Fallout From The SVB Collapse

in a leadership reshuffle on Sunday. Bandia's government oppose this same sex marriage round says they'll buy Russian fighter jets while eight people are dead after two boats collide off of San Diego. That's all straight ahead on Bloomberg Daybreak Asia, the business news you need to start your day in just one fifteen minute podcast, available on Apples, Spotify, the Bloomberg Business app, and everywhere you get your podcasts. Good morning, I'm Brian Curtis and I'm dot Prisoner. Here are the

stories we're following today. US regulators racing against the clock to find solutions for the failed Silicon Valley Bank. The FDIC kicked off that auction process. The aim is to make a portion of clients uninsured deposits available as soon as Monday, is Stransury Secretary Janet Yellen on CBS's face

the nation. Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were built out, and we're certainly not looking and the reforms that have been put in place means that we're not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs,

a Stratesury Secretary Janet Yellen heard here on Bloomberg. Separately, the International Monetary Fund said it is closely monitoring developments and potential financial risks from SVB, while we are hearing the Federal Reserve in the US Treasury are making moves to calm bank customers rattled by the failure of SVB.

We have more from Bloomberg's US Anna Palmer. Our source says the Fed and the Treasury Department are considering an emergency lending program to backstop demands by bank customers to withdraw money. This as the US seeks to stave off a deeper crisis after SVB Financial Group's failure. The measure, which would come in addition to easing terms for the Fed's discount window, would be made under the fed's Emergency Lending authority. The FED has approved invoking that authority and

is awaiting final approval from the Treasury. Representatives from the Federal Reserve and the Treasury either declined to comment or didn't immediately respond to messages seeking comment. Susanna Palmer Bloomberg, day Break Asia and as mentioned by Susanne, the FED is considering easing the terms of banks access to the discount window. This could be huge. It would give firms a way to turn the assets that have lost so much value into cash without the kind of losses that

toppled SVB. Such a move would also increase the ability of banks to keep up with demands from depositors to withdraw their money. They also wouldn't have to book losses by actually selling the bonds and other assets that have deteriorated so much in value with all of these rate hikes. We're told that some banks begin or did begin drawing on the discount when way back on Friday, seeking to shore up their liquidity after authorities seized svb's silicon Valley Bank.

It's unclear though, how many banks actually did this. We here changes are under discussion. The FED declined to comment, so the issue, obviously one in fact, is systemic risk. We heard earlier from the former US Treasury Secretary Larry Summers, who said the collapse of SVB should not pose a risk to the financial system so long as depositors are made whole. What is absolutely imperative is that, however this gets resolved, depositors be paid back and paid back in full.

And I don't see anything in any aspect of this situation that would be a basis for that being called into questions. Former Treasury Secretary Larry Summers. There now, the crisis of SVB has spurred broader concern about a mismatch between banks funding cost on one hand, and the rates they earn on their assets on the other. We know the FED steep path on rate hikes over the past year has forced banks to pay out more to depositors, while at the same time those banks receiving lower rates

on some of their longer dated assets. Now, mister Summers said, these are the issues regulators need to focus on going forward. Bran and we know that SVB had positions and had joint ventures and actual branches all over the world, and so it becomes very important. We know that Silicon Valley's bank, the joint venture in China, came out and said that

its operations have been independent and stable. The question on this dug is exactly how many people will believe these claims from officials, and will get to a little bit more on that in just a moment. Also in China, several top officials have been appointed to their roles during a leadership shuffle, another big story that we will cover for you today. We get more here from Bloomberg's David in Glaze. PBUC Governor Egang will remain in his post,

as well as the ministers of Finance and Commerce. The reappointments were announced at a National People's Congress, and they came as a surprise, as analysts were expecting a larger reshuffle. Many predicted officials with international experience like the PBUC Governor E would be replaced by men with closer personal ties to Shi jing Ping. The retention of E in particular may be positive for market since it shows continuity. But

there was a change at Vice Premier. The role went to Halifang, a close ally of President chi Jing Ping Huh, will likely replace Deo Huh as the nation's top economic official. Beijing has already created a powerful new financial regulatory body and signaled tighter government oversight and institutional reform in Hong Kong. I'm David Ingless lubric de Brick Asia. I'm Brian Curtis

at seven minutes past the hour along with Doug Kisner. Doug, you have direct contagion and whether or not we might see a run on the banks, and then you have this kind of indirect contagion, which is really why I think the access to the FEDS discount window is such a big thing, because everyone was drinking from the same well water here. Borrowers loading up on low yielding, long duration securities that can only be sold at a loss.

