An Attack on the First Republic of Capitalism?

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Stephen Culp of Reuters reports Wall Street ends sharply lower on bank contagion fears:

Wall Street closed lower on Friday, marking the end of a tumultuous week dominated by an unfolding crisis in the banking sector and the gathering storm clouds of possible recession.

All three indexes ended the session deep in negative territory, with financial stocks (.SPNY) down the most among the major sectors of the S&P 500.

For the week, while the benchmark S&P 500 ended higher than last Friday's close, the Nasdaq and the Dow posted weekly declines.

SVB Financial Group (SIVB) announced it would seek Chapter 11 bankruptcy protection, the latest development in an ongoing drama that began last week with the collapse of Silicon Valley Bank and Signature Bank (SBNY), which sparked fears of contagion throughout the global banking system.

"(The sell-off) is a bit of an overreaction," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. "However, there is validity to some of the concerns regarding overall liquidity and a potential liquidity crunch."

Those concerns have spread to Europe, as Credit Suisse (CS) shares stumbled over liquidity worries, prompting policymakers to scramble to reassure markets.

"This goes a lot further than just a run on SVB or First Republic, it goes to the real impact these interest rate hikes are having on capital and balance sheets," Pursche added. "And you're seeing it impact large institutions like Credit Suisse, and that’s got people rattled."

Over the last two weeks, the S&P Banking index (KBE) and the KBW Regional Banking index (KRE) plunged by 4.6% and 5.4%, respectively, their largest two-week drops since March 2020.

First Republic Bank (FRC) plunged 32.8% after the bank announced it was suspending its dividend, reversing Thursday's surge which was sparked by an unprecedented $30 billion rescue package from large financial institutions

Among First Republic's peers, PacWest Bancorp (PACW) fell 19.0% while Western Alliance (WAL) slid 15.1%.

U.S.-traded shares of Credit Suisse also closed sharply lower, down 6.9%.

Investors now turn their gaze to the Federal Reserve's two-day monetary policy meeting next week.

In view of recent developments in the banking sector and data suggesting a softening economy, investors have adjusted their expectations regarding the size and duration of the Fed's restrictive interest rate hikes. "This mini banking crisis has increased the chance of recession and accelerated the slowdown timeline for the economy," Pursche said. "It's natural that the Fed should re-examine its course of action, but it's still very clear that while inflation is slowing it's still very much a concern and needs to be brought under control."

At last glance, financial markets have priced in a 60.5% likelihood that the central bank will raise its key target rate by 25 basis points, and a 39.5% probability that it will let the current rate stand, according to CME's FedWatch tool.

The Dow Jones Industrial Average (.DJI) fell 384.57 points, or 1.19%, to 31,861.98, the S&P 500 (.SPX) lost 43.64 points, or 1.10%, to 3,916.64 and the Nasdaq Composite (.IXIC) dropped 86.76 points, or 0.74%, to 11,630.51.

All 11 major sectors of the S&P 500 ended the session in negative territory.

On the upside, FedEx Corp (FDX.N) jumped 8.0% after hiking its current fiscal year forecast.

Declining issues outnumbered advancing ones on the NYSE by a 4.07-to-1 ratio; on Nasdaq, a 2.94-to-1 ratio favored decliners.

The S&P 500 posted 5 new 52-week highs and 20 new lows; the Nasdaq Composite recorded 29 new highs and 320 new lows.

Volume on U.S. exchanges was 19.41 billion shares, compared with the 12.49 billion average over the last 20 trading days.

Alex Harrin and Hakyung Kim of CNBC also report Dow closes nearly 400 points lower on Friday as First Republic and regional banks resume slide: 

Stocks fell Friday as investors pulled back from positions in First Republic and other bank shares amid lingering concerns over the state of the U.S. banking sector.

The Dow Jones Industrial Average lost 384.57 points, or 1.19%, to close at 31,861.98 points. The S&P 500 slid 1.10% to end at 3,916.64 points, while the Nasdaq Composite was down 0.74% to 11,630.51 points.

