Federal Regulators Announce They Are Stepping In to Back Silicon Valley Bank Deposits
Regulators also close New York’s Signature Bank, citing systemic risk.
As I reported on Friday, federal regulators have been busy through the weekend to stem any fiscal panic related to the collapse of Silicon Valley Bank (SBV), an institution geared to aiding startup companies.
Federal regulators have now announced that SBV customers will have access to their deposits starting on Monday, in an effort to shore up deposits and stem any broader financial fallout from the collapse.
The boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, in consultation with President Joe Biden, approved the FDIC’s resolution of SVB, according to a joint statement from U.S. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg on Sunday evening.
The move will not lead to losses by American taxpayers and all depositors will be made whole, the statement said.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the statement said. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
This comes shortly after Treasury Secretary Janet Yellen announced that the federal government will not bail out SVB.
Despite this, Yellen told CBS News Sunday morning, that a bailout like the one in 2008 is not on the table – though she said she is concerned about the investors.
‘Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out… and the reforms that have been put in place means we are not going to do that again,’ she said.
‘But we are concerned about depositors, and we’re focused on trying to meet their needs.’
Of course, this is the same Yellen that said inflation — which is at the heart of the SVB problems — was “transitory”.
Janet Yellen: Inflation is transitory.
Also Janet Yellen: Inflation was not transitory.
— Douglas A. Boneparth (@dougboneparth) June 1, 2022
So it isn’t a “bailout”…but depositors are being “protected”.
A senior US Treasury official said the firms were not being bailed out, but depositors were being protected.
Silicon Valley Bank equity and bondholders would be wiped out, said the official, who briefed reporters after the announcement.
The Biden administration will work with Congress and financial regulators to consider additional actions to further strengthen the financial system, the official said.
The official announcement of this assistance to depositors also included a troubling, new detail: Signature Bank was also teetering.
Signature Bank had 38 private client offices throughout New York, Connecticut, California, and North Carolina.
It was founded in 2001 for wealthy clients, with more than $250,000 in assets.
‘We are going after the guy who started his business in Brooklyn and is now worth $20 million,’ said founder and chief executive Joseph DePaolo in an interview with Crain’s New York Business.
Sunday’s statement continued: ‘We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole.
‘As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.’
Signature Bank is one of the main banks to the cryptocurrency industry.
It had a market value of $4.4 billion as of Friday, according to FactSet. The stock had fallen nearly 40% this year after its crypto banking peer Silvergate Capital liquidated its bank.
As of Dec. 31, Signature had $110.4 billion in total assets and $88.6 billion in total deposits, according to a securities filing.
U.S. stock futures rallied in Asian trade as their markets opened on Monday, in the wake of this announcement.
Investors reacted by sending U.S. S&P 500 stock futures up 0.9%, while Nasdaq futures rose 1.1%.
Yet, such was the concern about financial stability, that investors speculated the Fed would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month.
Fed fund futures surged in early trading to imply only a 28% chance of a half-point hike, compared to around 70% before the SVB news broke last week.
I suspect all eyes will be on Wall Street Monday, to see if the panic truly has been stemmed by these moves.
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Comments
Repeat a lie often enough….
We’ve been here far too often. Whatever it is they are yelling the loudest, in this case ‘No losses will be borne by the taxpayer’, the opposite is invariably true.
Technically, SVB had/has sufficient assets to cover all the deposits. The problem, and this is what killed them, the assets couldn’t be liquidated quickly enough to cover the withdrawals. That is where the money is going to come from…eventually.
I suspect SVB is being dismembered as we speak.
@joelpollak
I’m floored by how little sympathy conservatives generally have for employees in Silicon Valley, most of whom have nothing to do with SVB and some of whom are not “woke”. This is a soft form of “civil war,” or maybe a prelude to it: we no longer care about each other’s suffering
It’s hard for me to have sympathy for woke c*nts who gleefully act as the government’s censorship agents.