And if you're in a position where you need the money now, then you've got a big problem because they are way underwater and you're going to show some losses. So access to the FEDS discount window gets around that if that gets formally approved. And we should say this that a lot of these securities have actually increased in value a lot here just in the past couple of days,

but holders are still under water. Well that is true, Brian, But it maybe it goes back to banking regulation and the degree aways banks are required to hold their capital at certain tiers of credit quality. This is something that could not have been foreseen necessarily, right. This is a function of the market where when yields were down on the long end and yields were up, that yield curve inversion,

and how banks have really been hit by that process. Well, we've got Kim Forrest coming up in a few moments, founder in Cio at Book Capital Partners will get more from her. But now it's time for global news. Both prime ministers from Britain and Australia are in the United States to meet with President Biden. Dan Schwartzman has all the details in the New York Newsroom. Dan, that's right, Brian. British Prime Minister Rishi Sunak arriving in the US today.

He will meet with President Biden as well as Australian Prime Minister Anthony Albanetz as the three countries discussed the next phase of the Aucus nuclear submarine program. Now all three leaders are scheduled to meet tomorrow in San Diego as Australia is looking to acquire a fleet of nuclear powered subs built on a modified British design but with American parts. Before the new subs are commissioned, though the US could either sell Virginia class subs to the Australians

or just based nuclear subs in the country. Reactions still coming in over the surprise announcement Friday that China had broken the deal between Iran and Saudi Arabia, which reopened

diplomatic ties between the two countries. House Intelligence share Mike Turner blames the Biden administration for China possibly becoming the power broker in the Middle East instead of this administration stepping forward and being a partner to Saudi Arabia our ally and working with them to defend themselves against tax from Iran. They subject Saudi Arabia's a significant amount of criticism, and we're slow to react and respond to the militarian

needs of Audirabia. So it's not unexpected that they might look elsewhere for support. It certainly is very unexpected and certainly very troubling and disappointing that they would turn to Iran. The Republican from Ohio was speaking to ABC News Iran says that they have a deal in place to buy SU thirty five fighter jets from Russia, which would significantly

upgrade their aging fleet of jets. US and British officials are concerned that the transfer of the aircraft could be as part of a quid pro quo for Iran sending kamikaze drones, which Russia has used in Ukraine. Currently around flies a small fleet of aging US and Russian jets acquired before the Islamic Revolution back in nineteen seventy nine. Eight people are dead and seven are missing after two boats collided off of San Diego late last night. Officials

believe the two Panga boats were involved in smuggling. Both the San Diego Fire and Police departments, along with the US Coastguard and Customs in Border Protection, continue to search for the missing, but some believe that some may have escaped on the beach, located about fifteen miles north of San Diego. If I've done something here, just tell me what I don't you but you didn't send to me? Well that's what I was thinking, Like, I just don't

like you no more? Do you like me? Yesterday? That, of course is Colin Farrell and Brendan Gleeson, two actors up for big Awards tonight. It's the ninety fifth Academy Award, hosted by Jimmy Kimmel. Everything Everywhere, All at Once leads away eleven Oscar nominations right behind All Quiet on the Western Front and Banshees in a Shearing which you just heard, with nine nominations, including Colin Farrell, who's happy to be nominated for Best Actor amongst all the other nominations for

the film. It's really lovely and it's just feel very smoiled to have this moments in such a shared environment. It feels like a really much more communal experience than it might have otherwise. History could be made as Michelle Yoe, the star of Everything, Everywhere, All at Once, could become the first Asian woman to win Best Actress. Global News twenty four hours a day, powered by more than twenty seven hundred journalists and analysts in over one hundred and

twenty countries on Dan Schwartzman and this is Bloomberg. I'm Brian Curtis here in Hong Kong alongside Rashad Salama, and our guest is Kim Forrest, founder and Cio at Boukaya Capital Partners kim, it's going to be about credibility today. Silicon Valley Bank was a pretty good sized bank, was the eighteenth biggest bank before all of this hit, and for many people the fact that a bank that size could go bust in a couple of days will send

shockwaves through depositors. I'm wondering if you think this morning here in Asia that we might expect some kind of a run on the banks to happen, Well, that's a definite Maybe. I think people are rattled. I think there are there is a group of people in the world that have been looking for fallout from all of the I would say whip last reaction to COVID. Right, So we brought rates down almost immediately upon the lockdown, and you know, the US government was trying to ameliorate the