First Republic slid nearly 33% to end the week down close to 72%. That marked a turn from Thursday’s relief bounce, which came when a group of banks said it would aid First Republic with $30 billion in deposits as a sign of confidence in the banking system. Friday’s nosedive weighed on the SPDR Regional Banking ETF (KRE), which lost 6% in the session and finished the week 14% lower.

U.S.-listed shares of Credit Suisse closed down nearly 7% as traders parsed through the bank’s announcement that it would borrow up to $50 billion francs, or nearly $54 billion, from the Swiss National Bank. The stock lost 24% over the course of the week.

Despite the down session, the S&P 500 advanced 1.43% this week. The Nasdaq Composite gained 4.41% as investors bet on technology and other growth names ahead of next week’s Federal Reserve policy meeting. It was the best week since Jan. 13 for the tech-heavy index. But Friday’s slide pulled the Dow into negative territory for the week, finishing 0.15% down.

Bank stocks have been closely followed by investors in recent days amid fears that others could face the same fate as Silicon Valley Bank and Signature Bank, which were both closed within the last week. The market has been responding to the latest developments in the sector after regulators said over the weekend that they would backstop deposits in the two banks.

Investors pulled back on Friday ahead of what could potentially be an eventful weekend as the bank crisis plays out, said Keith Buchanan, senior portfolio manager at Globalt Investments.

“There’s nervousness into the weekend of: How does this all look on Monday?,” he said. “The market is nervous about holding stocks into that.”

The shakeup arrives at a time when investors are looking ahead to the Federal Reserve’s upcoming meeting on March 21-22. The question on the minds of traders is whether the central bank will proceed with an expected 25 basis point hike even as banking woes whiplash the market.

“The Fed seems to be paying lip service, at least, and being aware of what just happened with the banking sector,” said Aoifinn Devitt, chief investment officer at Moneta. “In a way, nothing about the base case has changed, only for the fact that we’ve had this kind of event in the banking sector causing contagion in terms of sentiment, but not yet really contagion in terms of other banks.”

Ortenca Aliaj and Joshua Franklin in New York and James Politi of the Financial Times also report that First Republic shares fall as investors weigh dividend cut and $30bn aid:

First Republic shares dropped more than 20 per cent in opening trading on Friday, a day after the largest US banks swooped in to shore up the lender’s finances with $30bn in aid and the bank suspended its dividend.

JPMorgan Chase, Bank of America, Citigroup and Wells Fargo will each deposit $5bn into First Republic, a California-based lender. Goldman Sachs and Morgan Stanley will put in $2.5bn apiece while BNY Mellon, PNC Bank, State Street, Truist and US Bank are depositing $1bn each.

“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a statement on Thursday.

But later on Thursday, the bank announced it was suspending its dividend “during this period of uncertainty”. The bank also said it would look to shrink its borrowing, as well as the size and composition of its overall operations.

There is still some question as to whether the moves will shore up investor confidence in First Republic, as well as the health of other regional US lenders, which have faced renewed scrutiny after the failure of Silicon Valley Bank, a midsized institution felled by a run on deposits.

Shares of First Republic were lower in pre-market trading, and fell even further after Wall Street’s opening bell, down about 20 per cent in early trading.

Hedge fund manager Bill Ackman wrote on Twitter that the co-ordinated action to bolster First Republic was a “fictional vote of confidence” and that “FRB default risk is now being spread to our largest banks”.

In a sign of broader stress in the banking sector, US lenders flocked to the Federal Reserve for support in the aftermath of SVB’s implosion, with the US central bank lending out $160bn during the week ending March 15 across its discount window and new emergency facility.

Data released by the Fed on Thursday showed usage for the discount window had swelled to a record high of $152.85bn, a surge of $148.3bn in the five days ending Wednesday. The terms of the facility were loosened as part of the emergency measures for banks announced on Sunday.

