1 big thing: Bond market swings are wildest since '08

2. Catch up quick

3. Down payment down

4. Banking crisis spillover 

5. Bargains in San Francisco

🗓 Folks, it's Fed Day. For the first time in a while, there's uncertainty about the outcome, as our friends at Axios Macro noted. 

Until a pesky banking crisis came along, the vibe was "higher, for longer." Now it's more like, 🤷‍♀️ 🤪. Set your alarms for 2pm ET, when the policy decision is announced. The presser at 2:30 should be spicy.

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✨ Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece. 

Markets

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Stay on top of the latest market trends and economic insights

Axios Markets

1 big thing: Small banks, big problems

High-yield bond spreads show increasing recession jitters

3. The bond market's take on recession risk

4. 🏚 Comparing housing slumps

🌅 Good morning! It's Emily and I'm counting down the days until the Season 4 premiere of Succession on HBO. Thankfully, we did get a little real news about an old media titan yesterday to tide us over till then. 

Today's newsletter is 1,104 words, 4 minutes

1 fun thing: On the occasion of Howard Schultz stepping down as CEO of Starbucks, again, you might want to check out the history of the Frappuccino in Saveur. It didn't start out quite so sugary — nor was it invented by Starbucks.

Editor’s note: The item about the Los Angeles school district has been corrected to show that the strike is by service employees, not teachers.

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Today's newsletter was edited by Kate Marino and copy edited by Lisa Hornung.

1 big thing: An unavoidably messy bank failure

3. The thin $250,000 line

Illustration of a hundred dollar bill with a red line across it being erased by a pencil

4. Savings accounts cling to the past 

🤝 Yeesh, what a wild weekend. The Swiss government raced to pull off the biggest banking deal since the financial crisis: Banking giant UBS is buying its beleaguered rival Credit Suisse, for very little money — as Felix explains below. 

Now all eyes are on the U.S. markets for the reaction.

Today's newsletter is 1,211 words, 5 minutes. Let's go!

1 last FDIC thing: Before the creation of FDIC insurance, banks failed a lot. More than 9,000 banks failed in the four years before deposit insurance went into effect in 1934, according to a paper from the FDIC entitled "A Brief History of Deposit Insurance in the United States." (It's 76 pages.)

The FDIC maximum has been raised only seven times in its 90-year existence, and the last two times were because of financial turmoil. 

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✏️ Markets is edited by Kate Marino and copy edited by Mickey Meece.

1 big thing: Powell says deposits are "safe"

2. Charted: Those comments 

3. Catch up quick

4. Bank crisis could do the Fed's work 

Jay Powell standing in front of a U.S. flag with the stars replaced by percent signs

5. Low-wage workers get big raises

🧳 Welcome back, we're glad you're here! There's lots to unpack from Fed chair Jerome Powell's press conference, plus if you make it to the end we have a big question for you. (Hint: ☕️ + 🫒)

So, let's do this. Today's newsletter is 1,084 words, 4.5 minutes.

☕️ 1 caffeinated thing: This week, Starbucks started selling olive oil coffee drinks. Seriously. It's coffee with a spoonful of EVOO. And it got me thinking. 

Last June, when I revealed my preference for the sugary hazelnut creamer my local gas station provides alongside its free mediocre coffee. Many wrote in and said, "gross, Emily, no." (I am paraphrasing.)

So now, I'm asking: Is olive oil in your coffee better or worse than that creamer? Just reply to this email and share your thoughts. 

Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece.

1 big thing: Emergency lending soars

3. The FDIC's long game

Illustration of a bunch of origami dollar bills folded into  human form holding hands

4. The WFH debate just got more complicated 

☘️ What a week. There's more banking news to consider today. We're also watching events unfold in France, which is mired in protests over President Emmanuel Macron's push to raise the retirement age to 64. 

From an American perspective, this seems...fine. When are you folks going to retire? Email us.

Today's newsletter is 1,203 words, 4.5 minutes

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Markets is edited by Kate Marino and copy edited by Mickey Meece.

National

In a story in the Financial Times out Thursday, current and former Silicon Valley Bank employees cited the bank's commitment to remote work as one reason for its failure.

Why it matters: In the aftermath of the collapse of the 16th biggest bank in the country everyone is trying to understand what happened. 

