Collapse of two American banks sends shockwaves across financial world

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.

JIMMY LOVAAS, HOST:

Welcome to the Factal Forecast, a look at the week’s biggest stories and what they mean from the editors at Factal. I’m Jimmy Lovaas.

Today is March 16.

In this week’s forecast we’ve got the Black Sea grain deal expiring, elections in Montenegro, Spain’s prime minister facing a no confidence vote, TikTok’s CEO testifying before Congress and a look at the bank collapses that have shook the financial world. 

You can also read about these stories and more in our weekly newsletter, which you’ll find a link to in the show notes.

Black Sea grain deal expires

Information compiled by Jess Fino

JIMMY: The Black Sea grain agreement between Ukraine, Russia, Turkey and the United Nations will once again expire on Saturday. That is, unless a new extension is agreed to before the deadline

The deal originated in late July 2022 after Russia’s invasion of Ukraine impacted global food supply, leading to a rise in food prices. 

Under the agreement, ships are able to export grain from three ports along the Black Sea. 

The deal was renewed in November despite fears it wouldn’t go ahead after Russia accused Ukraine of carrying out an attack on naval vessels in Sevastopol. 

This week, a Russian fighter jet collided with a U.S. Reaper drone, forcing it down into the Black Sea. Russia called the incident a “provocation.”

Now, Russian officials have released statements suggesting they were open to extending the grain deal for 60 days, even claiming a deal had been reached. 

However, Turkey came forward saying negotiations were still ongoing. Meanwhile, Ukraine said it would stick to the terms of the previously agreed deal based on a 120-day duration.

Montenegro elections

Information compiled by Sophie Perryer

JIMMY: Montenegrins will select a new president on Saturday. The vote comes after multiple no-confidence votes in 2022 collapsed the ruling coalition.

Montenegro’s opposition parties ousted the government in two separate no-confidence votes in February and August last year, amid concerns over links with the powerful Serbian Orthodox Church. 

Parliament attempted to appoint veteran politician Miodrag Lekić as prime minister-designate in December, but the vote was disputed by President Milo Djukanović and Lekić subsequently failed to garner enough support to form a government.

Now, Montenegro has been a European Union accession candidate since 2008. It’s been at odds with the bloc, however, over a proposed constitutional reform which would curb the president’s powers to nominate a prime minister. 

The EU is sending observers to the Saturday polls. 

A runoff election will be held April 2 if no candidate wins a majority in the first round.

No confidence vote against Spanish PM

Information compiled by Agnese Boffano

JIMMY: The Spanish parliament will vote Wednesday on whether to support incumbent Prime Minister Pedro Sanchez in a no-confidence vote.

Spain’s far-right VOX party announced in February that it would bring the vote forward. 

The party is proposing Ramon Tamames, an 89-year-old economist, ex-military leader and former member of the Communist Party, as a replacement. 

Spain’s Congress leader confirmed this week that the vote of no confidence would take place on March 22, following a day scheduled for debate. 

The leader of the VOX party, Santiago Abascal, had been unsuccessful in gaining support for a no-confidence vote he brought to parliament in 2020 against Sanchez.

Now, Abascal has again called for a no-confidence vote against Sanchez over what his VOX party believes is the prime minister’s role in Spain’s “energy dependence, galloping inflation and unaffordable gas and electricity bills.” 

Abacal says he is hopeful the conservative Populist Party will support the motion, despite that party's leader saying he is unlikely to attend the vote after calling it a “political performance. He’s instead calling for national unity and stability. 

Finally, to pass, a vote of no confidence requires the support of at least 176 lawmakers in parliament, which analysts believe VOX is highly unlikely to achieve at this point given their lack of support across Spain’s five dominant parties.

TikTok CEO to testify before Congress

Information compiled by Jimmy Lovaas

JIMMY: TikTok CEO Shou Chew will appear before the U.S. House Energy and Commerce Committee on Thursday. 

Chew is expected to testify about the social media app’s security and privacy practices as well as its ties with China.

The CEO has already met with some lawmakers in a series of closed-door meetings. And while these types of meetings are somewhat common, Rep. Lori Trahan of Massachusetts said her meeting with Chew was more substantive than those she’s previously had with the heads of Meta, Instagram and Google.

Now, Chew’s appearance before Congress comes as the video-sharing platform continues to face criticism on several issues, including child safety, even after the company recently added new tools aimed at giving parents more control over their children’s usage of the app. 