Lenders also borrowed $11.9bn from the Fed’s Bank Term Funding Program, a new scheme launched on Sunday. Separately, the central bank also disbursed $142.8bn to guarantee all deposits at SVB and Signature Bank.

Michael Feroli, chief US economist at JPMorgan, said the more than $300bn of loans extended by the Fed to financial institutions was “about half of what was being extended in the” great financial crisis of 2008.

“But it is still a big number,” he added. “The glass half-empty view is that banks need a lot of money. The glass half-full take is that the system is working as intended.”

JPMorgan, an adviser to First Republic, had been sounding out rival lenders about assembling an industry-backed solution for First Republic. The lender made calls on Wednesday night to several Wall Street banks to find funding, said two people familiar with the matter.

The banks had been encouraged by the government to help First Republic, after its shares plunged and its debt rating was downgraded following the failure of Silicon Valley Bank, said a person involved in the talks. The lifeline for First Republic had echoes of the rescue of Long-Term Capital Management in 1998, when the New York Federal Reserve put together a $3.6bn bailout for the hedge fund with contributions from its major Wall Street creditors.

In a statement, US Treasury secretary Janet Yellen, Federal Reserve chair Jay Powell and senior regulators said: “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”

The Fed added that “as always . . . it stands ready to provide liquidity through the discount window to all eligible institutions”.

First Republic shares rose more than 10 per cent following the announcement. Its shares have fallen 64 per cent in the past week since the Federal Deposit Insurance Corporation stepped in to take over SVB, sparking fears that contagion would spread to other regional lenders.

To strengthen its financial position the bank took funding from the Fed and JPMorgan on Sunday, which gave it $70bn of unused liquidity, excluding funds available from the new federal Bank Term Funding Program.

First Republic has struggled to restore confidence among investors after the collapse of SVB on Friday, followed by Signature Bank on Sunday.

On Tuesday, Moody’s placed all its long-term ratings for First Republic on watch for a downgrade, saying they reflected the bank’s reliance on uninsured deposits and unrealised losses on held-to-maturity securities. Fitch and S&P Global slashed First Republic’s credit rating on Wednesday.

First Republic’s difficulties come despite reassurance from President Joe Biden that regulators would do “whatever is needed” to protect depositors and emergency funding measures from the US government to boost liquidity.

Alright, it's Friday and it's been another hell of a week as the implosion in regional banks continues:


First Republic (FRC) took another leg lower in afternoon trading, plunging more than 30% as investors positioned themselves in the final hour of trading this week. Friday’s nosedive has brought the stock down more than 70% from where it started the week.

The drop has also weighed on the SPDR S&P Regional Banking ETF (KRE), which was down 6% on Friday and poised for a weekly loss of more than 14%.

It's rare you'll see such wild gyrations in bank stocks but we are coming off a long period of QE and ultra-low rates and a lot of banks foolishly forgot what duration matching is all about, committing what Lawrence Summers rightly calls 'one of the most elementary errors in banking':

Silicon Valley Bank, the nation's 16th-largest bank, failed because its managers made a textbook mistake, according to former Treasury Secretary Larry Summers.

Summers, a Harvard University professor who served in both the Clinton and Obama administrations, said Monday the bank "committed one of the most elementary errors in banking: borrowing money in the short term and investing in the long term."

SVB collapsed Friday after depositors ran on the bank, which didn't have cash on hand to cover their withdrawals. It was the second-biggest bank failure in U.S. history and the largest since Washington Mutual went under in 2008.

What happened is fairly simple: when interest rates were at historic lows, SVB invested depositors' funds in long-term Treasury bonds. But as the Federal Reserve increased interest rates to combat inflation, the price of those bonds cratered, taking SVB with it.

"When interest rates went up, the assets lost their value and put the institution in a problematic situation," Summers explained on Twitter.

