Jump to content

Signature Bank & Silicon Valley Bank Failures. No need to panic.


17thfabn

Recommended Posts

This week Signature Bank & Silicon Valley Bank went under. 

U.S. Bank deposits are insured to $250,000 by U.S. Federal law. 

The Biden administration has said deposits in these banks will be insured to their full extent even if they are above $250,000.

I have not seen where the Biden administration is finding the authority to exceed the $250,000 limit.

It does not appear that these two failures are systemic. No Need To Panic. All is well

https://www.cnn.com/2023/03/13/business/svb-fallout-consumer/index.html#:~:text=A bank run on Silicon,than that in their accounts.

"The FDIC insures depositors up to $250,000, but as many larger companies used SVB as their bank, they had a lot more than that in their accounts. US customers held at least $151.5 billion in uninsured deposits by the end of 2022, SVB’s latest annual report said. Foreign deposits reached at least $13.9 billion and are also uninsured."

"But before markets opened this week, the Biden administration took an extraordinary step, guaranteeing that SVB customers will have access to all their money starting Monday, even uninsured deposits."

 No Need To Panic.       ALL IS WELL!

 

Link to comment
Share on other sites

Biden has essentially nationalized the banking industry with his writ to underwrite all deposits.  No longer need US banks worry about being financially responsible, the federal government will cover loses.  Of course the flip side of this coin will be that US banks will be utterly beholden to the US Federal government.  When Uncle Joe says, "jump", they'll cry out in unison, "How high?"

Link to comment
Share on other sites

29 minutes ago, DKTanker said:

Biden has essentially nationalized the banking industry with his writ to underwrite all deposits.  No longer need US banks worry about being financially responsible, the federal government will cover loses. 

Not exactly. 

The depositors are being made whole. Even the ones that have deposits over $250,000.

The investors in the bank, which would be the share holders are not being supported by the government. They stand to lose everything they invested in the bank.

 

Link to comment
Share on other sites

1 minute ago, 17thfabn said:

Not exactly. 

The depositors are being made whole. Even the ones that have deposits over $250,000.

The investors in the bank, which would be the share holders are not being supported by the government. They stand to lose everything they invested in the bank.

 

Moral hazard has been trespassed with the Federal government underwriting bank fiduciary responsibilities to depositors.  However, where does that money come from?  Well, it comes from either the printing press or from other depositors in the form of  federal government mandated banking fees.  Either way, the likes of you and me will be the ones on the hook for the irresponsibility of others.

Link to comment
Share on other sites

4 hours ago, 17thfabn said:

I have not seen where the Biden administration is finding the authority to exceed the $250,000 limit.

It does not appear that these two failures are systemic. No Need To Panic. All is well

In an interview I saw tonight they had to get a supermajority from the FDIC, the Fed, and the President's approval to pull this off.  The former chair of the FDIC doesn't think it was necessary but current officials are claiming a run was starting on several smaller, regional banks and this move was taken to stop it before it got out of control.  Looks like folks at the top are still skittish after '08.

Link to comment
Share on other sites

4 hours ago, 17thfabn said:

Not exactly. 

The depositors are being made whole. Even the ones that have deposits over $250,000.

The investors in the bank, which would be the share holders are not being supported by the government. They stand to lose everything they invested in the bank.

 

Because the banks are below the threshold for what is too big to fail. If it was a large bank, ie national, then it would not be allowed to fail. But since it's a reguional, Silicon Valley investments not withstanding, it will be allowed to fail. 

Which means that there's yet again, more preference for giant corporations that have a certain amount of outsized influence. Those will get the investment money to turn around and invest in startups and what not. The regionals, not so much. 

Link to comment
Share on other sites

1 hour ago, Skywalkre said:

In an interview I saw tonight they had to get a supermajority from the FDIC, the Fed, and the President's approval to pull this off. 

The more I think about it the $250,000 limit is very antiquated .

Think about a major corporation that has 1,000s or even 100,000s of employees. They have to have money in the bank to cover weekly or bi- weekly payroll. Can you imagine what the bi-weekly payroll of GM, P&G or Delta Airlines is?

