Silicon Valley Bank Failure Raises Fear of Broader Financial Contagion

Vilsack testifies Thursday before Senate Ag panel

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March 12, 2023 10:24 AM

Vilsack testifies Thursday before Senate Ag panel

Washington Focus

The week ahead is expected to see more drama over the collapse of SVB Financial Group and the implications for the banking sector and venture capital. A well-capitalized buyer for SVB’s commercial business would allow customers — like Roku, Roblox and Etsy — to access their money, including for meeting this week’s payroll, and provide the sort of calm that discourages bank runs elsewhere.

Treasury Secretary Janet Yellen said on Sunday that the U.S. gov’t was working closely with banking regulators to help depositors at Silicon Valley Bank but dismissed the idea of a bailout, saying the situation is different from the 2008 financial crisis. Speaking with CBS on Sunday, Yellen sought to reassure U.S. customers of the failed tech lender that policies were being discussed to stem the fallout from the sudden collapse. The Federal Deposit Insurance Corporate (FDIC) took control of the bank on Friday morning and has been working over the weekend to ensure insured depositors.

When asked about the possibility of a bailout of Silicon Valley Bank, Yellen noted that in the 2008 crisis, “there were investors and owners of systemic large banks that were bailed out” but said, “we’re not going to do that again.” The government is “concerned about depositors, and we’re focused on trying to meet their needs,” she said. Though she said she could not go into details, Yellen said “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” and noted an acquisition of Silicon Valley Bank is one option the FDIC is considering.

Yellen suggested there would not be ripple effects from the collapse, saying “the American banking system is really safe and well-capitalized, it’s resilient.”

Meanwhile, Sen. Mark Warner (D-Va.) — a member of the Senate Finance Committee — told ABC’s This Week “the best outcome” would be for Silicon Valley Bank to find a buyer before Asian markets open late Sunday, adding that he’s “optimistic.”

The U.K. government said Sunday it was working on a lifeline for companies that had deposits locked up at Silicon Valley Bank’s British arm following the collapse of its U.S. parent. In a statement, the U.K. Treasury said that it wanted to “avoid or minimize damage to some of our most promising companies,” adding the plan would ensure their short-term operational and cash flow needs were covered.

The Biden administration is planning to greenlight an $8 billion oil drilling (Willow) project in the North Slope of Alaska, according to several media reports. Alaska lawmakers and oil executives have put intense pressure on the White House to approve the project, citing President Biden’s own calls for the industry to increase production amid volatile gas prices.

The Senate is in session, the House is in recess.

Wednesday, March 15, is the ARC/PC signup deadline.

The House Agriculture Committee on Wednesday has a farm bill listening session in Waco, Texas.

USDA Secretary Tom Vilsack will testify Thursday morning before the Senate Ag Committee hearing on USDA oversight. Vilsack is known for issuing several announcements during his appearances, as was the case last week at NPPC and Commodity Classic events. So, stay tuned.

House Republicans this week are expected to formally introduce their Lower Energy Costs Act package, the party’s signature piece of legislation, that includes about 20 bills focusing on speeding up approvals of energy and mining projects, supporting more oil and gas drilling on federal lands and repealing provisions in the Inflation Reduction Act that provided funding for climate change and pollution, among other measures.

Votes on the package are expected during the last week of March, but the package is unlikely to make it out of the Senate.

Treasury Secretary Janet Yellen will testify on the White House’s fiscal 2024 budget before the Senate Finance Committee on Thursday. In 2024 budget testimony before the House Ways and Means Committee on Friday, Yellen warned lawmakers that a default by the U.S. on its debt due to a failure to raise the federal debt ceiling would “produce economic and financial collapse.”

Shalanda Young, director of the Office of Management and Budget, will provide testimony on the 2024 budget before the Senate Budget Committee on Wednesday.

Utility poles a problem for fast rural Internet. We all know that taxpayers are paving the way for fast internet in rural America. USDA issues far more multimillion-dollar press releases announcing fast internet funding for rural states and areas than they do daily export sales announcements.