Whether remote work led directly to a bank failure, or whether poorly-managed remote work was simply a sign of bigger problems at the company, we may never know. Either way, what happened at SVB will likely enter the broader debate about returning to the office.

Details: The banking industry has led the return to office charge for a while, and SVB was an outlier in its commitment to something different.

The company's career site touted its flexible culture. "If our time working remotely has taught us anything, it’s that we can trust our employees to be productive from wherever they work," the site says.

 The executive team at SVB was spread out around the country, with CEO Greg Becker at times working from Hawaii, according to the FT.

Yet, SVB included remote work as a risk to its business in its 2022 annual report — in part because of the IT issues posed when employees are dispersed around the country, but also for productivity reasons.

The FDIC, which now runs the bank, told staff they could continue working remotely — except essential workers and branch employees, per Reuters.

The big picture: Whether or not remote work succeeds in any organization depends a lot on how it's managed. 

"There are well-managed organizations that operate remotely," said Kevin Delaney, CEO of Charter, a media and research firm that works with companies on talent strategy. And some companies have abandoned remote work or hybrid work models because they weren't well-run, he said.

Best Buy, an early pioneer of hybrid work, got rid of its hybrid work policy because it had stopped training new employees on how to operate in a flexible work environment, leading to cultural issues. (Read this 2021 New Yorker piece for more on that.)     

Yahoo famously called all its employees back to the office a decade ago, when a new CEO took the helm and tried to turn that sinking ship around. 

The immediate cause of SVB's failure, as we've said before, was that the company didn't take into account the risks that a high-interest rate environment, coupled with its concentrated tech-heavy clientele, posed to its balance sheet.

Then, its public communications around a needed capital raise incited panic, which led to an unprecedented viral bank run, as Axios' Eleanor Hawkins reported.

It's certainly possible that if more executives were working in closer proximity those missteps would've been avoided. But it's hard to really know.

The bottom line: Companies looking for a reason to bring workers back to the office may find it in this piece. 

SVB employees blame remote work for bank failure

What happened at Silicon Valley Bank will likely enter the broader return-to-office debate.

Illustration of a person working at a desk in the middle of a island

Remote work

Silicon Valley Bank

In a story in the Financial Times out Thursday, current and former <a class="gtmContentClick" data-vars-link-text="Silicon Valley Bank" data-vars-click-url="https://www.axios.com/economy-business/svb-silicon-valley-bank" data-vars-content-id="1100375f-37e6-4795-aac5-53b12dae7ca7" data-vars-headline="SVB employees blame remote work for bank failure" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/economy-business/svb-silicon-valley-bank" target="_self">Silicon Valley Bank</a> employees cited the bank&#x27;s commitment to <a class="gtmContentClick" data-vars-link-text="remote work" data-vars-click-url="https://www.axios.com/2023/01/24/remote-work-saved-workers-72-minutes-per-day-study-finds" data-vars-content-id="1100375f-37e6-4795-aac5-53b12dae7ca7" data-vars-headline="SVB employees blame remote work for bank failure" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/01/24/remote-work-saved-workers-72-minutes-per-day-study-finds" target="_self">remote work</a> as one reason for its failure.Why it matters: In the aftermath of <a class="gtmContentClick" data-vars-link-text="the collapse" data-vars-click-url="https://www.axios.com/2023/03/11/the-largest-bank-run-in-history" data-vars-content-id="1100375f-37e6-4795-aac5-53b12dae7ca7" data-vars-headline="SVB employees blame remote work for bank failure" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/11/the-largest-bank-run-in-history" target="_self">the collapse</a> of the 16th biggest bank in the country everyone is trying to understand <a class="gtmContentClick" data-vars-link-text="what happened" data-vars-click-url="https://www.axios.com/2023/03/13/silicon-valley-bank-collapse-market" data-vars-content-id="1100375f-37e6-4795-aac5-53b12dae7ca7" data-vars-headline="SVB employees blame remote work for bank failure" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/13/silicon-valley-bank-collapse-market" target="_self">what happened</a>.

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

Data: EPI analysis of the Current Population Survey; Chart: Axios Visuals

Pay rose at historically fast rates for low-wage workers in the U.S. between 2019 and 2022, even after adjusting for inflation, according to an analysis from the Economic Policy Institute released Thursday morning.