There's a bit more to it than this. Venture Capital funds were using Silicon Valley Bank as their custodian for portfolio companies forcing them to use this bank and use its services (mortgages, etc).

The fact that they couldn't accomplish the most basic duration matching, thinking rates would head lower, shows you how inept they were.

Not to mention, they didn't have a Chief Risk Officer for eight months, which should be illegal, and the US government and boards of directors need to clearly segregate duties of CEO, CFO and CRO.

Also, it's about time that no US corporate CEO s allowed to also be Chair of the Board, this practice isn't allowed in the developed world ex-US for the simple reason that it's fraught with conflicts of risk. 

Moreover, in a twist of irony, the Fed was too late on SVB even though it saw problem after problem:

Just over a year before Silicon Valley Bank’s collapse threatened a generation of technology startups and their backers, the Federal Reserve Bank of San Francisco appointed a more senior team of examiners to assess the firm. They started calling out problem after problem.

As the upgraded crew took over, it fired off a series of formal warnings to the bank’s leaders, pressing them to fix serious weaknesses in operations and technology, according to people with knowledge of the matter.

Then late last year they flagged a critical problem: The bank needed to improve how it tracked interest-rate risks, one of the people said, an issue at the heart of its abrupt downfall this month.

The Federal Reserve has promised to investigate how it supervised SVB Financial Group’s Silicon Valley Bank, now the second-biggest failure of a US lender in history. The relatively late discovery of so many flaws raises questions about whether the Fed was diligent in stepping up oversight as the firm was ballooning in size. On Friday, Santa Clara, California-based SVB Financial filed for Chapter 11 bankruptcy protection.

In a twist, the San Francisco Fed’s deputy point person in charge of monitoring the bank until late 2021 received a new assignment afterward, becoming the regulator’s point person on Silvergate Capital Corp., according to people with knowledge of the situation. Silvergate also shut this month because of similar flaws in its deposit base and the positioning of its balance sheet.

A representative for the Fed declined to comment. The people who described the regulator’s supervision asked not to be identified because the process is confidential.

SVB was a fraction of its recent size when the Trump administration and congressional Republicans led a bipartisan effort to roll back banking regulations in 2018, ending automatic annual stress testing for banks smaller than $250 billion in assets. The lender’s chief executive officer, Greg Becker, had lobbied for the bill, and as the measure took effect his company’s growth took off. By early last year, it held $220 billion in assets, up from $51 billion at the end of 2017.

That trajectory made SVB the fastest-growing major bank in the nation over the past five years — even outpacing firms such as First Citizens BancShares Inc. and Truist Financial Corp. that completed mergers. By this year, SVB was the country’s 16th largest by assets.

Becker also had another role: He had been a part of the nine-member San Francisco Fed board from 2019 until the day his bank failed.

Its collapse late last week left legions of startups facing the prospect that they wouldn’t be able to pay employees or keep the lights on, prompting the Fed and Federal Deposit Insurance Corp. to take extraordinary steps, including rescuing uninsured depositors and offering the industry a borrowing facility to avoid similar strains.

The central bank vowed to publish the results of its internal review by May 1. “The events surrounding Silicon Valley Bank demand a thorough, transparent and swift review by the Federal Reserve,” Fed Chair Jerome Powell said in a statement this week.

Already, the bank’s lack of a chief risk officer for much of last year has emerged as a focal point, Bloomberg News reported Tuesday.

The San Francisco Fed has a program for overseeing community and regional institutions, as well as a group trained to monitor big banks. As that one prepared to formally watch Silicon Valley Bank at the start of last year, examiners began sending the firm two types of warnings: matters requiring attention, or MRAs, and matters requiring immediate attention, or MRIAs.

While not disclosed to the public, MRAs and MRIAs are supposed to seize executives’ attention, requiring they fix problems to avoid more severe sanctions, known as consent orders. Those more stringent directives, once public, can send stocks tumbling by forcing banks to make costly improvements, pull back from certain activities or, in the extreme, stop growing.

