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Fragility in the Financial System

In the wake of Silicon Valley Bank’s collapse, the global financial system continues to show signs of fragility, according to Brad Tank MBA’82.

In March 2023, the global financial system received a shock: Silicon Valley Bank failed, the largest bank failure since the financial crisis of 2008. Soon other banks seemed to be in trouble: Signature Bank in New York and Credit Suisse in Switzerland.

On April 4, 2023, The UW Now Livestream brought together several UW–affiliated experts to talk about instability in the banking system and the role that the Federal Reserve plays in preventing or furthering that instability.

Brad Tank MBA’82 is the chief investment officer and managing director at the private investment firm Neuberger Berman. An expert in macroeconomics and monetary policy, he has spent the last four decades helping grow the value of firms such as Salomon Brothers and Strong Capital Management, and now he helps Neuberger Berman grow its bond business.

Tank will consider “a number of themes on central banking and inflation,” he says, warning that “we’ve got big secular changes in the inflation backdrop, and inflation’s going to be sticky and problematic for central banks.”

What will you talk about on The UW Now Livestream?

This is where we think inflation’s going to go between now and the end of the year: we still think we’re going to be far, far, far from two percent at the end of ’23. A lot of the factors that we think are driving inflation do not simply relate to the economic disruptions around COVID. It’s much bigger than supply-chain issues. The financial system remains fragile. With big backstops in both the United States and in Europe, the financial support already provided by regulators has been massive. 

If viewers take away just one thing from your talk, what do you want them to remember?

What’s new [with this situation] is the speed that deposits can move around. We know that securities, cash, and things like money funds can fly around at a pretty rapid rate in times of concern or panic, but the pace at which deposits are moving within the banking system is unlike anything we’ve ever seen before. The key point is that the financial system remains fragile and requires regulatory support, and the pace of change can be staggeringly rapid.

What should people look at if they want know whether their own bank is stable?

Safe financial institutions generally grow at a reasonable pace. One of the key warning flags on Silicon Valley Bank is the simple fact that here you have a bank that grew at a torrid pace. SVB was the fastest growing bank in the country. Quick growth and sound financial institutions tend not to go hand in hand. Secondly, stock price: the market’s going through a sorting-out process here. If you look at problem financial institutions, markets tend to pick up on that before it reaches headlines.

To get smart fast, read:

The popular financial publications, like the Financial Times covering Europe and the Wall Street Journal,have generally covered this pretty well.

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