It’s been almost a year since the collapse of Silicon Valley Bank. And despite the fact that banks have enjoyed some of the stock market rally, the shadow of the bank collapse is still present. Banks balance sheets continue to be under pressure: first, dire competition on deposits, not only from other banks, but from Treasury bills; second, CRE loans, where some office buildings have seen their valuations collapse due to remote working, and finally, their bond portfolio. There are $600bn of mark to market losses on their balance sheets, simply due to interest rate risk. Credit risk has not been a factor yet. And thanks to the BTFP program, banks haven’t been forced to unwind their bond portfolio and account for those losses. That program is due to renew now in March, and for the reasons stated above, it most likely will. But until an investor can’t figure out what the true value of a banks balance sheet is, we will probably not see full market participantion from banks.
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