The CEO’s appearance also follows a proposal from a bipartisan group of Senators seeking to expand President Joe Biden’s authority to ban TikTok nationwide.

Silicon Valley Bank failure

Information compiled by Joe Veyera

JIMMY: Our last item for this forecast is on the sudden collapse of Silicon Valley Bank. For more on that I've got our lead for The Americas desk, Joe Veyera.

JIMMY: Hello, Joe!

JOE: Hey, Jimmy. Great to be back. 

JIMMY: You know, the last time you were here, you were talking about UFOs. Now we’ve got a failed bank. I don’t have a question here, just pointing out you’re the common link. Anyway, can you give us a bit of a recap on what we know about Silicon Valley Bank?

JOE: Of course, of course. We could spend hours, if not days, going over all of the elements at play here, but in the spirit of brevity, Silicon Valley Bank was the victim of a good ol’ fashioned bank run. In the middle of last week, SVB announced plans to raise more than $2 billion in capital, to help offset earlier losses on bond sales. That was quickly followed by a steep drop in stock prices, and prominent venture capitalists began to advise portfolio companies to pull their money out of the bank. Now, as a general rule, banks don’t have the money on hand to cover all their deposits at once, so it was not uniquely an SVB problem that the FDIC was forced to step in on Friday afternoon after the bank run had gotten underway. But the fact that SVB was positioned as a key player in the tech and startup community, and in turn vulnerable to a quickly cascading exit from key industry players was problematic. So this failure, and the ensuing collapse of Signature Bank on Sunday marked the second-and-third-largest bank failures in U.S. history, and the biggest since the 2008 financial crisis.

JIMMY: And aside from, you know, seizing the banks, what action has the government taken?

JOE: So in the wake of the SVB failure, the looming question was what happens with the nearly 90 percent of deposits that exceeded the FDIC insurance threshold of $250,000. President Biden was reportedly hesitant to take any action that could be considered a government bailout, but ultimately the Treasury, Federal Reserve, and FDIC announced late Sunday it would guarantee access to all deposits. But, still, is it a bailout? And, honestly, it’s a little complicated, but government officials are adamant that taxpayers are not on the hook because the deposit insurance fund gets its money from fees assessed on financial institutions and interest on government bonds.

JIMMY: Well, considering depositors are getting access to their money and the bank is being investigated, how do things stand now? Is the crisis behind us? 

JOE: Well, the speed at which everything happened with SVB makes me hesitant to say the crisis is over, but fears have eased that there would be a contagion effect that takes out other regional banks, like San Francisco-based First Republic and PacWest Bancorp of Los Angeles, that saw stock prices tumble and rebound. That said, just as we started recording Bloomberg reported that First Republic is exploring strategic options including a potential sale, so the ripple effects still loom.

JIMMY: Well, what do you think folks should be watching for next?

JOE: I think the biggest question in the coming weeks and months is if these bank collapses result in any meaningful regulatory changes, in the same way the 2008 crisis led to the passage of Dodd-Frank and the creation of the Consumer Financial Protection Bureau. Also worth watching is the impact the failures have on startups and their ability to secure funding. The short-term fears they had of making payroll may have been assuaged, but SVB was one of the top providers of venture debt and other credit. Finally, as you mentioned, both the Department of Justice and Securities and Exchange Commission have reportedly launched investigations into the SVB failure, including stock share sales by executives in the leadup to the collapse. So, we'll see if anything comes of that.

JIMMY: Well, you know, I think we’ll leave it there for today, but as always, thank you. And I know you’ll be watching things and trust you’ll be back if things start to get out of hand. Appreciate it. 

JOE: Always happy to bring you these cheery headlines.

JIMMY: Take care.     

JIMMY: As always, thank you for listening to the Factal Forecast. We publish our forward-looking podcast and newsletter each Thursday to help you get a jump-start on the week ahead. Please subscribe and review wherever you find your podcasts. We’d love it if you’d consider telling a friend about us.  

Today’s episode was produced with work from Factal editors Jess Fino, Sophie Perryer, Agnese Boffano and me – Jimmy Lovaas. Our interview featured editor Joe Veyera and our music comes courtesy of Andrew Gospe.

Until next time, if you have any feedback, suggestions or events we’ve missed, drop us a note by emailing hello@factal.com

This transcript may be updated or revised in the future. Accuracy and availability not guaranteed. 

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