End Of Day Report March 16th

HIGHLIGHTS

-	Swiss regulators said that the problems of certain banks in the USA did not pose a direct risk of contagion for Swiss financial markets
-	The US government is likely to only sell SVB to another bank, The Information reports, essentially ruling out the private equity firms and venture capitalists that had been exploring 
        making a bid. FBN reports that the chances are still low that JPMorgan, Citigroup, Bank of America or Wells Fargo will buy SVB Financial. Separately, SVB is exploring seeking 
        bankruptcy protection, as one option for selling assets that include its investment bank and venture capital business, Reuters reports.
-	US bank giants reportedly cut direct exposure to Credit Suisse for months, according to Bloomberg. BNP Paribas (BNPQY) is reportedly reducing exposure to Credit Suisse, and has stopped 
        taking novations on swaps involving the Swiss bank.
-	ECB told ministers on Tuesday that some EU banks could be vulnerable, according to Bloomberg 
-	ECB's de Guindos said confidence slump could trigger EU contagion and EU lenders much less exposed to SVB fallout
-	First Republic Bank (FRC) reportedly has a USD 25bln hole, according to CNBC's Faber; adds the deposit outflows continue, but have moderated
-	ECB hikes rates 50bps (Deposit Rate to 3.00%), in line with pre-meeting guidance; monitoring current market tensions, stands ready to respond as necessary
-	ECB President Lagarde (Q&A) says ECB has sizeable facilities, willing to provide further facilities if needed; says Euro area liquidity is perfectly addressed
-	ECB Vice President de Guindos says the liquidity position of banks is robust, banks are resilient, capital is higher than ever, liquidity buffers are of a high quality
-	JPMorgan & Morgan Stanley alongside other large banks are reportedly in talks regarding a capital infusion into First Republicoptions include share sale and takeover, according to WSJ
-	ECB sources, via Reuters, says policymakers agreed to go ahead with 50bps hike after SNB threw lifeline to Credit Suisse; debate was between 50bps hike or leaving rates unchanged, with 
        no discussion of a 25bps hike
-	US Treasury Secretary Yellen says deposits in US banks will be guaranteed only if a system risk determination is issued; uninsured deposits in SVB that are now protected may include 
        some funds from foreign firms
-	French President Emmanuel Macron imposed a highly unpopular bill raising the retirement age from 62 to 64 on Thursday by shunning parliament and invoking a special constitutional power
-	French President Emmanuel Macron imposed a highly unpopular bill raising the retirement age from 62 to 64 on Thursday by shunning parliament and invoking a special constitutional power
-	First Republic  set to get about USD 30bln in deposits from banks, according to Bloomberg
-	ECB reportedly feared that ditching a half-point hike might panic investors, according to Bloomberg citing sources
-       THE FED SAYS IT STANDS READY TO PROVIDE LIQUIDITY THROUGH THE DISCOUNT WINDOW TO ALL ELIGIBLE INSTITUTIONS

SUMMARY

ECB stuck to its guns but the Euro only derived a minor amount of upside even though market pricing was split between 50 bp and 25 bp hikes, and the absence of significant further tightening in the accompanying statement seemed to be telling as the Bank shifted to a more data dependent stance.
Banking stress threatens to accelerate the deposit flight that has already been happening both in Europe and the US. In the latter, more funds are likely to leave banks for money-market funds, which currently offer a considerably higher yields than bank deposits.
This means a much more rapid depletion of “higher-powered” money, i.e. bank reserves, from the system, culminating in much tighter financial conditions than have been experienced so far in this cycle. This is likely to be the final nail in the coffin for a recession, for which credit and equities are not priced.