The Biden administration found out about the full extent of SVB’s stack of MRAs and MRIAs on March 10, the day the firm was seized by regulators, according to people familiar with the matter.

SVB and Silvergate succumbed to the same basic pressures. Silicon Valley Bank’s clientele of tech startups drew down their balances as the industry struggled to raise fresh funding, while Silvergate’s crypto-friendly customers withdrew to weather last year’s plunge in digital-asset prices.

Banks are supposed to structure their balance sheets conservatively to handle unexpected economic shocks and deposit flight. But Silicon Valley Bank and Silvergate both invested heavily in bonds with low interest rates, which slumped in value as the Fed raised rates over the past year. When withdrawals forced the lenders to sell those assets, they incurred severe losses.

The Justice Department and the Securities and Exchange Commission are investigating SVB’s downfall. Those probes, which are in early stages, include whether stock sales by executives violated trading rules.

There is no question there were insider trading violations at SVB, but the situation has ballooned way past this bank.

Right now, we have a crisis of confidence and liquidity impacting regional banks, which is why Secretary Yellen and Fed Chair Jerome Powell called in the big guns to rescue First Republic.

The outcome? An 11-bank $30 billion plan to save First Republic which began with a brainstorming session between JPM CEO Jamie Dimon, Fed chair Jerome Powell and Treasury secretary Janet Yellen.

The CEO of the nation's biggest bank, the Fed chair and the Treasury secretary started brainstorming, according to people familiar with the discussions, with input from another powerful regulator: Federal Deposit Insurance Corporation Chair Martin Gruenberg. Their idea? JPMorgan could give First Republic some deposits.

Such an infusion could help solve a major concern. Deposit withdrawals are what put pressure on Silicon Valley Bank and made it impossible to continue standing on its own. Last Thursday, customers withdrew $42 billion in just one day, leaving the bank with a negative cash balance, and regulators seized the bank Friday. The concern was the same could happen to First Republic.

The next day, Dimon took this idea to some of his peers. At a Bank Policy Institute event, he approached other executives, including Citigroup CEO Jane Fraser, and commitments for $5 billion in uninsured deposits from Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) soon followed. JPMorgan also agreed to put in $5 billion.

On Thursday, you had insane trading volume and volatility of First Republic (FRC) and Western Alliance (WAL) in a reversal of fortunes you rarely see on banks on Wall Street:

Of course, that didn't last and by Friday, after First Republic announced a cut in its dividend, the stock tanked and continues to tank after-hours.


So what will happen by Monday? Will the Fed and Treasury make an announcement to save First Republic? Nobody knows for sure but with the Fed set to raise rates by 25 basis points on Wednesday, it's likely we will hear something Sunday evening or Monday morning before the market opens.

Again, nobody really knows what they will say or if they'll say anything at all.

All I know is some very big elite hedge funds (Citadel and company) and big bank trading desks (JPMorgan Chase and company) made a killing trading these stocks this week.

As far as investors, it all depends on how this crisis of confidence and liquidity plays out.

If you believe this isn't 2008 and the books of these regional banks are much cleaner, then they're trading at very compelling long-term price-to-book levels, you buy and hold, waiting for better days ahead (it could take a very long time).

If you do not trust anything they have on their books, as a friend of mine who got burned on Washington Mutual holdings back n 2008, then you steer clear of these regional bank stocks until the dust has settled.

It's very difficult to buy for retail investors but large institutional investors with a long investment horizon, deep pockets and perspective are likely scooping these shares up right now and will ride out the volatility.

But not everyone is convinced.

Bill Ackman of Pershing Square has been very vocal on Twitter stating the USD government needs to provide a temporary guarantee on all deposits:

But not all hedge fund titans agree with Ackman. 

Earlier this week, Citadel founder Ken Griffin warned US capitalism is ‘breaking down before our eyes’:

Ken Griffin, founder of hedge fund Citadel, said the rescue package for Silicon Valley Bank unveiled by US regulators shows American capitalism is “breaking down before our eyes”.