They also have to have money in the bank to cover purchasing supplies, paying for shipping, utilities and a myriad of things that would fill pages.

For them $250,000 just doesn't cut it.

 

 

Link to comment
Share on other sites

5 hours ago, 17thfabn said:

The more I think about it the $250,000 limit is very antiquated .

Think about a major corporation

At least in Germany, there's different insurance levels, depending on corporate, or private accounts - acknowledging the potential for wider disaster if these bank deposits get wiped out - for employees, suppliers, and other contract partners.

Link to comment
Share on other sites

High interest rates led to its demise

To combat rampant inflation, the central bank has been aggressively raising interest rates since 2022. It made borrowing for businesses and individuals more expensive to cool the economy down.

When interest rates were near historical lows, the banks bought up on long-dated, seemingly low-risk Treasuries. But as rates rose, the value of those assets has fallen, leaving them sitting on unrealized losses.

High rates significantly constrained tech companies, which undercut the value of tech stocks and made it difficult to raise funds.

Faced with higher interest rates, loss of IPOs and a funding drought, SVB’s clients began pulling money out of the bank.

“The higher rates have also lowered the value of their treasury and other securities which SVB needed to pay depositors,” Moody’s chief economist Mark Zandi said. “All of this set off the run on their deposits that forced the FDIC to takeover SVB.”

https://www.cnn.com/2023/03/11/business/svb-collapse-roundup-takeaways/index.html

Link to comment
Share on other sites

8 hours ago, Detonable said:

  Large banks are under much more scrutiny than SVB. Corporations should bank there. 
   If all the depositors are made whole what is the liability of the SVB executives? Nobody lost any money. 

Investors in SVB lost everything.

Link to comment
Share on other sites

10 hours ago, 17thfabn said:

The more I think about it the $250,000 limit is very antiquated .

Think about a major corporation that has 1,000s or even 100,000s of employees. They have to have money in the bank to cover weekly or bi- weekly payroll. Can you imagine what the bi-weekly payroll of GM, P&G or Delta Airlines is?

They also have to have money in the bank to cover purchasing supplies, paying for shipping, utilities and a myriad of things that would fill pages.

For them $250,000 just doesn't cut it.

 

 

The FDIC coverage in the 1st place was to get private people to trust banks, not business.  As a business, you're expected to handle your own shit to a far greater degree than just Joe Blow private citizen.  

This is just a bailout because of WHO is in the bank.  If this was some Midwest USA bank full of farmer or small business money, there would be gloating and mockery.  S/F...Ken M

Link to comment
Share on other sites

19 minutes ago, Skywalkre said:

Investors in SVB lost everything.

  Agree completely. What I was anticipating was massive lawsuits from depositors with more than $250,000 in their accounts, trying to recover their losses. 

  I imagine the investors will sue.

 

 

 

 

 

 

 


 

Link to comment
Share on other sites

Right.  The investors will likely go after the executives/management of the bank.  Everyone I'm hearing is saying this bank made 101-level mistakes and paid the price.  Hopefully those running it do get sued into oblivion.

Link to comment
Share on other sites

1 hour ago, JWB said:

High interest rates led to its demise

To combat rampant inflation, the central bank has been aggressively raising interest rates since 2022. It made borrowing for businesses and individuals more expensive to cool the economy down.

When interest rates were near historical lows, the banks bought up on long-dated, seemingly low-risk Treasuries. But as rates rose, the value of those assets has fallen, leaving them sitting on unrealized losses.

High rates significantly constrained tech companies, which undercut the value of tech stocks and made it difficult to raise funds.

Faced with higher interest rates, loss of IPOs and a funding drought, SVB’s clients began pulling money out of the bank.

“The higher rates have also lowered the value of their treasury and other securities which SVB needed to pay depositors,” Moody’s chief economist Mark Zandi said. “All of this set off the run on their deposits that forced the FDIC to takeover SVB.”

https://www.cnn.com/2023/03/11/business/svb-collapse-roundup-takeaways/index.html

  I read the bank invested heavily in real estate loans. When inflation hit, these became money losing investments. 