What happened: The tight labor market and disruptions from the pandemic gave folks at the lowest end of the pay scale unprecedented amounts of leverage over employers.

The mass layoffs of 2020 combined with ample relief money from the government, actually put workers in a better position — with time away from work and resources to fall back on — to find new jobs once the market came back.  

"For so many people, they didn't actually realize that there might be better opportunities out there," said Elise Gould, a senior economist at the progressive think tank, who co-wrote the analysis.

Reality check: These folks are still not making much money. 

In 2022, the 10th percentile hourly wage, i.e. the workers at the bottom, was $12.57. 

That's not considered enough for one person to maintain an adequate standard of living anywhere in the U.S., according to EPI's calculations.

Worth noting: Those at the very, very top saw enormous gains. 

Wages for the top 1% and 0.1% rose 16.1% and 29.2% between 2019 and 2021, according to Social Security Administration data also analyzed by EPI.

Pay soared for the lowest-wage workers over the past three years

Wages

Pay rose at historically fast rates for low-wage workers in the U.S. between 2019 and 2022, even after adjusting for inflation, according to an <a class="gtmContentClick" data-vars-link-text="analysis" data-vars-click-url="https://www.epi.org/publication/swa-wages-2022/" data-vars-item="in_content_link" href="https://www.epi.org/publication/swa-wages-2022/" target="_blank">analysis</a> from the Economic Policy Institute released Thursday morning.What happened: The tight labor market and disruptions from the pandemic gave folks at the lowest end of the pay scale unprecedented amounts of leverage over employers.

Homebuyers aren't putting as much money down as they were at the height of the housing frenzy. 

What's happening: The typical U.S. homebuyer made a down payment of $42,000 in January, the lowest number in almost two years, per a report out from Redfin Wednesday morning, provided exclusively to Axios. 

The median downpayment is now 10% of the purchase price of the house, off its peak of 17.5%, (which amounted to $65,000), in May 2022.

State of play: High mortgage rates changed the calculus around down payments.

The rates crushed the market and drove a lot of people away, so there's less competition now. Buyers don't need to distinguish themselves from other bidders with big deposits. 

Background: When a lot of buyers are vying for a home, a chunky down payment is a sign to the seller that you're a safe bet compared to someone putting less money down, who could be stretching to afford a house — a sign that their financing could fall through.

Meanwhile, home prices haven't come down very much. They fell for the first time year over year this February and only by 0.2% from last year, according to a report out Tuesday from the National Association of Realtors.

Add higher rates to that equation and you get buyers facing higher monthly payments, who are more constrained in what they can afford to put down.

How they did it: Redfin analyzed country records in 40 of the most populous metropolitan areas in the U.S., looking at homebuyers who took out a mortgage.

The bottom line: First-time buyers who may not have been able to marshal the cash for a big down payment during the boom now have a shot at getting in the game. That's "one silver lining," as the Redfin report notes.

Homebuyers are putting less money down now, as bidding wars fade

It's one side effect of cooling competition for homes.

Housing

LIne chart shows median down payment in January 2020 as 10%, dropping later that spring then rising to 15% in 2021 and even higher in 2022 and now falling back to 10% in January 2023

Homebuyers aren&#x27;t putting as much money down as they were at the height of the <a class="gtmContentClick" data-vars-link-text="housing" data-vars-click-url="https://www.axios.com/2023/03/03/home-prices-fall-year-over-year-for-the-first-time-since-2012" data-vars-item="in_content_link" href="https://www.axios.com/2023/03/03/home-prices-fall-year-over-year-for-the-first-time-since-2012" target="_self">housing</a> frenzy. What&#x27;s happening: The typical U.S. homebuyer made a down payment of $42,000 in January, the lowest number in almost two years, per a <a class="gtmContentClick" data-vars-link-text="report out from Redfin" data-vars-click-url="https://www.redfin.com/news/down-payments-decline-all-cash-january-2023/" data-vars-item="in_content_link" href="https://www.redfin.com/news/down-payments-decline-all-cash-january-2023/" target="_blank">report out from Redfin</a> Wednesday morning, provided exclusively to Axios.

