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Decoupling

The Silicon Valley Bank crisis changed the perception on the banking system in the U.S. once again. After the GFC big banks were on the brink of collapse and the Fed forced them to be well capitalized, and funny enough, gave them more power. They have since then dominated the bottom half of the sector, and have been used by regulators as a buyer of last resort whenever there has been a failure. But after SVB collapse, smaller banks have been decoupling from big banks and not only have not participated of the high rates bonanza, typically a great environment for Banks, they have suffered. CRE bad loans, balance sheets full of long duration bonds that are now underwater and tough competition on deposits with big banks and T-bills have pushed their stock prices 1 standar deviation away from the historical average with the big banks. In the next crisis, big banks wil get even bigger and the sector will consolidate.


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