Keeping Tabs on Inflation and Interest Rates During Banking Turmoil

April 10, 2023

By Tim Courtney, Chief Investment Officer


After the collapse of Silicon Valley Bank (SVB), Silvergate Capital and Signature Bank, the market experienced a mini panic and fell 5% in five days. Investors flocked to safety in treasuries, gold, and larger growth companies amid mounting concerns over the stability of the financial sector and1 intensifying market volatility. 2 In addition, people started questioning their own banking relationships, particularly those who bank with smaller or regional institutions.

Despite the initial shock, the market showed us it’s still singing the same interest rate tune. Most areas of the market moved higher after the week of declines, and the Nasdaq jumped 7% and touched its highs for the year.3 Why? Because we’re still in a cycle where the market views bad news as good news. Banks failing is bad news, but that is good since the market assumes that future interest rate hikes may now be blunted.

Overall, this means we’re still in a period of rebalancing. The market and our financial system is working to recalibrate from the Federal Reserve’s (Fed) decision to hike rates from near zero to 4.5% at a historic pace.4 As the market continues to readjust to a more normal interest rate environment, we may experience more consequences along the way.

If we compare our current environment to the Great Financial Crisis in 2008, there are notable differences. For one, banks on the whole are better capitalized than they were 15 years ago. They no longer have large weights in holdings such as mortgage-backed securities filled with borrowers of questionable quality backed by an oversupply of real estate.5 In addition, the accounting rule known as “mark-to-market” eventually caused banks in 2008 to buckle as debt markets froze.6 Markets began recovering in 2009 when this rule was rescinded.7 The Fed appears to be acknowledging this today as they roll out the Bank Term Funding Program (BTFP), which allows banks to receive loans for their qualifying assets at par value rather than market value. 8

The Fed’s latest decision to raise interest rates by 25 basis points9 may indicate the start of a slowdown in rate hikes. The market has stabilized for now, but we may see more banks coming under pressure from the rate hikes. While this is a risk, a larger risk may be brewing. Over the last several weeks depositors have been pulling money out of smaller and regional banks and moving it to larger national ones because of the perceived extra protections afforded to larger banks. Local lending to smaller borrowers is often done by the regional banks. This lending will almost certainly be curtailed and cause economic slowing. That may end up being the larger cost to this current bank panic. If you have any questions, please contact your Exencial advisor.




  1. CNBC (3/13/23) — Investors rush into bonds, gold in flight to safety after SVB rescue
  2. The Wall Street Journal (3/14/23) — Investor anxiety hits a fever pitch after Silicon Valley Bank collapse
  3. Bloomberg (3/13/23) — U.S. stocks shake off markets jitters; Bonds fall: Markets wrap
  4. The New York Times (3/7/23) — Fed Chair opens door to faster rate moves and a higher peak
  5. Federal Deposit Insurance Corporation — Crisis and response: An FDIC history
  6. Harvard Business Review (11/09) — Is it fair to blame fair value accounting for the financial crisis?
  7. Forbes (7/28/09) – Suspend Mark-To-Market Now
  8. Investopedia (3/21/23) — What is the bank term funding project?
  9. CNBC (3/22/23) — Live Fed updates: Watch Powell speak about the interest rate hike, banking turmoil


PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RETURNS. Information and opinions provided herein reflect the views of the author as of the publication date of this article. Such views and opinions are subject to change at any point and without notice. Some of the information provided herein was obtained from third-party sources believed to be reliable but such information is not guaranteed to be accurate. In addition, the links provided within are for convenience only and the provision of the links does not imply any sponsorship, endorsement, or approval of any of the content. We do not guarantee the content or its accuracy and completeness. The content is being provided for informational purposes only, and nothing within is, or is intended to constitute, investment, tax, or legal advice or a recommendation to buy or sell any types of securities or investments. The author has not taken into account the investment objectives, financial situation, or particular needs of any individual investor. Any forward-looking statements or forecasts are based on assumptions only, and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Any assumptions and projections displayed are estimates, hypothetical in nature, and meant to serve solely as a guideline. No investment decision should be made based solely on any information provided herein and the author is not responsible for the consequences of any decisions or actions taken as a result of information provided in this book. There is a risk of loss from an investment in securities, including the risk of total loss of principal, which an investor will need to be prepared to bear. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular investor’s financial situation or risk tolerance. Exencial Wealth Advisors, LLC (“EWA”) is an investment adviser registered with the Securities & Exchange Commission (SEC). However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. EWA may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. Complete information about our services and fees is contained in our Form ADV Part 2A (Disclosure Brochure), a copy of which can be obtained at www.adviserinfo.sec.gov or by calling us at 888-478-1971.

subscribe for updates on new resources