Data: Federal Reserve; Chart: Axios Visuals

A pullback in lending among small banks in the U.S. was already underway before the collapse of Silicon Valley Bank and Signature Bank. Now economists expect to see more tightening.

Why it matters: Stricter lending standards among smaller banks is likely to slow economic growth overall. But the commercial real estate sector, already battered by rising interest rates and half-empty office buildings, is particularly at risk.

The big picture: Big banks get a lot of attention, but there are about 4,800 banks in the U.S. — and the small ones play a large role in the economy, as a recent Goldman Sachs report notes.

Small and midsized banks, defined as domestically chartered banks not among the 25 largest, currently hold 67.2% of all outstanding commercial real estate loans, and 37.6% of loans overall. (h/t: Wall Street Journal for chart inspiration.)

These small players grease the wheels of the economy in all kinds of ways, particularly in specialized areas and regions. Think, Signature Bank's lending to Broadway or SVB's lending to startups.

Zoom out: By the end of last year, banks were already pulling back on lending, as they saw more deposits head out the door, said Chad Littell, CoStar Group's national director of U.S. capital markets analytics.

Regular consumers had burned through excess savings, and needed money to pay the bills. And some companies — like the tech startups who banked at SVB — were seeing a greater need to access their cash, too.

About 40% of loan officers said they had tightened lending standards in the commercial real estate space during the last quarter of 2022, per an analysis of the Fed's most recent quarterly survey of loan officers by CoStar. Only about 5% said they were tightening at the end of the previous year.

Meanwhile: Another huge area of office building financing — the market for commercial mortgage-backed securities (CMBS), where banks bundle the loans and resell them to investors — is seizing up. Sales of these deals were down 85% in February, compared with last year, per Bloomberg.

Between the lines: The failures of SVB and Signature are likely to accelerate the pullback. "The banking sector, which was already limiting its exposure to real estate, may look to restrict lending even further after the recent collapse, especially among regional and community banks," Littell wrote in a recent report.

Yes, but: Since lending standards were already tight, it's possible the impact of these recent bank failures "might be more limited," write the Goldman authors.

Where this surfaces first: Probably in the most distressed part of the real estate sector, offices — particularly Class B. 

Those most at risk: Companies with floating-rate loans whose interest burdens have become increasingly unaffordable, or those with loans scheduled to mature soon. "That's probably the biggest area of concern," Littell said.

What to watch: How this pullback trickles out to regular folks and the economy — and whether it makes it harder to get car loans or other kinds of consumer loans. 

Small bank struggles could hit the real estate market hard

A lending pullback could hit the struggling real estate market hard

Banks

A pullback in lending among small banks in the U.S. was already underway before the collapse of Silicon Valley Bank and Signature Bank. Now economists expect to see more tightening.Why it matters: Stricter lending standards among smaller banks is likely to slow economic growth overall. But the commercial real estate sector, already battered by rising interest rates and half-empty office buildings, is particularly at risk.

The FDIC guarantees bank deposits of up to $250,000 — a figure most of us weren't thinking all that much about until a week ago, when regulators guaranteed all customer deposits, even those above a quarter-million dollars, at two failed banks.

Why it matters: Now lawmakers, academics, and some in the financial industry are debating whether the FDIC limit, which hasn't been raised since 2008, needs to be increased — or abolished altogether.

Over the weekend, four different lawmakers involved in banking said they'd consider raising the limit, CNBC reports. Last week, Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, told the New York Times that raising the limit is something Congress should contemplate, in an interview.

A coalition of midsize banks is asking the FDIC to insure all deposits for at least two years, Bloomberg reported. 

The big picture: Regulators stirred up some murkiness when they decided to protect all depositors at Silicon Valley Bank and Signature Bank, with the aim of stemming a serious systemic risk to the financial system.

On the one hand, their actions sent the message that if you deposit more than $250,000 at an important-enough bank, it's safe.

On the other hand, no one has said exactly that. The limit still exists and uninsured deposits are still uninsured.

And it's unclear what makes a bank important enough: First Republic Bank, SVB's similarly sized peer, continued to experience withdrawals of uninsured deposits after SVB's rescue. 

