The second largest bank failure in U.S. history!
And the Treasury Department (Janet Yellon) & Federal Reserve emerged with a unified chant as Silicon Valley Bank (SVB) was shut down on Friday (3/10/2023). They expressed “full confidence in banking regulators” to take appropriate actions amid the SVB closure and noted “the banking system remains resilient and regulators have effective tools to address this type of event”. Well, that prognostication was as formidable as “they are too big to fail!”
On that day, the Federal Depositors Insurance Corporation (FDIC) was named SVB’s receiver with little published knowledge of the future of SVB’s investors & depositors accounts. However, on Sunday (3/12/2023), Yellen parlayed SVB “will not be bailed out” on various news portals. Thus, countermanding Biden’s claims later in the week.
On February 16, 2023 Forbes listed SVB a ranking of 20th on their America’s Best Banks!!
So, what happened, less-than 30 days later to this 20th ranked bank?!
Last year, SVB took in more money in client accounts than they could lend, due to increasing lending rates and inflation fears. That “surplus” money was invested in long-term government Bonds. The invested monies lost value.
In 2022, Bonds had extremely low earnings, in fact, Bond interest earnings didn’t keep up with inflation! Some experts/analysts estimate (PNC, Moody’s & JP Morgan) paid as much as 7-10% over the course of 6-12 months.
“A shortfall”, you ask…? Ya think?!
Beginning early March (2023), ‘whale’ depositors began withdrawing money at an alarming rate. SVB sold Bonds to cover the cash demand… at a loss.
Over the last 12-14 months, SVB management hid facts & details from clients and did not heed warning signs to, aggressively, correct for the shortfall.
Additionally, it was discovered SVB’s poor judgment/management over the last 2 years, lead to risky investment positions such as crypto-currency, targeting investor/depositor diversity & “Green” world projects (corporate social responsibility – CSR – & Environmental Social Governance – ESG). I will label that activity as ‘gambling’!
SVB’s largest depositors (‘whales’) ‘heard’ of the impending bank’s instability and adroitly transferred funds out-of-SVB prior to the FDIC take-over.
SVB was NOT the only bank to have employed the tactic of investing (stashing) in long-term, low-interest Bonds. How many other banks will be revealed with similar short-fall stature?
CNN Business, on 3/9/2023, reported (SVB Fallout):
The SVB turmoil raised investors’ concerns about broader risks in the sector.
Shares of First Republic, a San Francisco-based bank, sank more than 16.5% after hitting the lowest level since October 2020, becoming the second-biggest decliner in the S&P 500 index. Zion Bancorp dropped more than 12% and the SPDR S&P regional banking ETF slid 8% after hitting its lowest point since January 2021.
Major US banks were also hit, with Wells Fargo & Co down 6%, JPMorgan Chase & Co down 5.4%, Bank of America Corp 6% lower and Citigroup Inc 4% lower.
Thursday’s slump evaporated over $80 billion in stock market value from the 18 banks making up the S&P 500 banks index, including a $22 billion drop in the value of JPMorgan.
This scenario, now, begs the question: where will businesses place their money with confidence?
SVB was primarily a commercial bank – 95% of their clients having accounts exceeding $250,000. As a result, these funds are not insured by the U.S. government (FDIC).
SVB clients with businesses were faced with seeking alternative means of making payrolls, operational purchases, covering overhead and addressing debt service. This will be a true challenge given the world financial/money markets have tightened availability of funds.
In the U.S. the Federal Reserve has a voracious appetite and addiction in printing money (sanctioned by the House of Representatives) to cover items such as pandemic loans & payouts, horrendous spending programs, glut & insatiable funding of social (‘gift’) projects, corruption, inflation denial, wars, questionable subsidies, and, much more.
The effects of SVB closing rippled throughout the financial markets: stock devaluation, waning consumer confidence, diminished portfolio capitalization, bailout readiness, basis for increased inflation, and more.
The SVB debacle penetrated the financial sector with Signature Bank (NY) & Silvergate Capital (CA) ceasing operations on 3/13/23 for poor balance sheet performance and speculative investments (crypto currency).
Other financial entanglements: First Republic Bank, PacWest Bancorp, Western Alliance Bancorp were among the other banks whose public stock trading was temporarily terminated during the past week for high volatility (insolvency).
The week of 3/13/2023 also revealed a run upon the “Discount Window“ of the Federal Reserve to acquire greater than $400 billion in funding to shore-up banking positions – ie. protection.
My take on what really occurred with these banking concerns: complete mismanagement & avoidance of clear indicators to engage corrective action AND, dare I write, it wasn’t the small investors who were in trouble of losing their deposits… It was the very wealthy who are the very class the Democrats purport to attack with pledges of “taxing the rich”!
“Wisdom went forth to dwell among the sons of men and found not a place on earth where she could inhabit; her dwelling therefore is in heaven. – Book of Enoch, Chap. 42
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