SVB collapse may force the Fed to rethink interest rate hikes

March 15, 2023, 5:57 AM UTC
Jerome Powell, chairman of the US Federal Reserve, during a House Financial Services Committee hearing in Washington, DC, US, on Wednesday, March 8, 2023.
The recent banking crisis will likely force the Fed to reconsider planned hikes, despite persistent inflation.
Samuel Corum—Bloomberg via Getty Images

Good morning.

Is the banking crisis over? I think the answer is yes, for now. The government has said it will, in effect, guarantee all bank deposits, which should eliminate the incentive for bank runs. I thought the CEO who took over SVB’s operations—Tim Mayopoulos—was being a little cheeky yesterday when, according to The Information, he told customers that there is now “no safer place” to put their deposits than his bank, because the government guarantee is explicit there. The truth is, the government has effectively guaranteed all deposits, everywhere. You can take that to the bank.

Still, this is about psychology now, not finance. And there is no accounting for the possibility that some nervous corporate treasurers around the country may be pulling all their deposits over $250,000 out of regional banks just in case the government doesn’t stick to its promise. Could that cause some other banks to fail? Possibly. But the stock market seems to suggest that threat is waning. And to be honest, even if the FDIC did take over a couple more badly managed regional banks, it wouldn’t be the end of the world.

The bigger issue for the moment is what the Fed will do on interest rates. While markets have consistently misjudged Jay Powell over the past year, I think they have it right this time. He’s going to be very reluctant to raise rates if there is still any hint of financial fragility. That’s too bad, because the latest inflation numbers show no sign of abating, and less Fed action now will only mean more Fed action later.

Separately, I had an interesting conversation this week with Mitch Kapor, who is one of the giants of the computer age, having created Lotus 1-2-3. He and his wife Dr. Freada Kapor Klein have a new book out, called Closing the Equity Gap, which calls on venture capitalists to use their superpowers to help reduce inequality. I asked him whether traditional VC investing made inequality worse. His answer:  

There are some that actually widen those equity gaps. It’s a result of an extraordinarily narrow-minded focus on putting financial returns above all else, coupled with the idea that doing anything that is pro-social impact is necessarily going to be concessionary.”  

Kapor believes his investing record over the last decade, which he details in the book, shows “that is just not so.” And he takes heart from the fact that while his industry “still has a very long way to go,” there are “an increasing number of investors in the tech space, particularly at early stage, that do work with a focus on social impact.”

You can find the book here. Other news below.

Alan Murray


Investment firms eye SVB loans

Private investment firms, such as Blackstone, Apollo, KKR, Ares Management, and Carlyle Group, are reportedly considering the acquisition of loans from the loan book of Silicon Valley Bank. The bank's assets and businesses are now up for sale, and the interest from private investment groups highlights their growing presence in the lending industry that was once the domain of banks. Financial Times

More Meta layoffs

Meta announced a second round of mass layoffs, with plans to cut 10,000 jobs this year. The restructuring will involve abandoning hiring plans for 5,000 positions, eliminating lower-priority projects, and "flattening" layers of middle management, in response to concerns of a deep economic downturn. Reuters

BlackRock considers African wind farm

The Climate Finance Partnership—backed by BlackRock Alternatives, the governments of France, Germany, and Japan, as well as U.S. impact organizations—plans to acquire a 31.25% stake in Lake Turkana Wind Power, the largest wind farm in Africa located in northern Kenya. This is BlackRock's first private-market investment in Africa, reflecting the CFP's aim to invest in climate infrastructure in emerging markets to expedite the global transition to a net-zero economy. Bloomberg


Elizabeth Warren is among the furious politicians demanding SVB execs return their salaries, bonuses, and $84 million in stock sale profits by Will Daniel

I had all of my capital held up in Silicon Valley Bank as it collapsed. It showed me that the grittiest entrepreneurs will survive the VC winter by Leslie Feinzaig

Microsoft’s A.I. ethics layoffs send a worrying signal by David Meyer

GPT-4 debuts and Google beats Microsoft in race to add generative A.I. to consumer office tools by Jeremy Kahn

The booming American Sunbelt may be a victim of its own success as soaring traffic congestion jeopardizes economic growth by Prarthana Prakash

This edition of CEO Daily was edited by Jackson Fordyce. 

This is the web version of CEO Daily, a newsletter of must-read insights from Fortune CEO Alan Murray. Sign up to get it delivered free to your inbox.

Read More

CEO DailyCFO DailyBroadsheetData SheetTerm Sheet