Despite some relative calm, the financial stress resulting from the sixteenth-largest bank's collapse in the United States continues. Jerome Powell, the Chairman of the Federal Reserve, stated that "We are still trying to understand how it failed. We are trying to identify what went wrong." Credit Suisse in Switzerland experiencing similar problems after Silicon Valley Bank (SVB) has only heightened concerns.

Following its collapse, SVB put the Federal Reserve on alert and caused the Fed's balance sheet to increase by $297 billion in a short amount of time. The deposits and loans of SVB were sold to First Citizen Bank by the Federal Deposit Insurance Corporation (FDIC).

According to the agreement, the transfer of SVB's assets, valued at $72 billion, was made at a discount of $16.5 billion. Additionally, FDIC will continue to provide insurance for all deposits in the bank.

Following the transfer of SVB's loans and deposits to First Citizen Bank, partial recoveries were observed in European banking stocks. After experiencing sharp declines last week, there have been a few days of gains in the stock market.

However, the prevailing view in the market is that this step alone will not be sufficient. While stressing the resilience of the banking sector in Europe, Nagel, the President of the German Central Bank, also suggests that the European Central Bank (ECB) will take measures to dispel panic in the market.

The crisis that started in the U.S. has spread to Credit Suisse in Europe and was followed by a sharp drop in Deutsche Bank shares, turning attention towards the ECB. However, it seems that there is no consensus within the ECB regarding intervention in the crisis.

News emerged that there was a disagreement between ECB President Lagarde and Executive Board member Schnabel during the March meeting. According to Bloomberg, Schnabel wanted the decision text to emphasize that interest rate hikes would continue in the coming period, while Lagarde, with a calmer approach, reportedly preferred to express these ideas verbally rather than in writing.

The general expectation is that both the Fed and the ECB will take more cautious decisions and make statements until things calm down. However, the fact that inflation is not slowing down as expected continues to increase concerns about price stability. As discussions continue about how central banks caught between price stability and financial stability will adjust, it can be said that the general trend is towards tightening by the ECB. In this case, it should be noted that a level higher than the previously expected 1.10 may become likely in the Euro/Dollar exchange rate.