Sympathy is in the dictionary somewhere between shit and syphilis.
If you haven’t noticed, we are their enemy based on their own comments. I don’t have any sympathy for any of them, and in fact celebrate how many are losing their livelihoods and their money.
I am confused again. The full value of the deposit, or just the FDIC $250K?
If all of it, how?
The Fed reserve basically is gonna ‘print’ money and hand it over. Depositors will not face any loss at all. More magic wand finance totally detached from reality, which will stop the bitching and moaning of depositors and stave off any reasonable fear of contagion.
The galling part is these depositors are not for the most part average Joe and Jane; these folks facing risk of loss above the FDIC guarantee are basically by definition ‘sophisticated investors’. Especially so for the business accounts of flipping Venture Capital firms and those who service the economy of Silicon Valley.
More broadly the lack of bank willing to purchase is curious. Cui bono? The big money center banks and financial services industry. The reality of rate hikes and actual positive returns in fixed income securities as an alternative to equity markets scares the hell out these guys. They wanted a return to the easy money near zero interest rate environment that allows them to make easier and larger profits even when they do dumb things.
This rewards the financial system and those who control it not the little guy or mom and pop investors. Yes I am very salty about this. Why can’t we have a world where some average Joe can put his money into a CD or Treasury and still make a return bigger than inflation? B/C the financial services system doesn’t want that world; it would make their jobs far more difficult and create too much competition. They like easy money, loose Fed policy. End of rant.
Several inaccuracies in your post. Most of the depositors are small companies employing 10-200 people. Imagine you raised a few million dollars to fund your start-up. You deposit it with SVB, a bank that has been around for 40 years without issue and one that about 50% of US based start-ups use as their primary bank.
Then one day, literally 24 hours, the bank fails and you can’t make payroll. Your opinion is tough shit, close it down and fire everyone? Really?
The bank is not being bailed out, The shareholders are wiped out and senior management has been let go. The depositors are being made whole. This also includes many VC and PE funds, They are sophisticated investors but it’s not their money (for the most part). It belongs to endowments, charities and yes, to some wealthy individuals.
SVB risk management was poor and they signaled weakness with a proposed capital raise last week due to a drop in deposits couple with a drop in asset values as interest rates jumped but no one could have anticipated the run we saw on Thursday. If you requested your cash Thursday morning there is a decent chance you got it. If you waited until the afternoon you didn’t. It’s crazy.
The bank has substantial assets. This move will allow those to be sold on in a more orderly manner. The ironic thing is that the flight to quality triggered by this event raised bond prices (lowering yields) late last week which likely improved the value of those assets. They will all be liquidated and the loss will be contained. In the end it will be less than $25B, perhaps a lot less but this moved saved thousands of companies and several hundred thousand jobs.
Imagine that you took the time do your own due diligence instead of following the herd? Gosh personal accountability, what a concept. If you want to reward overconfidence and complacency then write a check but leave the taxpayer out of it. Bailing out wealthy depositors is a bad look.
The businesses impacted need access to funds that’s true. Wouldn’t it have been prudent on their part not to put all their eggs in one basket? Even then they can find alternative alternative short term financing until the bulk of their deposits in EXCESS of the FDIC guarantee were returned.
At root here is the grasshopper and the ant; the prudent and frivolous. I stand with prudent and argue against doing them injury for the sake of bailing out the frivolous. You seem to take the opposite stance whether you admit it or not.
This was a liquidity crisis due to lack of liquid assets. The management of SVB made the choice to run down their cash on hand. They could have kept more back, instead they put it to work drawing a return from mortgage backed securities and long Treasury instruments. Their directors allowed it. The quarterly and annual reports show it. Not a secret.
The too big to fail/systemic risk argument is a con. If this argument was true then why aren’t the institutions ‘too big to fail’ being broken up? If there is such a systemic risk that bailing out these depositors will solve then why did the Fed open up the window allowing any bank to pledge assets at par, not market, to receive funds?
