Aurelia Butler

Commercial banks were supposed to be big beneficiaries of rising interest rates, but that assumed they managed their balance sheets sensibly. Silicon Valley Bank did not. As a result, the Californian lender to start-ups on Friday became the second-largest bank collapse in US history. Signature Bank, the third-biggest collapse, followed within hours. Authorities on both sides of the Atlantic scrambled over the weekend to limit the fallout. Their actions staved off worst-case scenarios, but systemic risks to markets and the economy remain, and it is regrettable that what amounts to a bailout was needed at all. Widely-flagged vulnerabilities caused by fast-rising rates were allowed to boil over — by both banks and their regulators. Lessons must be learnt.SVB was particularly exposed to higher rates. Deposits soared as money poured into start-ups when rates were still low, which the bank invested in mortgage bonds and Treasuries. But no economic regime lasts forever. The US Federal Reserve jacked up rates by 450 bps in a year to tackle inflation. SVB’s bond portfolio dropped in value and deposits were trimmed as VC funding dried up. To meet outflows it had to sell its bond holdings at a loss, leaving a hole in its balance sheet. Its collapse has sparked fears over similar regional banks, which are less heavily scrutinised than the largest US lenders. Large institutions, while better hedged and capitalised, also face losses. The US banking system has more than $600bn in unrealised losses on investment securities.The authorities responded rapidly and extensively — but that they needed to is a reflection of monitoring failures, especially with regard to smaller banks. The US decision to guarantee all deposits at both SVB and Signature, even above the mandated $250,000 threshold, helped calm a sense of systemic panic. A generous Fed liquidity facility will allow banks to exchange assets as collateral for loans at par value. However, funds will be covered by a bank levy, not by taxpayers, and there will be no support for shareholders or certain unsecured debtholders. Meanwhile, SVB’s UK subsidiary was snapped up by HSBC, guaranteeing deposits without official intervention.Rapid action was needed; in the digital banking and social media age, a single tweet can set off a bank run. But what came was far from ideal. Making depositors whole, along with the new liquidity facility, creates enormous moral hazard. It encourages banks to be less accountable to depositors and protects them from interest rate losses.Rising interest rates are no act of God. The root problem here, SVB’s defective risk management, is rightly in the spotlight. It is fair that tech firms — and their employees — are protected from such negligence. But central banks and regulators are to blame for failing to inculcate better standards, and paid far too little attention to interest rate risks. These were obvious well before the UK pension market crashed because of a surge in bond yields in September. Arbitrary regulatory thresholds based on total assets, which left SVB below stipulations faced by the biggest US banks for more stringent stress tests and capital and liquidity requirements, need to be reviewed.The Fed should not be deterred from raising rates to curb inflation, but it needs to tread carefully. Though the banking system is better capitalised than in 2008, in the coming days similar institutions will come under pressure, and market confidence will be tested. Britain’s pension fund crisis and the crypto chaos of recent months were already emblematic of the risks of rising rates. Trouble will no doubt be brewing elsewhere. This episode is a reminder that regardless of size, when regulators lose sight of systemic risks, even small banks can become too big to fail. More

