To The Moon

Is the banking crisis over?

$Deutsche Bank AG(DB)$ 's sudden plunge has caused concern among investors

On Friday, Deutsche Bank in the U.S. stocks fell 8% and finally closed down 3%. It is worth noting that Deutsche Bank shares fell for three days in a row, the market value decreased bymore than 20%.

Deutsche Bank CDS rose means risk concerns increased

Credit default swaps are a financial product for credit default events, and when their price rises, it indicates that investors are worried about the increased risk of default by financial institutions.

Deutsche Bank's CDS risk premium rose from 142 basis points on March 22 to 208 basis points on March 24. This means that the cost of insuring against its default risk has risen to its highest level since 2020.

Deutsche Bank Announces Redemption of $1.5 Billion of Tier 2 Notes Due 2028

Another reason for Deutsche Bank's sharp fall may be due to its sudden announcement of the redemption of $1.5 billion of Tier 2 (T2) notes due 2028 at 100% of the principal amount and accrued interest up to (but not including) the redemption date. The redemption has received regulatory approval. The market is concerned about the weakening of Deutsche Bank's capital.

If Deutsche Bank's risk intensifies, the risk to European and even American markets will be immeasurable, unlike $Credit Suisse Group AG(CS)$, Deutsche Bank's curry is comparable to Britain's Barclays, BNP Paribas and investment banking giant Goldman Sachs.

First Citizens to Buy SVB After Biggest Failure Since 2008

The acquisition transforms $First Citizens BancShares(FCNCA)$ into one of the top 15 US banks. First Citizens is buying about $72 billion of SVB’s assets at a discount of $16.5 billion, according to an FDIC statement.

This leaves about $90 billion in securities and other SVB assets in the hands of the FDIC, and an estimated cost of the failure to the Deposit Insurance Fund of about $20 billion. Meanwhile, the FDIC gets equity appreciation rights in First Citizens with a potential value of $500 million.

Whither $First Republic Bank(FRC)$?

After the failures of SVB Financial and Signature, First Republic became the target. Even though it is yet unable to find a buyer or a path to survival, seemingly with the support of regulators continues trying.

One hopes that the bank did not survive the run and is simply burdened by heavy professional fees. In stark contrast to the two failed banks is the 10-fold spike in trading volume. There are short positions that are grasping at straws and long positions that are busy bottoming out.

Short-term impact: If banks are under pressure, they may be reluctant to lend

The U.S. small bank crisis is far from over. On the one hand, there are serious problems and loopholes in banks' risk management, causing substantial balance sheet trauma; on the other hand, there is an industry-wide loss of bank deposits in the United States.

The most immediate impact could be on lending. Small and medium-sized banks could tighten lending standards and make fewer loans in a voluntary effort to shore up their financial position or in response to increased scrutiny by regulators. This could hit residential and commercial developers, manufacturers and other businesses that rely on debt to finance their day-to-day operations.

Tighter credit can be a particular challenge for small businesses, which often do not have ready access to other sources of financing, such as the corporate debt market, and often rely on relationships with bankers who know their particular industry or local community. Many businesses may not be able to access credit at all, forcing them to cut back on hiring, investment and spending.

Total Commercial Bank Deposits ($Trillions)

Source: FactSet

What do you think the impact of the banking crisis will be?