The latest on the Silicon Valley Bank collapse

US stock futures rose Tuesday morning as traders looked to find stable ground after days of whiplash-inducing volatility.

Investors celebrated an inflation report that met economists' expectations: February's Consumer Price Index showed the annual inflation rate for February was 6%, down from 6.4% in January; and the monthly rate was 0.4%, down from 0.5% in January.

Shares of regional banks were significantly higher after taking a brutal beating in the wake of the SVB and Signature Bank collapse.

The SPDR S&P Regional Banking ETF was up nearly 8% in early trading after falling 12.3% on Monday, and shares of First Republic bank were about 45% higher after dropping more than 60% yesterday.

Large bank stocks also popped on Tuesday morning. JPMorgan Chase was nearly 2% higher and Citigroup was up 2.9% after falling more than 7% on Monday.

Dow futures were up 200 points, or 0.6% on Tuesday morning.

S&P 500 futures were 0.8% higher.

Nasdaq Composite futures gained 0.6%.

Inflation remains elevated but the temperature is coming down, according to the latest Consumer Price Index.

The closely watched gauge of inflation, released Tuesday morning, showed that annual price increases continued to slow in February. 

CPI measured 6% for the year ended in February, down from January's 6.4% and in line with economists' expectations.

On a monthly basis, prices were up 0.4%, representing a cooldown from the January monthly growth rate of 0.5%. Economists were expecting a gain of 0.4%.

When stripping out volatile energy and food prices, core CPI grew 0.5% on a monthly basis and 5.5% year over year. 

China’s Andon Health, a maker of medical devices, says it has full access to funds parked at Silicon Valley Bank, after the United States government intervened to backstop all the deposits at the failed lender.

The Tianjin-based company, which manufactures consumer health devices and supplied Covid test kits to the US during the pandemic, has cash deposits at SVB worth 5% of its total cash and cash equivalents.

That amounts to approximately 675 million yuan ($98 million), according to calculations based on its most recent earnings report.

“Our deposits at Silicon Valley Bank can be used in full and have not suffered any losses,” the company said in a Tuesday filing to the Shenzhen Stock Exchange.

The collapse of SVB, which courted Chinese start-ups, has caused widespread concern in China, where a string of founders and companies rushed to appease investors by saying their exposure was insignificant or nonexistent. So far, more than a dozen of firms have issued statements trying to pacify investors or clients, saying that their exposure to SVB was limited. Most were biotech companies.

SVB, which worked with nearly half of all venture-backed tech and healthcare companies in the United States before it was taken over by the government, has a Chinese joint venture, which was set up in 2012 and targeted the country’s tech elite. The SPD Silicon Valley Bank, which was owned 50-50 owned by SVB and local partner Shanghai Pudong Development Bank, said Saturday that its operations were “sound.”

As the collapse of Silicon Valley Bank and Signature Bank scared investors and pummeledEuropean banking stocks, Credit Suisse’s share price fell to a new record low Monday, with the stock down 3.7% in morning trade.

Credit Suisse on Tuesday acknowledged “material weakness” in its financial reporting as it scrapped bonuses for top executives in the wake of its worst annual performance since the global financial crisis.

The embattled Swiss bank also said that chairman Axel Lehmann had proposed to “voluntarily waive” a share award worth 1.5 million Swiss francs ($1.6 million) for the 2022/2023 financial year, given the firm’s “poor financial performance.”

Credit Suisse (CSGKF) said in its annual report that it had found “the group’s internal control over financial reporting was not effective” because it failed to adequately identify potential risks to financial statements.

The revelations come just days after the bank delayed the publication of the annual report after an eleventh-hour query from the US Securities and Exchange Commission over cash flow statements for 2019 and 2020.

The board concluded that “this material weakness could result in misstatements of account balances or disclosures that would result in a material misstatement to the annual financial statements of Credit Suisse,” it added. Credit Suisse said it was urgently developing a “remediation plan” to strengthen controls.

Senator Elizabeth Warren is calling on Federal Reserve Chairman Jerome Powell to recuse himself from newly-launched review into the collapse of Silicon Valley Bank.

“Fed Chair Powell’s actions to allow big banks like Silicon Valley Bank to boost their profits by loading up on risk directly contributed to these bank failures,” Warren said in a statement. “For the Fed’s inquiry to have credibility, Powell must publicly and immediately recuse himself from this internal review.”

