When Silicon Valley Bank collapsed, the St. Louis Fed Financial Stress Index (STLFSI4) jumped to a value of 1.56, the highest value since 2020.
Since then, the Financial Stress Index has returned to typical levels, despite continued challenges in the banking system and concerns about the risks posed by Non-Bank Financial Institutions, also known as "shadow banks". Hank Paulson, the US Treasury secretary during the 2008 financial crisis, recently told the Financial Times:
We can never abolish financial crises. They will always happen.
Any clarity on what might constitute a "yes" resolution? STLFSI4 > 2.5?
@NickAllen From Metaculus’ resolution criteria:
First Republic is (probably) going to get handled as competently as SVB, but we can’t call it a VC/Twitter driven anomaly anymore. So then why believe FR is the only one who got overexposed? And will the FDIC continue batting 1.000? What if debt ceiling issues shut down the government for even a few days, at a critical juncture?
Less than 50%, but more than 13% (though I’d love specific resolution criteria)
isn't the answer at least for svb "they held lots of long-term bonds at low rates (because long-term bonds have slightly better rates), and then when rates spiked the market value of the bonds dropped a lot", while other banks managed interest rate risks better?
@jacksonpolack Acknowledging, I am not an expert: It’s not like holding bonds was an anomalous strategy, and “long term“ is a matter of degree. Almost all banks would be in trouble right now if some % tried to withdraw. We don’t know the threshold on a per-bank basis but with FR falling, there’s no reason to believe there isn’t another one just a few pp further along (and we’re seeing net outflows even before this Fridays announcement).
To be clear, I’m not (necessarily) predicting ‘08 collapse. Just (>13% confidence of) some more jitters, which is all this market asks about.