It was a busy day in the fiscal world today after the “not bailout-bailout” by the federal government in the wake of the Silicon Valley Bank (collapse).
SVB Financial Group and its two top executives have just been sued by shareholders who accused them of concealing how rising interest rates would leave its Silicon Valley Bank unit “particularly susceptible” to a bank run.
The proposed class action against SVB, Chief Executive Greg Becker and Chief Financial Officer Daniel Beck was filed in the federal court in San Jose, California.It appeared to be the first of many likely lawsuits over the demise of Silicon Valley Bank, which U.S. regulators seized on March 10 following a surge of deposit withdrawals.SVB had surprised the market two days earlier by disclosing a $1.8 billion after-tax loss from investment sales and that it planned to raise capital, as it scrambled to meet redemption requests.
Several regional banks saw their share prices plummet after SVB’s collapse shook investor confidence in mid-sized banks.
Shares in San Francisco-based First Republic Bank fell by over 60 percent on Monday, while Western Alliance Bancorp, headquartered in Phoenix dropped by over 47 percent, two of the worst-performing banks of the day.New York-based Metropolitan Bank slid by nearly 44 percent, PacWest Bancorp in Los Angeles fell by over 21 percent and the Memphis-based First Horizon fell by over 20 percent….Experts feared that the fall of Silicon Valley Bank could shake investor and consumer confidence in regional banks, and compel depositors deciding to pull their money from the mid-sized institutions and putting it into seemingly safer Wall Street banks that are “too big to fail.”Federal officials tried to alleviate that anxiety by backstopping all of the uninsured deposits at Silicon Valley Bank, using an insurance fund with over $100 billion in reserves to finance the safety net. The move by federal officials goes above and beyond the federal insurance issued by the Federal Insurance Deposit Corporation of up to $250,000 per depositor.
US banks lost $100 billion in worth during trading on Monday….after Biden patted himself on the back to resolve the bank crisis.
Trading was intermittently halted on at least 20 regional banks as the velocity of money forced regulators to intervene. The Big Four of US banks were also drawn into the bloodletting. Citigroup’s share price dived 7.45 percent, Wells Fargo sank 7.1 percent, Bank of America plunged 5.8 percent and JP Morgan fell 1.8 percent.Among the worst affected regional banks were First Republic which fell by 62 percent, Western Alliance which closed with a loss of 47 percent and KeyCorp which dropped by 21 percent.The declines struck the Street despite Joe Biden making an intervention minutes before the market opened to claim that ‘Americans can have confidence that the banking system is safe’.
On the other hand, former Trump White House adviser Steve Moore said Silicon Valley Bank’s collapse might be the “tip of the iceberg” for the financial system and identifies inflation-causing Bidenflation as the root cause.
I agree with the president that we don’t have an overall banking crisis. The system is sound, but I do think you have a lot of major banks that are in some trouble. And SVB, the Silicon Valley Bank, may just be the tip of the iceberg here. And I think it’s important for people to understand how this potential banking crisis happened.It’s not because there aren’t enough bank regulators, as Biden is trying to say. It’s because of the massive inflation and the trillions and trillions of dollars of borrowing that the federal government has done that has put our financial system in great jeopardy and great peril.You can’t just keep doing this month after month, year after year, borrowing trillions and trillions of dollars. And so what happened, because of the Biden spending and debt policies, is that not only did inflation go up, but interest rates have gone up. Harris, as you know, the Fed has had to raise interest rates eight or nine times, and they’re talking about more interest rate increases to come. And that’s caused a lot of financial problems for these big banks is the interest rates go up.
Unfortunately, that means Biden’s administration will back off from quelling the inflation it created.
“The Fed has now lost the luxury of being almost single-mindedly focused on the fight against inflation,” said Frances Donald, global chief economist and strategist for Manulife Investment Management. “There was always going to be an inflection point when the costs of the rate hikes outweighed the benefits. The Fed has to consider that we’re much closer to that moment than before.”
While Biden’s team remains in charge of the fixes, the iceberg will be glacier-like in size.
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