Eventually the bill comes due and somebody has to pay. I would prefer that the bill be presented to those who ran up the charges not bystanders who didn’t participate.
Get ready for the end of interest rate hikes by year end with much smaller increases than we expected as of Wednesday. If that occurs equities will soar short short term. The big money center banks and financial services firms will profit. The little guy will get forced back into equity investment to try and stay above inflation.
It’s no longer “too big to fail”. Rather, it’s too corrupted to ‘fail’.
Any confidence anyone has – or had – in the federal government after THIRTY years of Bush/Clinton/Bush/Obama/Biden should be long gone.
Our country is no longer the country we were gifted. We have to face it. And SECEDE.
Again, its not wealthy depositors being bailed out (for the most part). Its small companies.
Regarding all one’s eggs in one basket. Your average small company/start-up doesn’t have the resources or expertise to evaluate a bank BS. That is what analysts and regulators are for. As far I have read there was only one analyst with a “sell” rating on SVB out of more than 20 covering it.
Let’s say I raised $10M to run my start-up for 2-3 years with 50-100 employees. Given the $250k limit on FDIC insurance its seems you are suggesting that I need to have 40 bank accounts otherwise I get what I deserve should a bank go bust.
Or I can put it all with the big 4.
What a choice.
Or accept that the sign in every bank about FDIC guarantee up to $250K actually is a hard cap.
I refuse to weep or accept sob stories from Venture Capital firms, overly cash burning tech start ups and the companies that service them and especially not from their apologists and enablers.
Either the limit is the limit or it isn’t. If you were calling for the return of Glass-Steagall to cordon off the risk of contagion and were willing to concede that the nature of the business profile of tech start-up was itself risky then maybe I could take your points as being made in good faith.
You don’t do those things. Instead what you assert is that, in essence, the depositors are too stupid and too helpless to be accountable for their decisions and thus deserve extraordinary intervention beyond the normal FDIC guarantee and normal timeline of receivership.
The basic bottom line here after cutting out the rhetoric is the story of the Grasshopper and the ant. You stand with the frivolous and I stand with prudent. I admit where I stand but you seem to want to disguise where you stand behind a facade of sob stories.
I read that the bank’s senior management cashed out some of their stock holdings a week or two prior. Perhaps those funds should be taken back prior to any government money is infused.
So far, the depositors now at risk are being restored by the ongoing sale of assets. That is not a bailout. It may be enough to restore depositors. Maybe.
An interesting thing to watch for is JPM being leaned on by the Fed/Treasury to buy SVB assets. JPM is reaping lots of new deposits from this as they were complicit in starting the bank run. I don’t see any malfeasance per se in this since they certainly saved a few depositors from losing a lot of money by advising them to move their money out of a bad bank. And it’s good business. But if JPM was aware of SVB’s internals, why wasn’t the Fed/Treasury and other regulators? They almost certainly were which and was the reason they acted so quickly. There’s a CYA problem here. Will they lean on JPM to buy assets or else? Greenspan did that to the money center banks during the 2007-9 debacle where he locked all of the CEOs in the NY Federal Reserve HQ until they came up with the money to cover the bail out. Warren Buffet made a killing on this too.
Phil
I believe the mismatch on assets to deposits was reported to be around $15 Billion.
Another very important point in this story that seems to lost is why the specific depositors needed to withdraw in the first place. The tech firms run through lots of cash. Particularly the many start-ups. They thrive in an environment of near zero interest rates b/c money is cheap and available.
As rates rose in 2022 money became expensive. Tech start ups burn through cash and 2022 wasn’t a great year for tech overall. Thus they’re Silicon Valley companies needed more access to higher cash flows and withdrew more than previous.
That was the initial Pebble rolling downhill that as rumors began turned into an avalanche.