Griffin told the Financial Times that the US government should not have intervened to protect all SVB depositors following the collapse of the Santa Clara-based bank on Friday.

“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” he said in an interview on Monday, a day after US regulators pledged to protect all depositors in SVB — even those with balances above the $250,000 federal insurance limit.

“There’s been a loss of financial discipline with the government bailing out depositors in full,” Griffin added.

SVB was shut down by US regulators on Friday after customers raced to withdraw $42bn — a quarter of its total deposits — in one day and a failed effort to raise new capital called into question the future of the tech-focused lender.

Critics of the rescue package have pointed to the risk of moral hazard that comes from making all depositors whole on the money they have with SVB, while regulators have faced questions over missed warning signs.

“The regulator was the definition of being asleep at the wheel,” Griffin said.

The billionaire Citadel founder, whose fund this year became the most successful hedge fund firm ever, said the strength of the US economy meant the US government did not have to take such forceful action.

“It would have been a great lesson in moral hazard,” he said. “Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential.”

“We’re at full employment, credit losses have been minimal, and bank balance sheets are at their strongest ever. We can address the issue of moral hazard from a position of strength.”

Griffin’s stance contrasts starkly with that of Bill Ackman, another high-profile hedge fund manager, who on Monday called for the Federal Deposit Insurance Corporation to “explicitly guarantee all deposits now”, warning that “hours matter”. Ackman said on Twitter that “our economy will not function effectively without our community and regional banking system”.

He said that neither he nor his hedge fund Pershing Square had any exposure to Silicon Valley Bank, adding that his personal exposure to the venture capital industry was “less than 10 per cent of my assets”.

Last year Griffin moved Citadel and his market-making firm Citadel Securities to Miami from Chicago after threatening to leave the city over rising crime. Griffin, who relocated to Miami with his family, has described the city as a “growing metropolis that embodies the American dream” and has said he wants Florida’s Republican governor Ron DeSantis to run for president in 2024.

Citadel, which Griffin set up in 1990, has grown to manage $54bn in assets.

I must say, I'm more in agreement with Ken Griffin than Bill Ackman here and think the US government has opened Pandora's Box with the bailout of SBV -- and it is a bailout even if that's not what they're calling it (making rich Democratic supporters/ SBV depositors whole again).

When the government, not markets, chooses which banks live and die, we are no longer in a capitalist system, and while some young and ignorant idealists might think this is "cool", it is fraught with dangerous undertones for our free market economy and its progress.

Maybe the market is worried about the first republic of capitalism!!

I'm not sure how this will all play out but it sure doesn't smell or sound kosher.

I see huge problems ahead for capitalism with what the US government is trying to do here.

We are not 2008 but we are heading to a global economic recession and policymakers will not be able to save the US economy from what's coming ahead.

Lastly, in his Weekly Market Wrap-Up, Liquidity Splash, Martin Roberge of Canadccord notes:

The S&P 500 enjoyed a strong bounce this week, but it has been essentially a growth story considering that the S&P 500 equal weight index is down ~1%. Undoubtedly, the key highlight of the week is the Federal Reserve coming to the rescue of US regional banks and protecting all depositors with its Bank Term Funding Program (BTFP). As we wrote in our Mid-Week note, the bad news is that banks will be operating through stricter regulations, which will force them to keep lending standards tighter than they would otherwise. This means a higher risk of a recession, in our view, hence the weakness in commodity prices (DBC-US) and the de-rating in cyclical stocks (GUNR-US) this week. Conversely, the appetite for mega-cap growth stocks (MGK-US) could be attributed to the strength of their balance sheets and to the notion that they can strive in a slowing growth environment. Another key observation this week is the negative correlation between stocks and bond yields reasserting itself. Moreover, the plunge in bond yields is such that it seems bond investors are betting on a Fed pause and cuts after next week’s FOMC meeting. Can the Fed really pause if its dot plot reflects stronger-than-expected growth/inflation in Q1?

