Key Points

  • The recent collapse of 3 regional US banks is a timely reminder of the impact of tighter monetary policy on liquidity. These banks carried idiosyncratic risks and leveraged into either speculative venture capital or high-risk lending.  At this stage, there are few systemic risks, but more corporate and institutional failures should be expected.
  • The reaction from the regulators was swift and guided by lessons learned during the GFC. Depositors were protected even if regulation fell short of protecting them prior to the failure.  Other banks in the system were protected against future drains on liquidity by setting up a new lending facility.  This positive response from regulators was crucial in underpinning confidence in the banking system.
  • The Fed will more closely consider the impact of tightening liquidity when it meets next week and will probably opt for a 25bp increase in the Fed funds rate rather than 50bp as markets had factored in this time last week. Tightening policy has two points of attack – raising the cost of capital and draining liquidity.  It works like stretching a rubber band until it breaks, and a large tear has now opened up.
  • We reduced our underweight to fixed income on 27 February and plan to soon move overweight. The trajectory of the 2-year yield is important for asset allocators from here.  It appears to have finally reached its cyclical peak and it normally falls before equities, just prior to a recession.  We already have a large underweight in equities in preparation for a recession and we will maintain this position.  However, moving overweight in fixed income is the next move investors should be considering.

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About the Author

Shane Lee is a strategist at Foresight Analytics. He has around 20 years’ experience in various side-sell research and asset allocation roles. He was the asset allocation analyst at ANZ wealth/IOOF for a 2-year period between 2017 and 2019. Between 2015 and 2017 Shane was running his own research business providing Australian equity market and global tactical asset allocation advice to Australian pension funds and both Australian and offshore asset managers. To reach out to Shane, contact him at


About Foresight Analytics 

Foresight Analytics, an independent Sydney-based firm, provides investment diligence, data analytics, and advisory solutions to leading investment management companies, superannuation funds and wealth groups across the Asia Pacific. Foresight’s innovative, evidence-based approach blends both human and forensic insights to provide a range of analytical, predictive and market intelligence solutions to investors. Foresight Analytics was founded in 2015 by Jay Kumar, a former executive of Morningstar, Optimix Investment Management, ANZ Wealth & Private Bank and the Reserve Bank of Fiji. Foresight’s fiduciary solutions include Diligence Services (Investment, Operational, ESG & Risk Diligence), Data Analytics and Asset Consulting. Foresight’s fund strategy solutions include Data Analytics for asset managers, Fund Strategy Benchmarking Solutions and Strategic Research.

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