“Even if SVB were sold, concerns about the liquidity and capital position of the banking system would remain.”

Analysts generally believe that the Fed’s rescue measures can solve Silicon Valley Bank’s current predicament, but cannot fundamentally solve the problem, and it also leaves more hidden dangers and uncertainties for the future.

Overnight, the Federal Reserve introduced the BTFP policy at lightning speed - promising to fully protect depositors' funds and provide banks with one-year loans on more relaxed terms than usual - as a rescue for the bankruptcy of Silicon Valley Bank, thus preventing possible systemic risk events from occurring.

Regarding this policy, hedge fund manager Ackman believes that "this is not a bailout" but "the government is doing the right thing."

Analysts at Wall Street banks said this should boost the market in the short term, but in the long term it could trigger moral hazard and create new risks.

As Wall Street News mentioned earlier, after the Fed's emergency move, Goldman Sachs chief economist Jan Hatzius believed that there would be no further rate hikes in March:

Given recent stress in the banking system, we no longer expect the FOMC to achieve a rate hike at its March 22 meeting, and there is significant uncertainty about the path beyond March.

Credit Suisse Securities analyst Erika Najarian believes that financial stocks, especially bank stocks, may rebound under the boost from the Federal Reserve:

Our clients will likely continue to be tempted to flee to quality banks, ironically the quality assets being those “too big to fail, now regulated as having significant liquidity and capital”, i.e. JPMorgan Chase, Bank of America and Wells Fargo.

John Bromhead, strategist at Australia and New Zealand Banking Group, said the Fed’s quick response stopped systemic risks, which is good for risk assets but will put pressure on the dollar:

The size and speed of the policy response should calm fears in the financial system. Similar to the UK pension crisis in September or October last year, policymakers were able to effectively hedge risks and avoid any type of systemic event. As a result, we see a rebound in risk-sensitive currencies, which is negative for the dollar.

I think the dollar could face further pressure even if concerns about the financial system recede.

But in the long run, Priya Misra, global head of interest rate strategy at TD Securities, believes that this is just a sentiment stimulus to the market, but it does not really solve the problem:

Even if SVB is sold, concerns about liquidity and capital conditions in the banking system will remain. The new BTFP program provides liquidity to banks and should do much to boost sentiment. But we expect bank lending standards to deteriorate further, increasing downside risks.

We remain bullish on the 10-year Treasury, even though we expect the Fed to continue raising rates due to high inflation. We expect the Fed to raise rates by 25 basis points in March, with a final rate of 5.75%.

Paul Ashworth, chief North American economist at Capital Economics, also believes that the rescue measures will "not work":

Rationally, this should be enough to stop any contagion from spreading, and to prevent more bank failures, which in the digital age could happen in the blink of an eye. But contagion is more about irrational fear, so we stress that there is no guarantee that this will work.

Rabobank strategists Michael Every and Ben Picton said the Fed’s actions actually contributed to the increase in moral hazard:

If the Fed now supports anyone facing asset/rate pain, they are effectively allowing financial conditions to loosen dramatically, and moral hazard to soar.

The implication for markets is that the Treasury yield curve could steepen as the Fed will soon be actively aligning its 1-year BTFP lending with the ultimate level of the fed funds rate; or it could come under more pressure if people think the Fed will allow inflation to become stickier in its actions.

C3 Tip: The views, thoughts and opinions expressed here are the author's own and do not contain investment advice or recommendations. Every investment and transaction involves risk.