Your prior point the other day about restoring Glass-Steagall is spot on. Normal everyday commercial/personal lenders and investment banking are different things with far different clientele. The risk profile of the depositor is important to acknowledge so that risk can be mitigated and cordoned away from everyday lenders.
Many start-ups didn’t cut their burn rate fast enough and many VCs slowed their funding plans in 2022 given rising rates and falling tech valuations from the obscene levels we saw in 2021 during the Covid/ZIRP frenzy.
Falling deposits + falling asset prices + loss of confidence = bank run
Peter Thiel got his money out in time.
https://www.businessinsider.com/peter-thiel-founders-fund-pulled-cash-svb-before-collapse-report-2023-3?op=1
And now Elon Musk is rumored to be interested in buying SVB so maybe he didn’t get out in time? Probably didn’t have any money in it.
https://www.businessinsider.com/elon-musk-buy-silicon-valley-bank-tesla-investor-no-thanks-2023-3?op=1
massinsanity,
Yes, exactly. You see it. Peter Thiel apparently saw it and pulled out Founders Fund deposits in advance. Other VC did the same.
I ain’t close to being the smartest guy in the room with a bunch of average VC guys much less Thiel but I saw this trendline in Dec/Jan. I don’t feel sorry for folks who refuse to pay for competent financial advisors and/or are too stubborn/entitled to worry about risk mitigation.
CommoChief: Just for giggles, look up the board of directors of SVB. Good luck finding more than one or two qualified to be sitting on a board of a bank. It looks like Biden’s cabinet.
JPM is reaping lots of new deposits from this as they were complicit in starting the bank run.
Can you explain this, please?
It seems you just explained it.
I’ll take a stab but Phil has very good information and insight. Still salty so gonna chime in.
The carcass of SVB is being picked over by the biggest banks. Over $42Billion was pulled out before it shut down. Where did those deposits go? It wasn’t to the local credit union they almost certainly went to the big money center banks like JPM and Goldman.
Goldman of course tried very hard (s) to help SVB with fundraising to avert disaster last week but whatcha gonna do amirite? Now the big money center banks will pick over the carcass at far lower prices and gain deposits + establish relationships with well heeled people and start ups that will eventually want to do an IPO….
Deposits are very tight right now and many panicky folks are sending $billions in deposits from smaller to bigger banks. That only helps the biggest banks like JPM.
The fed rate hikes are almost certainly off the table. Treasury Rates are crashing which also means the bigger Banks don’t have to pay as much interest to depositors to keep their depositors happy.
Recall that outfits like JMP and Goldman are not plain vanilla banks. They want low interest rates for multiple reasons all of which increase profits and make getting those profits easier. In a near zero interest rate environment, like the last 15 ish years, buying stocks was the way to keep ahead of inflation.
Ask yourself who benefits more from low interest rates; mom and pop with savings account CD /Treasury or the firms that make $ selling stocks, bring mergers and acquisition and IPO to market?
Once again the inability of the self proclaimed elites to face the consequences of their decisions rears up as they bring to bear enough pressure to cause the Fed to cave in to their tantrums.
In practical terms this means the Feds ability to even pretend to fight inflation is basically ended so get ready for deposit rates to decline and another free money bubble to fuel speculation to another bubble.
In the fine print an important point is that the banks can pledge treasuries at PAR not market value. So they can instantly be bailed out of poor risk mitigation and unbalanced portfolios by being given yet another way to make money for nothing.
Eventually the music will stop on this foolishness. When it does be sure you have a chair and preferably have some real assets in under that chair not govt promises. I fear this is postponing the inevitable reckoning by trading a few more years for a far larger calamity when that day comes.
There are two legitimate concerns with this move. First, there are still likely many banks with asset issues similar to SVB, this doesn’t change that. SVB was a bit unique in that it’s deposit were also dropping as VC funding has fallen in the past 12 months. People may still perceive smaller/regional banks as risky and there is potential for addition bank runs.
