SVB’s Failure Impacting Markets: Coinbase Research Reveals Risks Ahead

• The failure of Silicon Valley Bank (SVB) and Silvergate had caused a potential system-wide bank run among mid-tier banks.
• To prevent the contagion, the U.S. government introduced the Bank Term Financing Program (BTFP), offering a 1-year OIS+10bps fixed-rate loan to banks that will be secured by bonds purchased before March 12.
• Coinbase research suggests that there are still several liquidity risks posed by BTFP and other factors, such as reluctance to lend, depositors shifting their money from minor to larger banks and an increase in money market funds which could decrease banks‘ reserves.

The Failure of Silicon Valley Bank

The failure of Silicon Valley Bank (SVB) and Silvergate has caused a potential system-wide bank run among mid-tier banks. In order to avert this contagion, the U.S. government has taken swift steps by introducing the Bank Term Financing Program (BTFP). This program is offering a 1-year OIS+10bps fixed-rate loan to banks that will be secured by bonds purchased before March 12.

Coinbase Research on Liquidity Risks

Coinbase research suggests that there are still several liquidity risks posed by BTFP as well as other factors such as reluctance to lend, depositors shifting their money from minor to larger banks and an increase in money market funds which could decrease banks‘ reserves. Furthermore, JP Morgan estimates that the maximum consumption might be close to $2 trillion outside the five biggest banks due to this program alone.

Impact on Credit Suisse and First Republic Bank

The study also highlights how concerns about Credit Suisse and First Republic Bank suggest that the Fed may be changing its mind about whether or not these events at SVB are systemic in nature. This further implies that even if the predicted terminal rate is lower today – potentially in the 5.25-5.50% range – it is likely for them to take up third route since core inflation still seems stable and economic data elsewhere indicates strength too.

Medium – Long Term Forecast for Cryptocurrency

The positive medium – long term forecast for cryptocurrency is also highlighted in Coinbase’s paper . While inadequate risk management procedures contributed to volatility seen in U.S financial industry, Coinbase believes cryptocurrencies will emerge unscathed from this situation due its decentralised nature compared with traditional finance systems..

Conclusion

To conclude, although there are potential threats posed by liquidity risks such as those mentioned above, it appears like US financial markets have been able avert disaster so far due swift actions taken including introduction of BTFP program backed by US Treasury Bonds etc., In addition while traditional finance systems were hit hard after SVB’s failure cryptocurrencies looks set benefit from this situation due its decentralised nature & lack of central control over it..