Key Points
Macroeconomics, the branch that deals with the big things like growth, inflation and interest rates, seems broken when used to implement policy..
Other central banks followed suit. But just like policymakers failed to account for the side-effects of the massive pandemic stimulus, they failed to fully grasp the side-effects of an aggressive response to contain those side-effects...
As a result of the pandemic stimulus, all banks, including SVB, saw a rise in deposits..
However, what SVB did not account for was such a sharp rise in US interest rates, which sent the face value of the US treasuries they were invested in sharply downwards..
In a bid to contain contagion, the US authorities will also allow banks to take loans from the Fed against the US treasuries they hold (at the original face value, not the depreciated value) with a minimal penal interest...
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