Banks Are Wobbling Despite Fed Hikes.

The saying about banks is that they lend slowly while they borrow quickly. In other words, they receive funding from investors with maturities on the short end of the yield range and lend to businesses and families on the long end.

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This week saw the steepest inversion between the 2- and 10-year Treasuries since 1981, so that's probably the worst trade anyone can be in right now. Investors have taken notice: the SPDR S&P Regional Banking ETF has declined 10%, including an 8% decline on Thursday alone. The Invesco KBW Bank ETF, which follows the largest banks, has fallen 4% this year.

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More suffering is being felt by some banks than by others. This Monday, Silvergate Capital announced that it will voluntarily liquidate its banking division. To close a gap left by the sale of a losing portfolio in the United States, Silicon Valley Bank parent company SVB Financial started a $1.75 billion share sale on Thursday. government securities.

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Given that short-term rates have increased, venture capital and cryptocurrency were two of the hardest-hit industries for Silvergate's clients and SVB's. Yet, regulators instructed the whole banking sector to increase its holdings of U.S. government bonds following the 2008–2009 financial crisis in order to act as a safety net against any losses. The cushion itself is now proving to be a source of issues.

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Another common adage is that the Federal Reserve would raise rates until they broke. Although it's too soon to declare the banking industry broken, things are starting to change. Investors should extend their concerns beyond the most recent employment and inflation data as they try to predict the Fed's next course of action to include the health of the financial industry.

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