Too much sugar?

"Global banking and financial stocks took a massive hit...after US-based commercial lender SVB Financial Group was shuttered by US regulators, following an aggressive decline in its stock that led to a market loss of over $80 billion. With this, Silicon Valley Bank became the largest US bank to fail since the 2008 financial crisis." "The Federal Reserve has been raising interest rates from their record-low levels since last year in its bid to fight inflation." ET. "As higher interest rates cause the market for initial public offerings to shut down for many startups and made private fundraising more costly, some Silicon Valley clients started pulling money out to meet their liquidity needs." "SVB's collapse into Federal Deposit Insurance Corp (FDIC) came suddenly..., following a frenetic 44 hours in which its long-established customer base of tech startups yanked deposits." ET. "The bank's total deposits exploded higher over the prior twelve months, to about $124 billion from $62 billion, according to data compiled by Bloomberg." "Still, the FDIC only insures bank deposits of up to $250,000 - and SVB's clients had much more. That meant a large amount of money stashed at SVB was uninsured: more than 93% of domestic deposits as of Dec 31, according to a regulatory filing." Panicked depositors tried to get their money out, creating a run on the bank, which occurs when a large number of customers try to withdraw their money, increasing the probability of default and prompting more depositors to withdraw their deposits. Investopedia. "QE (quantitative easing) involves central banks printing money and pumping it into the financial system by buying bonds," wrote Vivek Kaul. "QT (quantitative tightening) is the opposite," in which "Between June and August 2022, the US Fed plans to suck out $47.5 billion per month. Post that the plan is to suck out $95 billion per month." "Commercial banks, which typically hold the reserves supplied by central banks during QE, finance their own assets with short-term demand deposits that represent potent claims on their liquidity in tough times," wrote Profs Raghuram Rajan and Viral Acharya. "In sum, during periods of QE, the financial sector generates substantial potential claims on liquidity, eating up much of the issued reserves. The quantity of spare liquidity is thus much smaller than that of issued reserves, which can become a big problem in the event of a shock, such as a government-induced scare." The scare came as, "Federal Reserve Chair Jerome Powell... reaffirmed his message of higher and potentially faster interest rate hikes." Reuters. "The faster the rate hike cycle, the greater the risk of financial accidents with nasty spillovers. After all, the financial system did what it was incentivized to do," wrote Mohamed A El-Erian. Is our Reserve Bank (RBI) concerned at all? Too much sugar kills.