What took place Friday was an old-fashioned bank run: Customers yanked $42 billion from Silicon Valley Bank on Thursday, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing. In other words, the bank owed more to customers than it had on hand. SVB and federal regulators scrambled but couldn’t raise enough capital to make up the difference, and the bank was declared insolvent Friday.
Although customers could collect some of their uninsured deposits as the government unwinds and liquidates the bank’s assets to repay them, it’s not clear that the companies invested with the bank will recover all or close to all the cash they had stored at SVB.
That has led to two major fears and one unified call for action: Investors are concerned other banks with similar profiles to SVB could be next to fail. Wall Street is also concerned the tech companies that kept their cash with Silicon Valley Bank could collapse. That’s why demand for a government bailout is growing.
It may be coming – but it probably won’t look anything like the last one. (...)
Comparisons to 2008
Enhanced US regulations following the 2008 financial crisis led the biggest, most systemically significant banks to shore up their emergency reserves to withstand storms like the current situation. That means the global banking system is not in danger of collapsing like it was a decade and a half ago.
“The banking system overall is more resilient, it has a better foundation than before the [2008] financial crisis,” White House Office of Management and Budget Director Shalanda Young told CNN’s Kaitlan Collins on “State of the Union.” “That’s largely due to the reforms put in place.”
Some of SVB’s problems were unique to the bank: It provided financing for almost half of US venture-backed technology and health care companies, so it had nearly all its eggs in one basket. Most banks are better diversified than that.
But not all: Wall Street investors sent smaller bank stocks sinking sharply over the last few days. First Republic Bank (FRC), PacWest Bancorp (PACW) and Signature Bank (SBNY) fell so much Friday they tripped an automatic circuit breaker and were temporarily halted so nervous investors could take a breather. First Republic’s stock is down 29% over the past two days. Signature is down 32%. (...)
And companies that had massive uninsured deposits with SVB may be unable to make payroll or do business next week. Many tech startups said they were scrambling to figure out their next steps and whether they could survive their bank’s sudden collapse. A popular crypto stablecoin Circle fell to an all-time low this weekend. Bankruptcies, insolvencies, layoffs and plenty of other disruption could follow in the week ahead if SVB customers aren’t made whole.
What a bailout might look like
Calls for a bailout have grown over the weekend from Silicon Valley to Wall Street. Those calls may go unanswered. (...)
“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 that we’re not going to do that again,” Yellen told CBS. “But we are concerned about depositors and are focused on trying to meet their needs.”
However, Yellen suggested the government may try to do something to shore up companies that had large, uninsured deposits with SVB.
by David Goldman, Sam Fossum and Matt Egan, CNN | Read more:
Calls for a bailout have grown over the weekend from Silicon Valley to Wall Street. Those calls may go unanswered. (...)
“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 that we’re not going to do that again,” Yellen told CBS. “But we are concerned about depositors and are focused on trying to meet their needs.”
However, Yellen suggested the government may try to do something to shore up companies that had large, uninsured deposits with SVB.
by David Goldman, Sam Fossum and Matt Egan, CNN | Read more:
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[ed. Sounds like a smaller version of too big to fail, with a domino and tech angle. If you're a private company and decide to cut corners by not insuring (ensuring) your deposits, who's responsibility is that? If this were a Republican administration, no-brainer - the US taxpayer - but Dems? Time to see their true colors. Obama (and the Fed) made a giant mistake cleaning up Bush's market collapse by letting bond holders off the hook, distorting the market, and screwing up basic investment principles (making moral hazard an acceptable investment strategy). We'll see if they learned anything (and who's really calling the shots). Should be interesting. UPDATE: Well, guess it depends on what you consider a bailout: Was This a Bailout? Skeptics Descend on Silicon Valley Bank Response (NYT). Shareholders in the bank lost money but depositors were protected (even for accounts in excess of FDIC limits); loans were given for the full value of Treasuries and other asset holdings, even if their value had eroded (which was largely SVB's problem: a high percentage of customer deposits were held in interest rate-sensitive bonds and mortgage securities, which lost value with Fed interest rate hikes to combat inflation). And, the problem of moral hazard has only increased. Where were post-2008 regulations and regulators (especially the Fed), and what should be done going forward? See: America Can Avoid Another Banking Crisis (NYT). And, finally, how can any story about financial shenanigans be complete without some kind of Trump angle! See: How a Small Bank Became a Go-To Lender to the Trump Family (NYT).]
