the money to fix the banks if you are only going to raise rates again and places the same banks in hot water again.

If in the slim chance the fed does raise rates and move to a 50pts hike increase likely the markets would see significant retracements. Recent rebound in market activity is due to circle who banks with Silicon Valley Bank account being made whole. The market sees this as a sign that Stable Coin USDC will get its reserves back as they were lost when the bank was shut down on Friday March 10,2023