Today’s top storiesXi Jinping pledged to strengthen China’s security and build the military into a “great wall of steel” as the president closed the National People’s Congress. In more reassuring news for markets, Xi kept the country’s central bank governor Yi Gang in his post and retained his finance and commerce ministers.Pfizer agreed to acquire oncology-focused biotech Seagen for $43bn, the largest pharma transaction since AbbVie agreed to buy Allergan in 2019. Analysts say the deal signals a rebound in mergers and acquisitions following a dip in activity last year.UK chancellor Jeremy Hunt said his Budget would put Britain on the “hard road to recovery”. Disrupted Times will have all the details on Wednesday, but in the meantime, here are five things to look out for. For up-to-the-minute news updates, visit our live blogGood evening.As you might expect from the FT, one story towers over everything today: the fallout from the collapse of Silicon Valley Bank — the biggest US bank failure since 2008 — and what it means for markets, the tech sector, regulation, interest rates and the politics of bailouts on either side of the Atlantic. The specialist tech lender imploded last week after a sale of $20bn of securities to mitigate a sharp drop in deposits focused investors’ minds on the bank’s vulnerabilities. They dumped its stock, customers withdrew their funds and by Friday morning the bank was bust. Here’s how the saga unfolded.US regulators, which are facing questions over whether they missed signs of mounting problems, yesterday set out emergency measures to protect the banking system, while the Federal Reserve announced a new lending facility to provide funding to eligible institutions and the search began for a potential buyer. (Here’s our explainer on the rescue package and why it differs from the bank bailouts of 2008.)Today began with news that HSBC had bought SVB’s British arm for £1 in a fire sale after all-night talks involving Prime Minister Rishi Sunak and the Bank of England. Meanwhile, in financial markets, speculation grew that the collapse might make the Fed slow down, or even pause, its programme of aggressive interest rate rises. This sent government bond prices soaring, with the yields on two-year Treasuries, which move in the opposite direction to prices, recording their biggest one-day drop since 1987. Fears of contagion meant bank stocks continued to fall in the US and Europe.SVB played an important role in tech investment in the US, where one investor described it as “like a left ventricle” for Silicon Valley’s financial scene. As Michael Moritz of venture capital firm Sequoia Capital writes today, SVB stepped in when everyone else ignored the sector and its collapse leaves a huge hole for the start-up scene. It was also of critical importance in the UK: some start-ups warned before today’s HSBC deal that they might not be able to pay wages and bills.Politicians moved swiftly to reassure the public. US president Joe Biden today vowed to do “whatever is needed” to protect bank deposits and said he would seek to “strengthen the rules for banks to make it less likely this kind of bank failure would happen again”. And in the UK, just 48 hours away from a Budget that is meant to emphasise stability, chancellor Jeremy Hunt was quick to assert that deposits would be protected “with no taxpayer support”.Governments are all too mindful of parallels with the 2008 global financial crisis and in particular the debate around moral hazard. The rescue may be a pragmatic move to protect blameless depositors, says FT Innovation Editor John Thornhill, but some will take exception to helping an industry that often rails against regulation and tycoons who appear to favour the privatisation of profits and the socialisation of losses. Or as Thornhill puts it: “There are few libertarians in a financial foxhole.” Need to know: UK and Europe economyE-bikes and frozen berries are in, and alcopops and king-size fags are out: it’s the annual update of goods and services the UK uses to calculate inflation.Our Big Read explains how UK employers have made much greater use than expected of post-Brexit migration rules to bring in skilled workers. Companies are also turning to TikTok to help ease shortages in a government-backed initiative called Generation Logistics.Economics reporter Valentina Romei examines efforts across the EU to boost women’s employment. Within the bloc, only 68 per cent of women aged between 20 and 64 are in work — 10 percentage points less than the proportion for men, according to OECD data. Need to know: Global economyCentral banks’ digital currency plans are encountering resistance from the public who view them as an encroachment into their private lives and are unsure about their benefits. The third anniversary of the World Health Organization’s declaration of a coronavirus pandemic was marked by an open letter from political figures, activists and academics arguing that vaccine inequality had led to many preventable deaths.China’s share of cobalt production is set to increase from 44 per cent to half of global output over the next two years. The increase comes despite western efforts to gain control over supply chains for critical minerals. Columnist Rana Foroohar says securing rare earth supplies means the US and its allies need to ramp up dirty industries at home or partner with problematic bedfellows abroad.Saudi Arabia and Iran agreed to restore full diplomatic relations under a China-brokered deal, catching many across the Middle East by surprise.South Korea’s plans to boost the working week from 52 to a maximum 69 hours to combat problems posed by an ageing population and a declining workforce are on the end of a backlash. Need to know: businessUS private equity group Silver Lake agreed to buy software company Qualtrics for $12.5bn alongside Canada’s largest pension fund in the largest private equity buyout of the year.Saudi Aramco, the world’s biggest oil major, reported record profits of $161bn in 2022 — described by its boss as “probably the highest net income ever reported in the corporate world” — as it cashed in on surging crude prices. Porsche is pushing for an exemption for cars that run on synthetic or e-fuels from the proposed EU ban on the sale of combustion engine vehicles by 2025. The owners of family businesses are having to adapt to invest and bring in talent as well as plan carefully for succession. Our Big Read explains why. After multiple Oscar nominations for blockbusters such as Top Gun: Maverick, the big Hollywood studios are hoping their box office success could help the fightback against streaming and bring viewers back to cinemas. Our film on how banking and predatory lending has widened social inequality in the US won a best video award from the business journalists’ association, SABEW.

Video: US bank branch closures widen social inequality | FT Film

The World of WorkDo corporate cutbacks threaten to reverse diversity gains? Have CEOs lost patience with hybrid working? And should we be more worried about remote monitoring? Read more in our special report: The Modern Workplace.The quiet radicalism in Cal Newport’s books on productivity and his coping strategies for stressed workers have helped him sell more than 2mn copies in 40 languages, making him a celebrity in the field. What does he know that we don’t?Leaks of WhatsApp conversations among politicians during Covid have shone some light on the UK’s handling of the pandemic. But has the pervasive app helped make work more unpleasant for its 2bn-odd users? Do you hold grudges against certain colleagues? Miranda Green says keeping a shitlist can help you survive the humiliations of office life.Some good newsCambridge university’s spurting mussel movie may have missed out on Oscar nominations but the observation for the first time of how the unio crassus squirts jets of water to increase the chances of its larvae attaching to the right host fishes brings new understanding of how the species completes its life cycle and implications for its conservation. More