The funding is adding up, even for Washington, DC. The U.S. plans to spend at least $60 billion in the next decade to ensure every American household has high-speed internet. But a Wall Street Journal article (link) says an old-fashioned obstacle stands in the way: utility poles. Apparently, something as simple as utility poles were not part of the strategy government entities thought about before they started releasing all those press releases saying “they” were funding fast intent, which of course “they” are not.

The problem: The poles are owned by electric or phone companies that often aren’t getting public money to build out broadband, triggering skirmishes that some internet providers blame for slowing needed upgrades. Internet providers who don’t own poles, such as Charter Communications Inc., counter that utilities often drag their feet in allowing access or pad their fees. “Without intervention, the current state of pole replacement affairs poses a clear risk to the nation’s commitment to connect 100% of Americans,” Charter told the FCC in a recent filing.

A classic example of what’s wrong was cited in the WSJ article: “Warren Rural Electric is rolling out its own broadband service in the area, and had been vying for the FCC funds that Charter won. Charter says that Warren Rural Electric proposed a permitting schedule that would take 14 years to complete. ‘A child in kindergarten now will have graduated from high school before the permitting phase is complete,’ Charter Vice President of Regulatory Affairs Maureen O’Connell said in a 2021 letter to the FCC. The companies have since reached an agreement to allow Charter access to the poles.”

More on all the internet funding: In 2020, the Federal Communications Commission launched a $9 billion program to expand rural networks. States are spending billions of dollars more, drawing from federal Covid-relief funds and their own coffers. And in 2021, a bipartisan infrastructure law dedicated $42.5 billion to the cause. But the key solution it seems is utilities poles and companies/co-ops who own them.

Upshot: The next time (and it will come soon) that USDA Secretary Tom Vilsack issues still another press release about the Biden/Harris administration providing lots of funding for fast rural internet, ask them if it will deal with utility poles in the countryside as well.

A Russian delegation will take part in Ukraine grain deal consultations, Foreign Ministry spokeswoman Maria Zakharova says, according to Tass. The Black Sea grain deal is set to lapse on March 18. United Nations Secretary-General António Guterres last week visited Kyiv, where he called for the renewal of the agreement. The grain deal, negotiated by Turkey, the U.N., Russia, and Ukraine, was implemented in the summer of 2022 in a bid to free up 20 million tons of grain stuck at Ukrainian ports due to Russia’s blockade. Kyiv says that if the deal is expanded to additional ports it could export at least some of the 30 million tons of grain that remain stuck. The Kremlin hasn’t said what its plans are, but has accused the West of “shamelessly burying” the Black Sea deal.

The FAA on Wednesday will convene a safety summit with aviation experts and airline industry representatives. The summit follows a series of recent aviation safety incidents, including near collisions and a technological breakdown that led to the first nationwide ground stop since the 9/11 attacks.

Now let’s get to the calendar you really want. Selection Sunday for March Madness this season is Sunday, March 12. The 68-team fields for the men’s and women’s NCAA DI basketball tournaments will be released during selection shows at 6 and 8 p.m. ET.

Economic Reports for the Week

The focus will be Tuesday’s consumer price index report for February with a slight moderation in the year-over-year inflation rate to +5.5% to +5.6%. Meanwhile, producer prices (out Wednesday) are forecast to decelerate to a 0.3% month-over-month gain from 0.7% in January. All this ahead of the next FOMC confab March 21-22.

No central banker comments this week as the Fed enters a blackout period ahead of the Federal Open Market Committee meetings March 21-22, but Fed Governor Michelle Bowman will give remarks at the Independent Community Bankers Association’s conference in Honolulu on Tuesday.

