Disintermediation: New Problem For The Fed

Yesterday's sell-off in the stock market was led by bank stocks. It was mostly triggered by fears that SVB may be the start of a financial crisis that leads to an economy-wide credit crunch and recession. As it has done often in the past, the inverted yield curve has been signaling since last summer that something could break in the financial system if the Fed continues to tighten monetary policy (chart).

The meltdown in SVB may be the beginning of a credit crunch for tech startups since the bank has been a major lender in that space. However, we doubt that it is the canary in the coal mine for the overall credit system.