Second, because of the above, a lot of companies will migrate to the “too big to fail” banks (Citi, JPM, BoA, WF) which isn’t a good outcome. We need the competition and customer service regional banks bring to the table.
The root cause of all this is money printing and irresponsible fiscal policy that drove inflation and interest rates.
The Fed has, as I understand it, opened up the spigot to all banks who want to pledge fixed income assets in return for financing to accommodate any deposit withdrawal. Bottom line is no one should be flipping out on Monday.
Would it be a prudent move to open an account at another bank in the coming weeks? Sure just to avoid the inevitable computer system going down causing no access to funds from one bank. Would it be prudent to move amounts excess of $250K in a single bank to another bank. Sure.
Agree about the regional banks, frankly most of them don’t have exposure to weirdo / novel risk taking ideas. They tend to be old fashioned. So do credit unions for the most part but as always do your own due diligence.
The refusal of the big financial players to accept a higher rate environment is gonna have consequences, sooner or later and they will not be pleasant. The demand that we invest in equities b/c there isn’t a realistic alternative to beat inflation or just break even with inflation is gonna wreck us. The whole too big to fail is BS; if they are then regulators should break them up, instead they prop them up with favorable policies as they move back and forth between govt and private sector to cash in every so often.
Still pretty salty.
There is risk that any bank that partakes of this offer opens itself up to a run. It is an admission of weakness.
Yeah true but that’s not really a legitimate criticism. It boils down to ‘hey my bank just made a deal with govt to make sure they can cover my deposits if I decide to ask for them ergo my deposits are at risk and I must immediately pull out my deposits thus creating the bank run I fear’.
Not to say the panicked lemmings won’t do that. Lord knows most people don’t know their ass from their elbow about finance or banking but keep pretending they do and all the while refusing to pay for competent financial advisors.
What do you bet they force banks to take a turn at the trough to reduce the stigma? Or going the other way let smaller banks fall (while protecting depositors) but allowing more consolidation by the bigger banks as they gobble up the smaller competition?
We will see how unique SVB was very soon.
If a financial layperson such as myself was to look at the various banking shenanigans that have gone on for my adult life and conclude the system is rigged against normal people, would I be wrong? It seems like anything I do involves substantial risk, but the government backs every risk “they” take.
I am in my mid 30s. When I think of our financial sector I think of the 2008 crisis, Bernie Madoff, wildly varying inflation, very volatile stock market, the shady business with Game Stop, and now this (and probably other) bank’s issues.
It is very disconcerting.
Kinda? I am still salty this AM but the best advice I can give you is:
1. Find a local Certified Financial Planner that changes fee only. For around $500ish they can help make a plan that reduces risk and increases returns.
2. Learn the difference between ‘cash’ ‘money’ and ‘currency’. Read Ricardo and Smith. Then read Ben Graham.
3. Learn about the different types of risks and how to mitigate them. Accept that you can’t eliminate them all.
4. Always do your own basic surface level due diligence at a minimum; in internet age it is way easier than than ever.
5. Don’t rely on some magazine, financial website or carnival barker on TV like Cramer for investment choices.
Pledging Treasuries at par works only so long as you have no need to liquidate them to satisfy on-demand withdrawals. That was SVB’s problem: one year Treasuries held as Hold to Maturity assets whose market value was far less than par. That’s ok as long as you can in fact hold them to maturity. Thiel essentially destroyed SVB by pulling his funds and telling anybody who would listen to pull theirs. Once that happened SVB ran out of cash and other liquid instruments and had to start liquidating their HTM assets, which were then marked to market, hard.
With modern banking, we get on our phone, or browser, click a few buttons, and money moves magically behind the scenes.
Expect this to change dramatically in the future in order to protect banks from bank runs. And if that change gets really dramatic, just imagine for a second having to pay in cash what you used a credit card for in the past month.