Link to comment
Share on other sites

1 minute ago, Skywalkre said:

Right.  The investors will likely go after the executives/management of the bank.  Everyone I'm hearing is saying this bank made 101-level mistakes and paid the price.  Hopefully those running it do get sued into oblivion.

  Management giving themselves bonuses right before collapsing was a nice touch, wasn’t it. 

Link to comment
Share on other sites

Just now, Detonable said:

  Management giving themselves bonuses right before collapsing was a nice touch, wasn’t it. 

I've heard mixed things on this.  In one of the reddit threads talking about this there were quite a few commenters highlighting that a lot of businesses, not just financial, give out said bonuses at this exact time every year and the reason why it's that way (I forget exactly... bookkeeping/quarterly BS).  This is something that was likely planned and being followed through on.  Remember, this thing collapsed in the blink of an eye.  Still... I'm curious what a full investigation turns out regarding this.

Link to comment
Share on other sites

1 hour ago, Skywalkre said:

Investors in SVB lost everything.

And the management most likely had financial interest in the bank and hopefully lost everything. 

And the managements name will be Mudd in the financial world and the most likely will never get a top level job again.

And the feds will be looking for any legal violations.

So their is some "punishment" for management.

Link to comment
Share on other sites

1 hour ago, EchoFiveMike said:

The FDIC coverage in the 1st place was to get private people to trust banks, not business.  As a business, you're expected to handle your own shit to a far greater degree than just Joe Blow private citizen.  

This is just a bailout because of WHO is in the bank.  If this was some Midwest USA bank full of farmer or small business money, there would be gloating and mockery.  S/F...Ken M

I'm thinking about a small country town. Lets say there is factory that employees 250 people. They are the driver of the local economy. 

They pay their workers bi-weekly with a payroll of $500,000 every other week. They also have to pay taxes,  buy supplies, pay all insurances and a myriad of other expenses. Having over a million dollars in a bank is reasonable.

Lets say they use the local bank. It has been a good conservative financial institution for a 100 years. Until the new hot shot bank manager wants to play wild west finance.

If the local bank tanks and the factory can't make payroll it is a disaster for the local economy. So $250,000 limit is not reasonable in 2023. 

Link to comment
Share on other sites

The new hot shot bank manager gets hanged from the nearest tall sturdy object, the assets of the business get bought by a new owner, and life goes on, better and wiser.

The solution is to punish the wicked.  Always, constantly.  And constant vigilance against the "smart boi" with his "new ideas."  And yes, I do think that business is responsible, and this is "justice" because they should have pulled their money from that bank when that "smart boi" showed up in the 1st place.  S/F....Ken M

 

 

Link to comment
Share on other sites

41 minutes ago, 17thfabn said:

So $250,000 limit is not reasonable in 2023. 

But is that the case for corporate bank accounts, rather than private ones?

Like I wrote, at least over here it's vastly different. Got a letter from the bank a few weeks ago informing me that the maximum insured deposit for companies is currently 50M EUR, which will be reduced (thank you, EU) to 30M in 2025, then 10M in 2030; for private bank accounts the insurance that is mandated by law is 100,000.- EUR in Germany, although my bank's insurance is 5M currently, and will shrink to 3M in 2025 and 1M in 2030, respectively.

So the question is

1, are the 250,000.- that are circulated the insurance mandated by law, and the actual insurance limits are higher, and

2, is this, indeed, for both corporate and private deposits, or are those different as well?

Link to comment
Share on other sites

2 hours ago, 17thfabn said:

If the local bank tanks and the factory can't make payroll it is a disaster for the local economy. So $250,000 limit is not reasonable in 2023. 

What should the upper limit be?  The Federal government just this week said there is no upper limit, that they'll make good on all deposits regardless of how large.  In other words there is no upper limit.  Now banks have been incentivized to offer all manner of risky ventures to their depositors because they know potential losses are being underwritten by the federal government.  Things are about to get very much worse, and not just in the banking sector.   The federal reserve underwriting deposits has the effect of quantitative easing while simultaneously the fed is raising interest rates, quantitative restricting, in order to slow inflation.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...