In case you missed it last Friday, there was a bank failure.
Not just any bank failure of course, but the 16th largest bank in the United States failure. Pretty much in the course of 24 hours.
I had vaguely heard of Silicon Valley Bank the way I had heard of other banks - I suppose at some point in time or space I saw an advertisement or even a branch - and then put it out of my mind. There are always banks, and I try to need them as seldom as possible.
By Friday evening, everyone had heard of Silicon Valley Bank.
Note that the bank did not just have a bank run and fail - it had a bank run and went into receivership on the cusp of failure on the same day (emphasis mine). One can only often seem to get the minimum amount of alacrity out of the State and Federal Government for many issues. The fact that they acted so quickly in this case is indicative of something.
From what I read, there are two real issues. The first is that most depositors (93 to 95%) had way over the FDIC $250K insurance limit in the bank, so there is a question of what if any money those depositors will get back - and this leads into the fact that this is tied up in companies that need that money to do business - you know, things like pay employees and pay bills. The second is that as of Friday, the money could not be accessed (although that may be completed now). Had a direct bill on Friday? Someone did not get paid (and likely, you now have a late fee to boot).
I am not a financial individual - but the speed of this is stunning to me (and we are fortunate there was a weekend to buffer all of this. Imagine if it happened on a Monday.). And it should be an instructive lesson - to me first, of course - that when the failure comes, it will not be the fanfare and panoply, but it will simple happen.
Or as the quote goes on how one goes bankrupt: Slowly at first, then all at once.
I heard the news but really haven't paid it any attention. I have just assumed that it was a niche bank trying to fit in where the large goliaths don't necessary attempt to fit in. Thus I haven't been too worried about the implications. Perhaps today after I hear about it some more my tune will change.
ReplyDeleteEd, from what I can tell (no expert here as well) it was a niche bank, but to some very high level niches (startups and high tech). I think the implications will largely be in how the Federal government handles it - right now they are saying they will make the depositors 100% good, but not the investors. As noted, many of the depositors are above the FDIC limit of $250,000, so that is already something of significance - because everyone else will now expect the same.
DeleteSpeed indeed. Believe I heard the SVB lost 43 billion in ONE day while the last bank that went under lost 16 billion over ten days a few years back, speed indeed.
ReplyDeleteThe wonders of the InterWeb, Nylon12. Thanks to online and mobile apps, people can transfer and strip money like never before. That is the thing that caught my eye: there is no more weeks or even days, but hours.
DeleteA detail that is buried in paragraph seven of most of the "serious" articles about the event is that one of the primary causes of the bank's insolvency is that they were more heavily invested in US bonds than any other large bank. There were a few minor details about those bonds (long duration, purchased at the peak) but people who are not diligent about the details will walk away thinking the bank crashed because of US debt being dodgy.
ReplyDeleteI saw a bit of that ERJ. To be honest, I think this is one of those things that will continue to trickle out about root causes - like most of these things, "magically" the signs will have been there months before (apparently they were).
DeleteI am now also far more aware in how purchasing treasury bonds at different times has an impact.
Second bank to fail last week. Then another goes down yesterday. Here's hoping it's just those few. But so many companies have ties to big banks like that, and their business gets dragged down, too.
ReplyDeleteAnd I read that the Markels had their money there as well as the THE OPRAH. Be interesting to see if they are citizens like every other and get the 250K limit applied.
The belling is tolling....
STxAR - Yes, another bank went into receivership yesterday. I suspect where we end is not "if", but "how many". And the impact is the companies as well - even Friday, there were groups saying they could not make their payrolls because their money was "trapped".
DeleteIf they change the FDIC insurance limit, I do not see where those funds are coming from long term - except the taxpayer ultimately, of course.
The details are already blurred, the media has been all speaking from the same script.
ReplyDeleteAll those "Journalistswith Internet access" and ALL are speaking from the same script?
Yellen has already said Sunday they tried to sell SVB, but no bank would touch it, Yellen promised that ALL Depositors will be made whole on Monday. Bailout under a better PR name.
Oh, and Yellen said, "The Taxpayers will not be on the hook".
The Fed isn't Federal, it always makes money being the go between the Federal Government and Banks. In the past two decades as I remember no bank has lost money working with the Fed.
Some Dude is going to get "The Hook". My bet it's inflation the stealth tax on the average Joe.
As that Lesly Meme goes, he's standing before a burning exploding building saying "All is well, no need to panic" to the fleeing people.
Michael, apparently now the Fed has opened an investigation on itself as they feel like they missed it as well. Again, it will be interesting to see if anyone is actually "to blame".
DeleteWhile I'd like to be optimistic about "investigations" as an observer of human behavior (decades of nursing does that to you) I have grave doubts that "Self Investigation" will find anything of worth.
DeleteThe same "Yes Men" and personal self-preservation traits will keep anything damning to be "Found and delt with".
That Yellen told the world that the stock holders and bond holders are "On their own" about losses alarmed me Sunday.
That in trader terms is being "Thrown under the bus". Normally when banks go down, they get restructured and stock prices recover, and bond holders are safe.
Today's massive drops (for boring profitable banking stocks) showed me the financial Chimpanzees (and I might be insulting Chimpanzees here) of the Sockpuppet Regime is indeed throwing banks under the bus.
I think I mentioned a book called When Money Died
https://www.goodreads.com/book/show/8567383-when-money-dies
We might be living that pretty soon as while cash is nice, stores and truckers run on CREDIT. I was a trucker for a while (job burnout) and a failure of the Credit Card was the end of that trip. NOBODY has the cash in their wallet to refuel a Tractor-Trailer (@7-8 miles per gallon of diesel) unless they get cash wired to the truck stop and leave that trailer there as they Bobtail Home.
Might get exciting in the next few weeks. I'd not wait to order anything critical (like seeds).
As someone smarter than I said "Economic Collapses do not send out RSVP's".
Michael, it was interesting to me that there was a split between depositors (even though they were above the FDIC limit) and the investors and bond holders. I cannot see this doing anything but discouraging investment in any financial firms.
DeleteA great deal rides on the ability to get and use credit anymore. Without that, I suspect economic difficulties are almost guaranteed.
A long time ago when so many banks were being closed I would be there within a day or two. Yellen knew to the minute when the doors would close. They are notified days if not week before so they can arranged that the executives are given big buck bonus's that no one will ever see again. The biggest problem is that the people who cause the banks failures will immediately be employed by another bank. And so it goes in their circles.
ReplyDeleteI remember in Ca auditing a loan that appeared upside down. The bank had loaned almost half a mil over appraised value. When I asked one of the remaining executives who was left why they had made this loan (house) she said he was Mr BigWig and they loaned it based on future equity. That may have been the stupidest statement I ever heard in banking. When we were finished she was leaving for a EVP position in bank across town.
It is not just banking - there seem to be many industries where a failure in the industry does not seem to be a bar to getting employment elsewhere in the industry - once you are in, it appears, you are "in".
DeleteApparently there were stock sales and bonuses given out just before the end. True, bonuses are based on the previous year's performance, but at best it is a bad look.
The fact that the Fed did WHAT it did as QUICKLY as it did in response to this is more telling than anything else. Imagine for yourself the crew of Titanic covering the gash in the ship's side with duct tape...
ReplyDeleteMy thought as well Pete - the speed of this from an organization that is not known for speed is astonishing, and suggests that indeed this is a "duct tape" moment.
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