Our focus this week is on the liquidity splash and the Fed’s balance sheet surging nearly $300B this week alone. This is the biggest weekly increase since March 18, 2020 when the global pandemic erupted. It is also bigger than the weekly intakes seen through the 2008-09 GFC. Banks have been busy this week borrowing from the Fed’s discount window, aiming in our view to send a clear signal to depositors that they can meet withdrawals. The net result of the Fed’s generosity, as we have seen so many times in the past, is that the prime beneficiaries of liquidity expansions are usually the market's most volatile and speculative areas, such as growth stocks and cryptos (see our Chart of the Week). Since it is nearly impossible to see how much more cash banks will take from the BTFP, it is anyone’s guess as to where and when the ongoing rally in speculative assets will stop. Now, will the Fed signal that it stands pat on rate hikes next week? This would likely short-circuit the growth spurt. But what if they hike and signal a pause? One cannot rule out this possibility and this is what the price of gold seems to be telling us.

Regarding economic statistics, in the US, inflation came in mostly in line with estimates. The headline index decelerated to a 6% YoY pace (from 6.4%), while the core index fell slightly to 5.5% (from 5.6%). Most of the downward pressure is coming from commodities (3.6%), while prices for services ex-energy (7.3%, from 7.2%) have yet to show signs of disinflation. For their part, headline and core producer prices moderated to 4.6% YoY (from 5.7%) and 4.4% (from 5%), respectively. In other news, retail sales gave up some of the January gains, falling 0.4% MoM in February (from 3.2%). But what caught our attention is industrial production coming under pressure (-0.2% YoY, from +0.5%) and confirming our view that the US economy has entered a manufacturing recession. Good news on the US economy is mainly coming from the housing market with the NAHB rising to 44 (from 42), building permits jumping 13.8% MoM (from 0.1%) and housing starts rising 9.8% (from -2%). Elsewhere, in Japan, exports accelerated to a 6.5% annual pace in February (from 3.5%) while imports decelerated to 8.3% (from 17.5%), mostly the result of lower energy prices. In China, with the reopening, retail sales and industrial production advanced 3.5% YoY in February (from -1.8%) and 2.4% (from 1.3%), respectively.

I'm not sure if the rally in speculative stocks will continue next week, after the Fed meeting, all I know is once fundamentals take over, a long brutal bear market will sink in on Wall Street.

Longer term, however, the attack on capitalism is what should worry all of us.

You cannot liquefy capitalism in perpetuity, you need to nurture it and respect that there will be winners and losers.

And guaranteeing bank deposits will only add to insurance costs and capital requirements, weakening US banks over long run.

Policymakers need to tread carefully here.

Below, Odeon Capital Group Financial Strategist Dick Bove sits down with Yahoo Finance Live to talk about the banking system's outlook after First Republic Bank received a rescue deposit from other banks and the potential for further banking regulations:

DICK BOVE: Well, I think that the near-term banking crisis is definitely over. I think that if you go back in history, you know that before the Federal Reserve was formed, that's what was done to preserve stability in the banking industry. The banks would come together and basically share funds and bail out the problem company. The big event in 1907, which ultimately gave rise to the Federal Reserve is when JP Morgan supposedly got all the bankers in his house, locked the doors, said, you can't leave until you solve this banking crisis. And they solved it.

And then in more recent time, that the mutual fund that went down, the same thing happened. Everybody got together, put money in, except for Bear Stearns, which refused to do so. And so we're seeing it happen again. And it works. It's exactly the right thing to do. The federal government should not have to bail out the banking industry. The banks should have to bail out the banking industry. And that's what they're doing. And in my humble estimation, the Federal Reserve didn't have the money to bail out the banking industry should things continue to go awry.