The additional gross expenditure for the same period will be 2.71 trillion rupees ($33.06 billion), the statement said.An additional amount of 363.25 billion rupees has been sought for fertiliser subsidy and 337.18 billion rupees have been earmarked to meet the pension liabilities of defence forces.The government has also sought extra spending of 250 billion rupees to provide telecom services in rural and remote areas.The Indian government will spend 41.87 trillion in 2022/23, according to the Union budget it presented on Feb. 1.The government will stick to the spending target it specified in the budget and any unused funds will be reallocated, said a government official, declining to be named.The government’s fiscal deficit target would be met through savings, extra tax and other receipts, the official added.The government’s fiscal deficit target for the ongoing financial year, which will end on March 31, is set at 6.4% of GDP (gross domestic product). ($1 = 81.9675 Indian rupees) More

Investing.com — Bond yields in the U.S. and Europe plunged on Monday as markets abruptly reassessed the outlook for central bank action in the wake of weekend bailouts for two big U.S. banks.Market participants are betting that fears for financial stability will stop the Federal Reserve and the European Central Bank from raising interest rates further, even though inflation is still running well above the 2% targets of both central banks.By 07:15 ET (12:15 GMT), the yield on the benchmark 3-month Treasury bill yield was down 30 basis points at 4.66%, effectively ruling out a rate hike from the Fed at its meeting next week. Until the problems at Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) had become apparent, most people had expected the Fed to hike the fed funds target range by 25 basis points to 4.75%-5.0%.At the same time, the 3-month German bill yield fell 17 basis points to 2.70%. The decline in euro yields was smaller because the European Central Bank has already guided very firmly that it will raise its key rates by 50 basis points each at its meeting on Thursday, taking its deposit rate to 3% and its refinancing rate to 3.5%.”Massive central bank repricing of peak policy rates since Thursday,” said Danske Bank strategist Piet Haines Christiansen on Twitter. “Fed is 85bp lower and ECB is 74bp lower.”While officials at both central banks have been adamant that further action is needed to tame inflation, many see them pedaling a softer line at least until it becomes clear that they have contained the fallout from the collapses of Silicon Valley Bank and Signature Bank. That seemed uncertain on Monday morning in New York, as stock prices of west coast banks in particular continued to fall sharply in premarket trading.Marc Ostwald, chief strategist at ADM ISI in London, said that the Fed’s ability to constrain inflation with interest rate hikes “is now heavily encumbered by SVB’s collapse.””The scale of the fall in U.S. and other government bond yields is not a reflection of the risks that market attaches to the fall-out from the SVB collapse,” Ostwald said, “but rather a violent short squeeze on prior Fed rate hike bets, as well as the lack of underlying market liquidity.”In both the U.S., the front end of the yield curve fell more sharply than the long end. While 2-year yields fell by some 50 basis points, the benchmark 10-year Treasury note fell only 22 basis points to 3.47%, while its German counterpart fell 30 basis points to 2.19%. More

By Jessica DiNapoli, Bernadette Christina and Toby SterlingNEW YORK (Reuters) – U.S. soda and food maker PepsiCo (NASDAQ:PEP) Inc and Dutch dairy producer FrieslandCampina N.V. have asked their suppliers to cease buying palm oil from plantation owner Astra Agro Lestari, accused by environmental groups of land and human- rights abuses.Corporate supply chains are under scrutiny as regulators and investors increasingly consider environmental and social impacts, and as consumers worry about climate change and biodiversity loss.Environmental groups last year found that Jakarta-based palm oil producer Astra Agro Lestari (AAL) did not obtain consent from local communities before claiming land, improperly disposed of waste and cleared areas leading to flooding in Indonesia. The findings spurred some major consumer products and packaged food manufacturers, which widely use palm oil, to cut ties with the agricultural company.AAL late last year said it would appoint “an independent third party to review the allegations and any other issues that may arise in relation to them,” and will publish the findings of the review, following the NGO’s report.Doritos maker PepsiCo and FrieslandCampina, which produces Friso infant formula, join companies including Tide manufacturer Procter & Gamble (NYSE:PG) Co and Nescafe owner Nestle SA (SIX:NESN) in suspending business with AAL.A PepsiCo spokesperson told Reuters the company is “engaging with suppliers who continue to source from (AAL) and have asked that they suspend the mills identified as being potentially linked to the grievance and underlying allegations.” PepsiCo does not directly source from AAL, the spokesperson said. FrieslandCampina said it started examining its relationship with AAL in the fall after receiving critical questions from an environmental nonprofit.“That motivated us to conduct a further investigation. On the basis of the findings, we asked our supplier to no longer source materials from this supplier,” a spokesperson said.Palm oil is used to create soap, provide taste and texture and keep chocolate from melting, among other purposes, according to the World Wildlife Fund.An AAL spokesperson said it had no direct commercial relationship with PepsiCo or FrieslandCampina, and the companies had not contacted them about the issue. More