The Fed announced late Monday it has launched a review into the supervision and regulation of Silicon Valley Bank. That bank failure raises questions about whether regulators – including those at the Fed – provided enough oversight and should have seen this trouble coming.

The review will be led by Michael Barr, the Fed’s vice chair for supervision, and the results will be released by May 1, according to the Fed.

“It’s appropriate for Vice Chair for Supervision Barr to have the independence necessary to do his job,” Warren said.

Sheila Bair, a top banking regulator during the 2008 global financial crisis, said she hopes “people keep their head” after SVB's collapse, adding that she believes that the problem facing the banking sector is more about fear than bank insolvency.

Appearing on CNN This Morning, Bair told anchor Poppy Harlow that it’s “not clear” if more banks will fail, but said that the Silicon Valley Bank was embroiled in an “unusual situation.”

“I do hope people keep their head,” Bair said. “I think most of these regional banks are just fine, but it concerns me that everybody is getting tagged with the same problems Silicon Valley Bank had and that was an unusual situation.”

“I do think fear is the problem now, not so much bank solvency trouble,” she added. “I don’t see any pervasive problems in our banking system," she added.

Bair also reiterated that the Federal Reserve needs to halt its war on inflation.

“The Fed needs to hit pause and assess the full impact of its actions so far before raising short rates further,” Bair, the former chair of the Federal Deposit Insurance Corporation, previously told CNN.

The monthly Consumer Price Index inflation report has become must-watch economic data over the past year. But the February report, set to be released at 8:30 a.m. on Tuesday, has taken on extra significance in light of market volatility because of SVB's collapse and the Federal Reserve's quest to prevent other banks from failing.

It's also one of the last major pieces of economic data to come out before the Fed’s rate-setting meeting next week.

Prior to the SVB collapse and related banking stresses, economists viewed February's CPI as the potential decisive factor as to whether the Fed would stick with another quarter-point hike or ramp back up to a half-point hike.

Now, markets anticipate that it's more likely that the Fed will go with another quarter-point hike — or even no hike at all.

In January, consumer price inflation surged by 0.5%, the highest monthly move since October. Economists surveyed by Refinitiv expect February CPI will show an overall slowing, with monthly inflation at 0.4% and yearly inflation at 6%.

That could mean a smaller rate hike at the Fed's March 21-22 meeting. The central bank has been battling inflation with rate hikes for almost exactly a year now, hiking its benchmark lending rate eight times in that period. But the US economy still isn’t seeing enough of a turnaround in inflation.

That’s partly because the labor market remains truly strong. A robust job market — and, in turn, higher wages — puts upward pressure on inflation, even when other areas of the economy are slowing or seeing outright price declines.

Silicon Valley Bank was established in 1983. Before the collapse, it was America’s 16th largest commercial bank that provided banking services to nearly half of all US venture-backed technology and life science companies.

It benefited hugely from the tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.

It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom.

The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements.

Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. Its global headcount more than doubled.

The shocking implosion of Silicon Valley Bank should not deter the Federal Reserve from its war on inflation, according to former FDIC and Fed official Thomas Hoenig, who urged the Fed to keep hiking rates because inflation hasn't gone away.

“The Federal Reserve is in the hot seat. It’s a no-win situation for them,” Hoenig, the former vice chair of the Federal Deposit Insurance Corporation, told CNN in a phone interview on Monday.

Raising interest rates at the Fed’s monetary policy meeting next week could add to the financial pressure facing the banking system, in part by further depressing the value of the bonds that banks are sitting on.

Despite high inflation, many investors are betting there is a growing chance the Fed holds steady at next week’s meeting. That marks a significant shift from just a week ago when the markets were pricing in a half-point rate hike.

“In light of the stress in the banking system,” the Fed is likely to keep rates unchanged next week, Goldman Sachs told clients on Sunday.

Nomura is going a step further, predicting the Fed will completely reverse course and start cutting interest rates next week and halt the shrinkage of its balance sheet. This marks a dramatic reversal, given that the Japanese investment bank previously expected a half-point rate hike.

Hoenig said he would be “disappointed” if the Fed started to cut interest rates now, warning of “long-run consequences” that could invite a repeat of 1970s-style runaway inflation.