Tuesday, March 14

National Federation of Independent Business releases its Small Business Optimism Index for February. The consensus estimate is for a 91 reading, which would be the 14th consecutive one below the 49-year average of 98. In January, 45% of small-business owners said that job openings were hard to fill, a historically elevated number.
Bureau of Labor Statistics releases the consumer price index for February. Economists forecast that the CPI will show an increase of 6%, year over year, compared with 6.4% in January. The core CPI, which excludes volatile food and energy prices, is expected to rise 5.5%, one-tenth of a percentage point less than in the previous report. Federal Reserve Chairman Jerome Powell has stressed in recent months that services inflation, excluding the cost of shelter, is what he’d most like to see decelerate.
Earnings: Caterpillar, LyondellBasell Industries, and Verisk Analytics hold investor meetings.
China’s National Bureau of Statistics releases January and February figures on industrial production, retail sales and fixed-asset investment, a measure of infrastructure and equipment investing.

Wednesday, March 15

MBA Mortgage Applications
Bureau of Labor Statistics releases the producer price index for February. Economists forecast that the PPI will show an increase of 5.4%, year over year, while the core PPI is expected to be up 5.3%. This compares with gains of 6% and 5.4%, respectively, in January.
Census Bureau reports retail sales data for February. Consumer spending likely rose 0.2%, month over month, while retail sales, excluding autos, are expected to show an increase of 0.4%. This compares with gains of 3% and 2.3%, respectively, in January. The 3% jump was the largest since March 2021, reflecting the resilience of U.S. consumers. That economic release, along with continued strength in the labor market and other hotter-than-expected-inflation data, have caused Wall Street to reprice the terminal, or peak, federal-funds rate to about 5.6%, from 5% in late January.
National Association of Home Builders releases its Housing Market Index for March. The consensus call is for a 40 reading, two points lower than in February. While home builders still have a gloomy outlook for the housing market, it has brightened somewhat compared with December, which had the lowest reading for the index in a decade, excluding one data point at the onset of the pandemic.
The Empire State index in March is expected to fall to minus 7.7 after February’s strong recovery but still negative reading of minus 5.8.
Business inventories in January are expected to remain unchanged following 0.3% builds in both December and November.
Treasury International Capital
Earnings: Adobe.

Thursday, March 16

Jobless Claims: The Labor Department reports the number of worker filings for unemployment benefits in the week ended March 11. Initial jobless claims rose in the prior week, but remained historically low.
Census Bureau reports residential construction statistics for February. Expectations are for a seasonally adjusted annual rate of 1.32 million starts, slightly more than in January.
The Philadelphia Fed manufacturing index, in contraction the last six reports and very deeply so in February at minus 24.3, isn’t expected to show great improvement in March, at a 15.8 consensus.
Import prices are expected to fall another 0.2 percent on the month in February to match January’s decline. Export prices are expected to fall 0.3 percent versus the prior month’s 0.8 percent jump.
Fed Balance Sheet
Money Supply
Earnings: Dollar General and FedEx hold conference calls to discuss quarterly results.
The European Central Bank (ECB) announces its latest interest-rate decision. The ECB raised interest rates by a half-percentage point last month, its fifth large increase in a row, and signaled another half-point rate increase is possible in March.

Friday, March 17

University of Michigan releases its Consumer Sentiment Index for March. The forecast calls for a 67.4 reading, about even with February. While low historically, it would be the highest reading in more than a year.
Industrial production and capacity utilization: The Federal Reserve releases February industrial-production figures, which measure the output of factories, mining and utilities. U.S. industrial production increased 0.8% in January from a year earlier, the smallest annual gain since March 2021.
The index of leading economic indicators is expected to fall a further 0.2% in February. This index has been in severe decline though contraction did slow in January to minus 0.3%

Key USDA & international Ag & Energy Reports and Events

The International Grains Council releases its monthly report Thursday, while Paris will host a grain export conference on Wednesday. Focus during the week will also be on the Eurasian agri-commodities conference in Astana, the capital city of Kazakhstan.

On the energy front, OPEC issues its monthly market report on Tuesday, while the Paris-based IEA follows suit Wednesday.

Monday, March 13

Ag reports and events:

Export Inspections
Feed Grains: Yearbook Tables
North American Grain and Oilseed Crushings