Just imagine what will happen when we move to a cashless society…
Of course they are. The executives got their golden parachutes and blatantly sold their stock right before collapse, and all the employees get their bonuses paid out as LITERALLY the last thing the bank did before their accounts were frozen.
The bank executives and employees got their bonuses and the taxpayer gets screwed. Again.
The word “Clawback” needs to be used liberally with any executive who traded in stock less than a week ago. Criminal charges should follow, along with complete confiscation of every email, text message, memo, computer record they’ve touched in the last year.
I’m not calling for a pyramid of skulls to discourage any other lowlife bankers from attempting this. Just a large number of adjustable bracelets. Perhaps a few parading and trespassing charges.
They should certainly claw back any bonus payments made late last week. There were hundreds, perhaps thousands of companies that had wire transfers from their SVB accounts “pending” Thursday afternoon through the Friday late morning before the CA regulator and FDIC take over announcement killed them all.
Regarding the stock sales, they certainly look bad but remember that SVB had financing lined up to raise $2.5B in cash through the sale of common and preferred stock. From what I hear they thought this was going to be a fairly routine event but it triggered calamity for the bank.
The stock sales “looked bad”? Banks are practically required to operate on the opposite of the Judicial system: Presumed guilty unless proven innocent. Having so many higher-ups in the company make “coincidental” stock sales that netted them millions in cash that they would have lost a week later when the bank went boom is not a coincidence. That money needs to be clawed back and stuffed into escrow while the Feds go through their records.
The bonuses paid to the employees…I’m a bit agnostic there. Many times a company going into the drink will pour out quick bonuses to entice the good employees to stick through the oncoming bad months. Otherwise all the good employees bail and get poached by other companies and the bad employees stay, which makes any kind of recovery problematic.
Only if they weren’t programmed sales. Programmed sales are almost always exempt from clawback because they’re scheduled in advance. The CEO knows their HTM assets are a ticking time bomb, but he doesn’t know when the bomb is going to go off, if ever. It’s basically impossible to argue he should have known Thiel would pull the trigger. Supposedly the SEC is looking into it.
The money goes straight up to the top. Just look at Biden, from Delaware to the VP to the Presidency.
We pay the premium, as if we’re subject to a mafia protection racket.
Fed is going to take those bond portfolios at par and HTM to not allow loses to be realized. It sound like a put on the bond market. It will support bond prices as interest rates increase because they will not need to be MTM. SVBank bonds kaput; but MBS and Treasury portfolios will be supported.
Nobody treats HTM assets as MTM, every bank in the US mostly likely would have to publicly report themselves as technically bankrupt if they did. That would collapse the system and usher in CBDCs. Nobody wants that except the administration. So long as a big run doesn’t happen, like it did at SVB, banks should be fine.
Now, what will the Federales do when the bank is one in say Texas outside Austin whose depositors are working class people and productive businesses? I am betting abandon them.
Subotai Bahadur
SVB’s depositors were mostly businesses that, by their very nature, had more than the FDIC insurance limit of $250k on deposit.
It is highly unlikely that working class families have more than $250k in a bank account.
Anything less than $250k is fully insured no matter which state you live in or what your politics might be.
Why do you use the word “limit”?
Clearly there is none
So FDIC insurance goes to infinity now? Is that the new policy?
No, It is not.
FDIC is not paying out insurance, but managing the illiquid funds the bank had and ensuring that translates to money for depositors, not bank officials.
FDIC at worst has to wait for SVB’s HTM assets to mature and pay off in full at par, as they were sufficient to cover deposits absent a bank run. The actual loss to the FDIC shouldn’t be that big.
“no losses will be borne by the taxpayer” …
My bullshit meter is now pegged and bouncing off the redline. I don’t even see how this is legal.
Because they are simply ensuring the deposits the bank has will actually be paid out to depositors. The bank has enough funds, but it was not liquid enough to handle the run.
