(TheStreet) - Following last week's fireworks after the latest Federal Reserve monetary policy decision, several weekend developments are helping fuel optimism that the worst of the recent banking crisis is behind us.
The FDIC arranged a deal for First Citizens (FCNCA) to purchase the loans and deposits of failed Silicon Valley Bank (SIVB) and the US Financial Stability Oversight Council shared that while some institutions have come under stress, the US banking system remains sound and resilient.
There were also reports US regulators are evaluating expanding an existing emergency lending facility for banks. Despite those positive developments, one unknown the stock market will grapple with for a bit longer is the degree to which tighter credit standards will impact the economy.
As we shared with you last week and touched on again in Friday's Weekly Roundup, when banks and other financial institutions report their March quarter results in the coming weeks, we should have a far better sense as to what that might entail. If it turns out to be a relatively modest impact because of these emergency lending facilities and continued share gains by larger banks, like our own Bank of America (BAC) , we are likely to see a renewed focus on the Fed's inflation fight.
Looking at the CME FedWatch Tool we are already starting to see that happen as the expectation for another 25-basis point rate hike at the Fed's May meeting is rising. That is already starting to happen and what we learn on Friday with the February PCE Price Index data could result in another change in expectations. Our thinking is that data is likely to reaffirm the sticky inflation data found in recent core CPI data and in the February PPI services data.
More Bark Than Bite
While we wait to see if those reports about another emergency lending are correct, we would caution readers that the specific details of any additional measures will be key, especially given what is happening Tuesday. We are referring to the full committee hearing for the US Senate Committee on Banking, Housing, and Urban Affairs.
The witness list includes FDIC Chairman Martin Gruenberg, Federal Reserve Vice Chairman Michael Barr, and Treasury Undersecretary Nellie Liang who will collectively be questioned about "Recent Bank Failures and the Federal Regulatory Response." More than likely there will be some saber-rattling over bank regulators and risk, but the weekend comments Financial Stability Oversight Council likely mean more bark than bite will be had.
Also helping lift investor sentiment on the banking sector, including our own, are reports that fears over regional banks have fallen as evidenced by a sharp slowdown in the deposit drain.
The total of the weekend developments are lifting the SPDR S&P Bank ETF (KBE) shares were up some 3% this morning, giving an added lift to US equity futures that point to a positive open later this morning.
By The AAP Team
