Should the issues with SIVB have been a surprise? Considering that the Tier 1 capital ratios have been faltering for some time perhaps it should not have been.
Well, check out this article from Reuters from October 2022:
Right off the bat, "The Federal Reserve's net income turned negative in September, minutes from its most recent policy meeting showed, although the largely technical development...will not affect the US central bank's ability to conduct monetary policy and does not threaten its financial position."
Graphically, and we all know the danger of graphs, this looks pretty significant:
Back to the article: "The Fed's bottom line is being pressured by the tools it uses to set monetary policy. The central bank deploys two rates to manage the federal funds rate, its chief level to influence the path of the economy." This article was written when the fed funds rate was in the 3-3.25% target range. They manage this by using the reverse repo.
The Fed is paying out to maintain the reverse repo and thus we see the impact on reserve balances.
One more time to the article:
Fed officials have repeatedly stressed that central bank negative income is not like a conventional bank losing money. The Fed addresses negative income via what's called a deferred asset, which is an accounting measure that the central bank would then seek to cover when it begins turning a profit again. As of the Fed's most recent data, the size of this deferred asset now stands at $2.9 billion.
The minutes released on Wednesday said the deferred asset should rise over time, although no number was given. The minutes said "the staff expected that the size of the associated deferred asset would increase over time until net income turned positive, likely in a few years."
Perhaps these surprises should not be...surprises.