4030 Smith Rd., Suite 200, Cincinnati, OH 45209

March Madness: Non-Basketball Edition


The monthly Fed/CPI/Employment headline-market movement industrial complex was rudely shouldered aside in the last week by a much bigger and faster-moving story. 

While the fallout from bank failures will take a while to unravel, and the impact on markets will likely be ongoing, the bigger picture wraps right back to the Federal Reserve. 

But first, a little recent history lesson.


Didn’t This Get Fixed After 2008? 

In 2010, the Dodd-Frank Act was passed to tighten up federal financial regulations. A key provision looked at institutions deemed “too big to fail” and subjected them to higher standards. These institutions, with more than $50 billion in assets, were deemed “systemically important” and came under more scrutiny. 

In 2018, bi-partisan legislation was passed that raised the asset threshold for enhanced standards to $250 billion. The Federal Reserve retained the discretion to apply the higher Dodd-Frank regulations to banks with at least $100 billion in assets. 


What’s the Role of the FDIC, the Treasury, and the Fed? 

The Treasury, the Federal Reserve, and the FDIC, which insures deposits up to $250,000, backstopped the assets of the regional banks so that deposits would be available. To instill confidence in the banking system, the Fed is increasing liquidity by making funds available to other banks as one-year loans through a new program called the Bank Term Funding Program (BTFP).

The difference between now and 2008 is that the funds are going to depositors, not the institutions themselves. The funds won’t come from taxpayers but instead will be drawn from the Deposit Insurance Fund (DIF). 


What’s the Impact on the Economy? 

The Federal Reserve has clearly positioned a “higher for longer” stance on rates, as inflation is not dropping quickly, and the huge rate increases already enacted appear to not be substantially slowing the labor market. The government’s actions have helped contain the situation with two regional banks, but scrutiny on the regional banking sector has increased. 

Stress on the financial sector could help accomplish a much more rapid constriction of credit than what the Fed has been able to do by raising rates. Banks may start shrinking their loan books for several reasons. Outflows of deposits at smaller banks will limit lending. Even larger banks may become more conservative, given increased volatility and the potential for recession. The possibility of new regulations may lead banks to sell off riskier loans or revise loan policies. 

Prior to the last week’s events, the economic data showed a healthy but slightly cooling labor market and a lower Consumer Price Index inflation reading. Confidence in the economy, as measured by the Business Roundtable CEO Economic Outlook Survey for the 1st quarter, had increased by six points over the last quarter. However, the market impact is still unfurling. The bond market swung around wildly on the news, which is usually seen as a marker of a pessimistic economic outlook. 

The Fed meets next week and will determine whether to raise interest rates again. The consensus has been that the Fed will raise rates by 25 basis points. Given market turmoil and economic uncertainty, there is some thought that the Fed may hold off on rate increase and push the decision to the next meeting in early May. 

Volatility was already the watchword for 2023 as the Fed grapples with inflation, a strong labor market, and an economy that is not losing steam quickly enough to lower inflation. One reminder – Chairman Powell has consistently stated that the priority is to keep high inflation from becoming entrenched, as happened in the 1970s and early 1980s. 


The Bottom Line

The recent bank failures and the as-yet-unknown impact on the banking sector, the overall market, and the broader economy are creating more volatility in the short term. Investing is a long-term game, and trying to time markets can result in missing the best days of the eventual recovery. 


To schedule a call to review your financial plan and investments  Click Here

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

This content not reviewed by FINRA

Incline Wealth Advisors, LLC, its owners, officers, directors, employees, subsidiaries, service providers, content providers and third-party affiliates (referred to as “IWA”) do not offer the sale of securities or other investments.  None of the information provided is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering.

The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. IWA does not promise or guarantee any income or particular result from your use of the information contained herein.  Under no circumstances will Incline Wealth Advisors, LLC be liable for any loss or damage caused by your reliance on the information contained herein.

It is your responsibility to evaluate any information, opinion, or other content contained. Please seek the advice of professionals regarding the evaluation of any specific content. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.  The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Incline Wealth Advisors, LLC(referred to as “IWA”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose. 

IWA does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall IWA be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if IWA or a IWA authorized representative has been advised of the possibility of such damages. 

In no event shall Incline Wealth Advisors, LLC have any liability to you for damages, losses, and causes of action for accessing this site. 

Related Posts