Senators Rebuke the Fed Over SVB Failure; Dimming Outlook for Russian Economy

Senators Rebuke the Fed Over SVB Failure; Dimming Outlook for Russian Economy By James Christie

Good day. Michael Barr, the Federal Reserve's vice chairman for banking supervision, faced tough comments from Senators on Tuesday in what could be a monthslong process in Washington of probing the failures of Silicon Valley Bank and Signature Bank. Lawmakers are scrutinizing whether stricter supervision by financial regulators could have prevented the institutions' demise. Comments by members of the Senate banking committee suggest the Fed and other regulators will feel some heat. "By all accounts, our regulators appear to have been asleep at the wheel," said South Carolina Sen. Tim Scott. Sen. Jon Tester of Montana said, "It looks to me like the regulators knew the problem, but nobody dropped the hammer." Meanwhile, as the war in Ukraine continues into its second year, the Russian economy has shifted to a lower-growth trajectory as problems pile up for Moscow. Russia's biggest exports, gas and oil, have lost major customers, the ruble is down over 20% since November against the dollar, and uncertainty has curbed business investment. "Russia's economy is entering a long-term regression," predicts Alexandra Prokopenko, a former Russian Central Bank official who left the country shortly after the invasion.

Now on to today's news and analysis.

Top News Lawmakers Scold Fed Over Silicon Valley Bank Collapse

Senators rebuked the Federal Reserve for failing to prevent the collapse of Silicon Valley Bank despite identifying risks beforehand, while the central bank's top regulator blamed the firm's executives for not fixing its problems.

In an appearance Tuesday before the Senate Banking Committee, Michael Barr, the Fed's vice chairman for banking supervision, defended the actions of the Fed's supervisors and said the central bank had privately raised concerns with SVB before its March 10 collapse and had given the lender poor ratings for managing its risks.

FDIC to Propose Special Bank Fee Rule, Chairman Says What Happens if Another Bank Fails? Bets Against Signature Bank Stock Paid Off-on Paper, at Least UBS Brings Back Former CEO Sergio Ermotti After Credit Suisse Deal As Interest Rates Rose, Banks Did a Balance-Sheet Switcheroo

As the Federal Reserve's interest-rate hikes sent bond prices plunging last year, some of the country's largest banks used a simple accounting maneuver to help keep billions of dollars of losses from piling up on their books.

U.S. Economy Home Prices Fell in January for Seventh Straight Month

The S&P CoreLogic Case-Shiller National Home Price Index fell 0.2% in January compared with December on a seasonally adjusted basis. Prices have fallen for seven straight months, the longest streak of declines since 2012.

Distress in Office Market Spreads to High-End Buildings

For much of the pandemic, buildings in central locations that feature modern amenities fared better than their less-pricey peers. Now, these so-called class-A properties are increasingly coming under pressure .

No 'Social Policy' in Chips Act Rules, Commerce Secretary Says

Republicans and Democrats are sparring over measures in the $53 billion Chips Act that the Biden administration says are needed to ensure the measure's success, but which Republicans say are an effort to pursue liberal social policies.

Key Developments Around the World Russia's Economy Is Starting to Come Undone

Russia's invasion of Ukraine initially drove an increase in oil and natural-gas prices and a windfall for Moscow. Now as sanctions bite harder, Russia's revenue is being squeezed and its economy is on a lower-growth trajectory .

China Threatens Retaliation If Speaker Meets Taiwan's Tsai Ing-wen

China said it would retaliate if House Speaker Kevin McCarthy meets with Taiwanese President Tsai Ing-wen during her planned stop in California next week, further stoking tensions around a highly scrutinized visit .

The New York Couple Behind El Salvador's Bitcoin Experiment

Two New Yorkers who created a popular financial news show on Russian state television and cashed in on the crypto boom have emerged as key advisers to the Salvadoran government on its adoption of bitcoin.

Financial Regulation Roundup FTX Founder Bankman-Fried Charged With Bribing Chinese Officials

Federal prosecutors unveiled a new indictment charging FTX founder Sam Bankman-Fried with conspiring to pay off Chinese government officials to restore his access to frozen accounts with more than $1 billion in cryptocurrency.