Maybe the FDIC should offer a new level of coverage (with additional insurance premiums) for accounts that routinely have balances over $250,000, for payroll and similar legitimate purposes, It would only take 417 $15/hour employees to require you to have more than $250,000 in the bank weekly or 101 $30/hour employees getting paid biweekly..
Best analysis so far:
https://www.zerohedge.com/news/2023-03-11/weekly-part-1-what-happened-silicon-valley-bank-friday
One of the key factors is that they made a very poor decision investing in Hold To Maturity long Treasury bonds. Possibly because the government was suspending the mark to market requirement during the Covid hoax. These are highly inappropriate holdings that played a big part of their demise. There were better options that smart banks were using. This is also what is causing the market to wonder how many other regional banks are about to be exposed.
Shall I remind everyone of what happened when Bush refused a bailout for Lehman Bros.? Yeah, my point. The responsible world went on.
On Sept. 15, 2008, Lehman Brothers, a well-known and respected investment bank, filed for bankruptcy protection after the Bush Administration’s Treasury Secretary, Hank Paulson, refused to grant them a bailout.12 While there had been market volatility during the preceding months, the fall of Lehman Brothers marks what many consider the beginning of a global financial crisis.
Lehman was the first big casualty in the the pre-existing crisis of the financial industry’s own making.
Step one Sub prime loans made to lying borrowers by unscrupulous banks with little oversight.
Step two Slice up and shuffle the mortgages and repackage them in mixed groupings as AAA /AA/A when they held significant risk with little oversight.
Step three when it comes crashing down get a bailout.
Step four use the event as lever to keep near zero interest rate environment intact so investors have little option besides equities to beat inflation.
Dead on. I lived it at ground zero.
You missed Step 2.5: Ignore the grifters that came out of the woodwork to support these tranches with forged deeds and faked mortgages, ripping off millions of mortgage holders that suddenly found their sold mortgage was being collected on by multiple banks or even homeowners who had completely paid off their mortgage being foreclosed on by banks who held fake paper. The lack of auditing on these tranches was *intentional* because every time somebody started poking at one, all the stuffing came tumbling out. Some states had solid Registrar of Deeds laws that kept the fraud to a minimum. Some did not.
Fair point.
The beginning of the global financial crisis began with the repeal of the Glass-Steagall Act in 1999.
Good. The depositors aren’t the investors and in fact depended on Federal regulation to protect them. If the Feds say the bank is okay, then it’s okay.
The reason to limit coverage to 250K is to prevent banks from offering insanely high interest to gather deposits (in general, but particularly when they need cash and are likely insolvent, leading to an even bigger insolvency). But that’s not the case here. No high interest rates were offered.
So it’s not a structural stability problem for the system, but just somebody taking HTM securities as current assets and starting a run on the bank, probably after shorting its stock.
Higher coverage for depositors means no run can be produced, and that solves this instability problem.
“Higher coverage for depositors means no run can be produced, and that solves this instability problem.”
Wow! You really don’t understand how checks and balances work do you? This is the very definition of moral hazard. All you are doing is transferring risk to the taxpayers and inviting even more reckless risk taking.
Nothing in life is free or risk-free. It is essential that risk be borne by those who seek benefits from taking that risk.
Techbro/democrat-donors bank fails, so of course democrats create special fund to make Investors “whole” despite FDIC limits.
If this was your local bank going belly-up because of bad business practices, good luck getting anyone to give two poops.
Sure is a ‘coincidence’ that the depositors of two separate banks on the coasts catering to a very much well heeled, politically connected clientele are being back stopped from a haircut to their deposits in excess of the FDIC guarantee limit. It seems that some pigs really are more equal than others.
inflation — which is at the heart of the SVB problems
Ummm, how so? You don’t bother to back up that claim, Leslie. How is inflation their primary problem, vice poor decisions or some other factor?
This isn’t throwing shade. I’m honestly curious why you say that as if it’s patently obvious.