Because I think that if you take a close look at the balance sheet of the Federal Reserve, you'll see it has negative equity of $1.1 trillion. They can't break the banks, however. If you have the biggest banks in the United States coming together, putting their money in. And basically what you're going to wind up with is enough money there that no one is going to raise the issue that the banks can't pay back their deposits. So I think it was the right move. I think the crisis for the moment is gone.

I think what you'll see in the future is Michael Barr at the Federal Reserve who's the head of banking supervision. He'll be throwing out so many more banking regulations that it's going to have a big impact on money costs and on the functioning of the industry. But the industry is sound. And it's not going to collapse.

- Dick, these deposits have to stay at First Republic for 120 days and earn interest at the same rate of current depositors. I guess the question is for First Republic receiving this help from these other banks. At what cost? I mean, we're looking at the stock that is down now 13% in after hours.

DICK BOVE: Well, I think that First Republic was going to have a rough year in 2023. And I'm sure it's going to have a rough year even more so now because these banks are not giving them the money for nothing. But the fact is, and First Republic's problem is a very simple one. And that is that its portfolio is composed primarily of mortgages to very high income, high wealth individuals. And those mortgages pretty much cannot raise their rates dramatically as interest rates go up where the cost of the money that First Republic has does go up in cost.

So you get a squeeze on the margins of the institution. And that's going to cause the institution's earnings to go down in 2023. However, first Republic is a good bank. It's a well-run bank. It has a very-- it has a top management team. The customers of this bank really like the bank despite what they did to the deposits here. And the employees at this bank have been there for decades. And they like working there.

So we're not talking about a flaky institution. We're talking about a sound bank in the United States that is running into the typical SNL problem of basically funding long-term loans with short-term money. And that means that the bank is not going to have a very robust earnings outlook in 2023, and maybe not even in 2024. But it's not going to go under number one. Number two, all of the debt in that bank is likely to be paid on a ratably at the right time.

The preferred stock are going to pay their dividends at the right time. So for the people who are invested in this company in those two fashions, in my view, they're going to get their money back in terms of dividends and interest payments. And I think that's what they really care about. The common stock is going to fluctuate. I think there's no question about that.

 Take the time to watch this interview here. 

Also, Federated Hermes Senior Equity Strategist Linda Duessel joins Yahoo Finance Live to discuss the Fed's interest rate hike outlook amid financial system woes, while also talking about the market outlook tied to the collapse of Silicon Valley Bank.

And Morgan Stanley's Chris Toomey joins 'Closing Bell' to discuss liquidy elongating the lags of monetary policy, Fed rate hikes leading to breakage and expectations for the Fed's upcoming policy actions.

Third, "there is a broader problem," iCapital Chief Investment Strategist Anastasia Amoroso says in response to a question about the SVB crisis during an interview on "Bloomberg Surveillance."

Fourth, Mohamed El-Erian, chief economic adviser at Allianz and Bloomberg Opinion columnist, says the Federal Reserve could be "tempted" to pause it's policy tightening strategy at it's meeting next week. "This Fed, I suspect, will be inclined to do this. I hope they don't. But it wouldn't surprise me," he says on "Bloomberg The Open."

I agree with El-Erian, if the Fed pauses, it will be the wrong thing to do and it will create a much bigger problem down the road, especially if wage inflation picks up over the course of the year even as the economy slows.  

In fact, Wharton School Professor Jeremy Siegel joins 'Closing Bell' to discuss the consequences of yield-curve inversion, the silver-lining from Silicon Valley Bank's collapse and a potential shift in tone from the Fed about rate policy. He warns a halt in rate hikes will be more concerning than a 25 bps rate increase.

Lastly, best-selling author Jim Rickards returns to the podcast for the third time to share his views on the collapse of Silicon Valley Bank and why the intervention — especially the Federal Reserve’s new emergency lending program, the Bank Term Funding Program — is the biggest bailout in history.

Great podcast, take the time to listen to Jim Rickards and ask yourself if policymakers are changing the rules of capitalism and potentially making things  a lot worse for society down the road.

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