U.S. Appeal Halts Binance.US From Buying Voyager Crypto Accounts

A judge ordered Binance.US, the American affiliate of the global Binance exchange, to hold off on buying cryptocurrency customer accounts from bankrupt platform Voyager Digital Ltd. while federal authorities challenge the deal .

Forward Guidance Wednesday (all times ET)

10 a.m.: U.S. pending home sales index for February; Fed's Barr speaks at House Financial Services Committee hearing on Silicon Valley Bank collapse

12:45 p.m.: Bank of Canada's Gravelle speaks on the central bank's market liquidity measures

Thursday

5 a.m.: EU business and consumer surveys for March

8 a.m.: Fed's Barr speaks at National Association for Business Economics policy conference

8:30 a.m.: U.S. fourth-quarter gross domestic product, third estimate; U.S. weekly jobless claims

12 p.m: Boston Fed's Collins speaks at National Association for Business Economics policy conference

12:45 p.m.: Richmond Fed's Barkin speaks at Virginia Council of CEOs

Research Fed Is Still Underestimating 2023 Inflation

The Federal Reserve continues to underestimate the persistence of inflation this year, particularly in the near term, Citi economists write in a note. They write that updates to the Fed's Summary of Economic Projections released last week showed only a modest upward revision for 2023 inflation projections, with core personal-consumption expenditures inflation raised from 3.5% to 3.6%. Citi economists see core PCE inflation at 4.3% by the end of the year, with strong inflation in the coming months forcing continued interest rate increases. Among the factors they cite for higher inflation is March purchasing manager index data, which they say were stronger than expected.

-Patrick Sheridan

Household Finances Protect Against Financial Crisis Scenario

Similarities between current banking turmoil and the lead-up to the 2008 global financial crisis are becoming too big to ignore, but key differences, including stronger household finances, make a reprise unlikely, Tamara Basic Vasiljev, senior economist at Oxford Economics writes in a note. Home prices, which rose dramatically over two pandemic years, are now declining in most advanced economies, and mortgage rates, which increased in recent months, are also reversing course, Ms. Vasiljev writes. Moreover, households are in much stronger financial positions, with lower loan-to-value and debt-to-income ratios and much healthier savings, she writes. That is a cushion from real estate shocks unlike in the global financial crisis era, plus the labor market this time looks more resilient, she adds.

-Edward Frankl

Commentary Higher Rates Are Coming for U.S. Companies

Companies could have some difficult choices to make in the years ahead, such as reducing debt loads, choosing either to curtail investment and expansion efforts, or refinancing their maturing debt at higher rates, Justin Lahart writes.

Basis Points U.S. consumer confidence improved unexpectedly in March, reversing two months of declines, as economic expectations ticked up, despite high inflation and recent market turmoil. Private research group The Conference Board said its consumer confidence index increased to 104.2 in March from an upwardly revised 103.4 in February. (Dow Jones Newswires) Manufacturing activity in the U.S. central Atlantic region continued to contract in March, albeit at a softer pace as demand remained subdued. The Federal Reserve Bank of Richmond said its Fifth District Survey of Manufacturing Activity's index rose to minus 5 in March from minus 16 in February, which marked the lowest level since the onset of the Covid-19 pandemic. (DJN) The U.S. trade deficit in goods increased slightly in February to $91.6 billion from $91.1 billion in January, the Census Bureau said. Imports of goods fell 2.3% to $259.4 billion in February as the U.S. imported less food and fewer autos and consumer goods. Exports declined 3.8% to $167.8 billion as the U.S. exported fewer autos and consumer goods. (MarketWatch) The U.S. and Japan reached a trade agreement for minerals used in clean-energy technologies, a deal aimed at allowing Japan to meet sourcing requirements for new electric-vehicle subsidies in the U.S. and shifting energy supply chains away from China . Thailand's central bank increased its policy rate in a bid to tame inflation even as the recent turbulence in the global banking sector has made the economic outlook uncertain. Malaysia's central bank projects the country's economy to expand between 4.0% and 5.0% in 2023 on likely strong domestic demand. (DJN) Australia's inflation pressures cooled in February, opening the door to a pause in the Reserve Bank of Australia's campaign of aggressive interest-rate increases that began almost a year ago. (DJN) Consumer confidence in Germany is expected to improve again in April, its sixth gain in as many months, prompted by lower energy prices, though momentum in the month weakened as recession fears loom. (DJN) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

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