Commochief explained it to me on the other post. Apparently, they had a bond with a very low interest rate that they were using to meet some minimum amount of cash they are supposed to have on hand. As interest rates rose, those bonds became less valuable and their attempts to raise the cash raised a warning flag and triggered a run.
Or some such.
THIS is the central issue of SVBs problems:
https://justthenews.com/accountability/svb-knew-150-million-investment-losses-and-still-doubled-down-woke-agenda-despite
CEO Beck himself giving the world a perfect example of the problem danger wokeness. During an analyst call with JP Morgan, Beck is asked to explain the nature of the growing losses in their investment portfolio. His answer demonstrates that management’s and the board’s fiduciary duty shareholders is subordinated by ESG duties to stakeholders. That is the precise moment where Beck declares that Marxism subordinates capitalism. ESG negates constitutional rights to property and even common sense. So you own a house but are told by some faceless busybodies that the rest of the world controls it because of…..??? How are we supposed to run a civilization when mentally ill communists are running everything?
BTW, this clears JP Morgan of any malfeasance in recommending that depositors flee SVB. CEO Beck had just proven himself to be utterly incompetent to be running a bank. Any shareholders who had listened in to the analyst call, which I do for stocks I own, would very likely have been thinking strongly about selling the stock. This is probably when the word started going out to depositors that their money was being managed by utter fools. We should be thanking JP Morgan. This is how our open market system is supposed to work.
One more point;
“SVB “focused on very woke companies,” Griffith told Just The News, “companies that were focused on ESG, particularly the E, environmental, component of ESG,” with one of the main goals being to decarbonize the U.S. energy sector.”
There’s your contagion. Anyone still feel sorry for the depositors/customers? If you don’t drink the kool-aid, you don’t get the money. Bank failed in their kool-aid induced stupor and the government steps in to bail them out with money that could have been better used to help those affected by the Palestine train wreck (poisoned the water for 10% of the US water supply).
Also, can everyone complaining about the FDIC limits please go read a bit and understand they are NOT “bailing out” the bank, but ensuring that their assets go to the depositors? The bank had enough funds, but they weren’t liquid, and the FDIC is simply controlling that liquidation so everyone gets their money. (I believe FDIC is fronting the money to depositors, then taking control of those illiquid assets to recover that money.)
Fair point. The 2008 crunch left the FDIC bailing out banks and taking over *trash* assets that never could be sold or return a tiny fraction of their face value. These are real bonds today. Admittedly the government has devalued them something fierce over the last two years, but some of those 2008 traches of mortgages had less than zero real worth while being carried on the books like solid gold.
At par (face value) not market value. The depositors are getting an extraordinary backstop by the govt.
It isn’t as if normal the way the FDIC guarantee and back receivership process is a flipping mystery to depositors at this level. You get up to $250K very quick. The balance of the amount on deposit over time; usually another 1/3 or 1/2 in a few weeks and end up getting most of the remainder in several more months. The last time depositors got about 93/94 cents on the dollar.
When you choose X bank instead of Y bank there should be a better reason than ‘it has a branch close to the exit I take home from work’. The creditworthiness and financial stability of the bank you choose to hand your deposits to is important. The risk profile of the bank’s investment portfolio matters. The experience, temperament and trustworthiness of the officers, managers and directors matters.
Everyone has a duty to their capital to mitigate and avoid risk but today we apparently killed off the notion of personal responsibility and accountability. Instead we want the govt to save us from ourselves, don’t be surprised when the govt attempts to do that in ways you won’t like. See mandatory Covid Jab, mask mandate, CRT, DEI, ESG, removing gas stoves, killing off CFL bulbs……
Of course they are. They have to backstop two of their most important constituencies — SV Startup Cool Kids, and Finance Manipulation Sectors.
They’ll just demand that right-thinking followers of Dark Brandon kick in a little more.