effects of shutting down, you know, our entire economy. And then the FED taking the actions that they thought was needed last year to raise the interest rate from pretty much zero to four plus percent, right. I mean, these are really whiplash moves, and I think we found out where some of the breakage is coming. But again, I think there's people that are afraid, and no bank can sustain a run on the bank if there's a sufficient number of people. Because banks are in the business of

lending out money. They don't just put your you know, your money in cash and leave it there. They can't. They have to make money off of your money, so at a minimum they must put it to work. And if everybody wants their money all at the same time, that bank is not going to survive. It's got some headlines as you came coming through something US SVB deposits will have access to all money Monday saying signature bank

closed today by state authority. Those are some lines. I can't really flesh those out fegure at the moment, but you know, as a quantitative tighting continues, we've seen reserves actually continue to fool and argue seem deposits to Now it's worth noting in the past year that banks have been increasing their borrowing and that makes the question, if there's so much excess liquidity around, why the need Well,

I don't think it's the need. I think again, this was the reality of two thousand or twenty twenty one when the government and twenty twenty when the government shoved tons of money out there for businesses, the PPP loans, and it had to go somewhere, and the banks again have to do something without money, and nobody was really borrowing money at that time, so they bought treasuries and they probably did it of relatively short duration. They weren't

probably out there buying thirty years. They were buying four or two years probably, you know, among others. And again this is a math problem where the price of those two year notes have fallen as rates have risen dramatically, And this is exactly the kind of fallout that I think the said did not anticipate. I mean, nobody sat down with a pencil and paper and figured it out. Yeah, we're seeing a run to haven assets this morning. No doubt this will be very, very good for US treasuries.

But it does beg the question where would it be in the belly of the curve. You certainly probably wouldn't want to be buying ten year securities here. But as more value comes into the market there, those yields will drop and that eases some of the pressure, right, And you know it could I hate to be overly optimistic, you know, people running for safety might just solve the problem.

And again this is all not linear problems. It doesn't scale one for one, So it doesn't take everybody withdrawing their money out of a bank to kill it, nor does it take everybody buying treasuries to make the price go up. But it is some small number, like I don't know, maybe twenty percent of unusual activity that may just reset these bonds much lower and thus even stop people from thinking about, well maybe I should buy that CD,

you know, and taking action if the price falls precipitously. Well, I suppose everybody, everybody over the weekend was probably you know, reconciling all of their accounts under two hundred and fifty thousand for sure. Yep. But this is I think this is what the government is really trying to stop, is mass movements of money. That is what they're trying to stop. Good luck, all right, So what do you think they

should do next? Hig him? Well, I think probably something I'm concerned about, because I like to think further into the future, is if people at Silicon Valley Bank, and people I mean corporations because largely it was a business bank, not a person a retail bank. So if they can't get their hands on their money to pay their client or their employees. You know, now things really start to fail.

And I think that's really what the government is signaling that if you're a depositor and you need to get your money out to pay people, of course we're going to like figure this out and try to make it happen. And I think that is key in making people not run on other banks as well. It's amazing, isn't it that the US jobs report now is a distant memory. I know, I know, and we can't even get into

that crazy. It's not really a conspiracy theory, but I think there was a lot of conflicting data in this one that makes me think maybe the half million jobs that they say are created are more of a function of somebody trying to smooth out and seasonally adjust that data. And maybe you know, the employment picture isn't quite as strong, but things are going in the right direction for a cooling economy. Not a cold economy, not a rock falling economy,

but you know, a calming down economy. You know, the wage rates were lower and unemployment was higher. Oh kim, Okay, with everything that's going on right now, is cash your best option for what I meant under your mattress. Now, I think that's a terrible idea. No, I don't think cash is your best option. I think what you need to do is always always be looking at equity markets. If a quality company, and I do mean quality, I'm talking you know somebody that does not bank at Silicon

Valley Bank. I'm being glib, but really an older kind of company that has steady earnings, that has good management and has plans for the future and product marketing sort of processes. If you can identify those and buy them when they're on sale when people are panicking, and hold them, you are going to benefit in the long run, and by that I mean three to five years. This is Bloomberg Daybreak Asia, your morning brief on the stories making

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Bloomberg eleven thirty plus. Listen coast to coast on the Bloomberg Business app, Serious Channel one nineteen, the iHeartRadio app, and on Bloomberg dot Com. I'm Brian Curtis and I'm Doug Prisoner. Join us again tomorrow for all the news you need to start your day right here on Bloomberg Daybreak Asia