So we're left with confusion. "At this point, the $250,000 cap is illusory," write Lev Menand and Morgan Ricks in a piece for the Washington Post. But the fact that the official cap remains in place means that “much of the nation’s money is unsound and unstable — an ever-present sword of Damocles hanging over the U.S. economy."

Menand and Ricks argue the U.S. should scrap the limit.

Zoom out: The rationale behind the deposit limit is that everyday Americans are low-information lenders — we put our money into a bank, unsecured, without doing a deep dive into the bank's finances to make sure it's sound. Knowing that deposits are backed by the FDIC obviates the need for every person to become a bank analyst.   

But wealthier depositors, including the companies that place more than a quarter-million dollars in the bank, are supposed to be more sophisticated — and better able to handle the risk.

What happened with Silicon Valley Bank throws that whole line of reasoning out the window.

"Large depositors are both bad at monitoring banks and perfectly capable of engaging in destabilizing runs," per Menand and Ricks.

Why should all Americans care about the fate of wealthy depositors? Because their bank runs affect us, too. As we've seen this month, payrolls become imperiled and other banks start to teeter. 

The other side: Opponents have long argued that insuring all deposits would give banks too much license to take risky bets with depositor money. 

The bottom line: In stable times, deposit insurance is part of the financial wallpaper. But when the, er, bank hits the fan, everyone starts paying attention.

Why some argue it's time to raise the FDIC deposit cap

As it stands, things are murky: The cap exists, but it could be waived for banks that seem important enough

Federal Deposit Insurance Corporation (FDIC)

The FDIC guarantees bank deposits of up to $250,000 — a figure most of us weren&#x27;t thinking all that much about until a week ago, when regulators guaranteed all customer deposits, even those above a quarter-million dollars, at <a class="gtmContentClick" data-vars-link-text="two failed banks" data-vars-click-url="https://www.axios.com/economy-business/svb-silicon-valley-bank" data-vars-content-id="f0e91962-2aa3-4270-b891-40b94d54ec4f" data-vars-headline="Why some argue it&#x27;s time to raise the FDIC deposit cap" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/economy-business/svb-silicon-valley-bank" target="_self">two failed banks</a>.Why it matters: Now lawmakers, academics, and <a class="gtmContentClick" data-vars-link-text="some in the financial industry" data-vars-click-url="https://link.axios.com/click/30891053.30/aHR0cHM6Ly93d3cuYXhpb3MuY29tLzIwMjMvMDMvMTkvc3ZiLWZkaWMtc2lnbmF0dXJlLWJhbmstbWlkc2l6ZS1iYW5rcz91dG1fc291cmNlPW5ld3NsZXR0ZXImdXRtX21lZGl1bT1lbWFpbCZ1dG1fY2FtcGFpZ249c2VuZHRvX25ld3NsZXR0ZXJ0ZXN0X2J1c2luZXNzJnN0cmVhbT10b3A/61d5beff047ff4123ba13a19B27926e0f" data-vars-content-id="f0e91962-2aa3-4270-b891-40b94d54ec4f" data-vars-headline="Why some argue it&#x27;s time to raise the FDIC deposit cap" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://link.axios.com/click/30891053.30/aHR0cHM6Ly93d3cuYXhpb3MuY29tLzIwMjMvMDMvMTkvc3ZiLWZkaWMtc2lnbmF0dXJlLWJhbmstbWlkc2l6ZS1iYW5rcz91dG1fc291cmNlPW5ld3NsZXR0ZXImdXRtX21lZGl1bT1lbWFpbCZ1dG1fY2FtcGFpZ249c2VuZHRvX25ld3NsZXR0ZXJ0ZXN0X2J1c2luZXNzJnN0cmVhbT10b3A/61d5beff047ff4123ba13a19B27926e0f" target="_blank">some in the financial industry</a> are debating whether the FDIC limit, which hasn&#x27;t been raised since 2008, needs to be increased — or abolished altogether.

Emily Peck

Stories

Pay soared for the lowest-wage workers over the past three years

Homebuyers are putting less money down now, as bidding wars fade

Small bank struggles could hit the real estate market hard

Why some argue it's time to raise the FDIC deposit cap

SVB employees blame remote work for bank failure

Newsletter editions

💬 "Safe"

🔃 Wildest since '08

🏦 Thinking small

🤔 No limits

💰 Panic at the discount (window)