SVB and Credit Suisse Test Financial Plumbing

Rapid deposit outflows and unhedged duration risk brought several U.S. regional banks into resolution. Authorities introduced a Bank Term Funding Program and guaranteed deposits at failed institutions. In Europe, Credit Suisse faced acute confidence loss, culminating in a takeover by UBS with AT1s written down. Interbank markets functioned, but financial equities and subordinated debt repriced meaningfully as investors reassessed asset-liability management across the sector.

Policy makers moved fast to separate liquidity from solvency. Access to central bank funding stabilized deposit flight, while capital structures absorbed losses. We expected tighter lending standards, slower credit creation, and pressure on funding costs, particularly for smaller banks. The net effect resembled a rate hike in financial conditions even as terminal-rate expectations wavered. Our base case called for slower growth and persistent dispersion across lenders.

In client portfolios we reduced exposure to subordinated bank debt and concentrated on senior secured and covered bonds within financials. We increased high-quality liquidity, including T-bills and short-duration Treasuries. We kept gold and core duration as hedges against tail risk and policy reversal. Equity allocations tilted away from rate-sensitive financials toward cash-generative sectors with low external funding needs.

We watched lending surveys, deposit flows, and bank earnings for confirmation. We expected M&A, asset sales, and balance-sheet shrinkage to reshape the landscape. Our positioning prioritized resilience and optionality, ready to add selectively when capital and governance clarity improved. The lesson was familiar: in banking, confidence is the business model.