Per Business Insider

The founder of "The Bear Traps Report," Larry McDonald, has said that the Silicon Valley Bank crisis could result in the Federal Reserves having to cut down 100 basis points from interest rates. The founder said this would potentially help prevent the situation from affecting the broader financial system.

In a statement to CNBC, Larry McDonald gave a statement regarding how the collapse could affect other aspects of the financial system. These include high yields and leverage loans.

McDonald: "Within the next couple of months, as the contagion brews up this channel — up to high yield, leveraged loans, across the entire ecosystem — that's when the Feds gonna have to bring out the other firehose and cut rates, probably within six to nine months,"

In related news, US banks had unrealized losses that were worth $620 billion by the end of 2022, per the FDIC. This meant that banks held on to assets with negative performances, and should they sell, they would incur an actualized loss.

As long as they kept holding, the losses would remain unrealized, but should customers withdraw their funds altogether, banks would have to find a way to cover these unrealized losses.

Before Silicon Valley Bank collapsed, its CEO Greg Becker reportedly sold $3.57 million worth of stock within the last two weeks. Other SVB seniors sold off massive stock since Feb 1. These include Michael Zucker (General Counsel), Daniel Beck (CFO), and Michelle Draper (CMO).

Congressman Ro Khana said the CEO should return gains from the recent stock sale. After the collapse, Becker asked employees to "hang around" and "support each other."

Larry McDonald said that, unlike bigger banks, regional banks like SVB were unaccustomed to having staff and experts in managing the risks of higher interest rates. SVB is the largest bank to collapse since 2008.

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