Silicon Valley Bank Collapse and Deregulation

[LFC]

TPM had a good summary. Things have moved along a bit since then.

Reading through the often frenzied commentary about the collapse of Silicon Valley Bank (SVB), it’s important to note how much that chatter conflates or confuses what are distinct if complex issues. The most high octane issue is watching the dyed-in-the-wool libertarians and anti-regulation voices who run Silicon Valley suddenly demanding a bailout. Specifically, many are demanding that the FDIC backstop all the bank’s deposits rather than simply those up to $250,000 because of the number of startups which could quickly go under without money to make payroll and cover other on-going costs of doing business. (SVB’s deposits, roughly 95% of which are uninsured, are heavily concentrated in the tech start-up ecosystem.) It’s a hypocrisy that merits all sorts of guffaws and mockery. But hypocrisy isn’t new or terribly surprising.

BTW the theme of the the libertarians now screeching for bailouts is recurring. It's no shock that one of the biggest brands of American libertarianism collapses when real consequences arise. It's selectively good. If they can profit, it's great but if they're taking losses, please pass the socialism!

[LFC]

Depositers will be bailed out by the FDIC, which is paid for by the banks and not the taxpayers. The shareholders? It appears the reaction is basically "so sad, too bad."

Jeff Stein
@jstein_WaPo

Breaking - Treasury announces •ALL* depositors protected by FDIC. Says no costs will be borne by taxpayers

[LFC]

Meidas Touch is all over the Republicans on the SVB collapse. First up we have them blaming Democrats because of course they are.

Let's flash back, shall we?

To be fair (though I don't really feel the need when it comes to Republicans), the partial repeal of Dodd-Frank was somewhat bipartisan but it was most definitely pushed through with mostly and virtually unanimous Republican support. And the CEO of SVB was one of the major lobbyists pushing for the changes that allowed him to destroy the bank.

[LFC]

Now let's go to the scorecard, shall we?

MeidasTouch
@meidastouch

More people should be talking about the fact that 15 banks failed while Donald Trump was president.

[LFC]

Ron DeSatanist is, of course, all over this blaming "woke" policies for the bank collapse. What in the actual hell? "Woke" policies are the cause of all things bad? Will the next hurricane to hit Florida be "woke?" He's become a parrot.

Gov. Ron DeSantis is blaming woke economics for the collapse of Silicon Valley Bank.

DeSantis, appearing on the Fox News Channel’s Sunday Morning Futures with Maria Bartiromo, expressed confidence that the issues the California financial institution is experiencing won’t reach Florida banks, while also offering a series of other insights about what may have led the bank to its current peril.

“So, I don’t have any specific information about any Florida Bank similar to Silicon Valley Bank, and hopefully, that remains the case,” DeSantis said, before offering some speculation about philosophical reasons the bank is in turmoil.

“I mean, this bank, they’re so concerned with DEI and politics and all kinds of stuff. I think that really diverted from them focusing on their core mission,” DeSantis contended.

Home Depot co-founder Bernie Marcus echoed the same theme, telling Neil Cavuto of Fox News: “I feel bad for all of these people that lost all their money in this woke bank. You know, it was more distressing to hear that the bank officials sold off their stock before this happened. It’s depressing to me. Who knows whether the Justice Department would go after them? They’re a woke company, so I guess not. And they’ll probably get away with it.”

In March 2021, Marcus gave $250,000 to DeSantis’ re-election campaign.

Michael Steele, who has become sane lately perhaps as an apology to America for being Rush Limbaugh's bitch, speaks a bit of truth.

[indy]

Signature Bank has also failed.  It seems they had a significant exposure to crypto.

State regulators closed New York-based Signature Bank (SBNY.O) on Sunday, the third largest failure in U.S. banking history, two days after authorities shuttered Silicon Valley Bank (SIVB.O) in a collapse that stranded billions in deposits.

www.reuters.com/business/finance/new-york-state-regulators-close-signature-bank-2023-03-12/

[LFC]

I remember seeing an interview with Barney Frank around that time. He said that adjusting the threshold for more stringent banking regulations was reasonable but that the figure put forth by Republicans was way too high. Clearly he was correct.

[goldenvalley]

I guess when interests rates were low the bank was lending out money for startups that have little income.  But when interest rates go up that easy money dries up and the startups still have to pay rent, payroll so they don't deposit money into the bank anymore, leaving the bank short of cash.  When other nonstarters see the cash shortage, they start to pull out their money from SVB to make sure they can use it for running their business before the FDIC or some entity shuts down the bank.  That's the contagion part.

It does seem like the $250,000 per customer being insured by the FDIC is too low.  How many companies that aren't mega sized can spread their money around to a number of different banks?  Just keeping track of what is where takes up time that could better be spent somewhere else.

[Bact PhD]

Mar 13, 2023 15:32:53 GMT goldenvalley said:

It does seem like the $250,000 per customer being insured by the FDIC is too low.  How many companies that aren't mega sized can spread their money around to a number of different banks?  Just keeping track of what is where takes up time that could better be spent somewhere else.

IIRC the $250K limit, an increase from $100K, was put in about three decades ago. Why on earth the limit isn’t automatically adjusted, say, every seven years, is beyond me. It isn’t even just companies, startups or otherwise, that are hamstrung—even an individual with relatively high net worth who prefers a fair proportion of liquidity can be in a bind.

[jackd]

Isn't the announcement stating that depositors will get ALL of their funds? In other words, because of the serious consequences to depositors, the limit isn't being enforced as to them but shareholders and officers of the banks will get no benefits. Sort of the reverse of what happened in 2008 when the banks were bailed out but not the depositors.

[goldenvalley]

Mar 13, 2023 16:40:39 GMT jackd said:

Isn't the announcement stating that depositors will get ALL of their funds? In other words, because of the serious consequences to depositors, the limit isn't being enforced as to them but shareholders and officers of the banks will get no benefits. Sort of the reverse of what happened in 2008 when the banks were bailed out but not the depositors.

Yes it is and that's the way it should be.  Of course I think the bank execs got some pretty nice cash just before Friday...part of some contractual bonus system I think.  Those execs aren't paying any price, maybe the shareholders are.

That being said, I still think a $250,000 FDIC coverage is too low.   A very small organization I work with transferred money from one bank to another (neither of them SVB) on the fear that the current bank had some sort of entanglement with SVB that could cause their accounts to be locked even briefly.  That's how bank failures cause other bank failures...depositors start pulling money out in order to able to access it.

[LFC]

Mar 13, 2023 16:40:39 GMT jackd said:

Isn't the announcement stating that depositors will get ALL of their funds? In other words, because of the serious consequences to depositors, the limit isn't being enforced as to them but shareholders and officers of the banks will get no benefits. Sort of the reverse of what happened in 2008 when the banks were bailed out but not the depositors.

Yes, all funds to all depositors, not just FDIC insured funds and depositors. And the premiums collected from banks by the FDIC will pay for it, not taxpayers.

[LFC]

Mar 13, 2023 16:49:22 GMT goldenvalley said:

That's how bank failures cause other bank failures...depositors start pulling money out in order to able to access it.

Yep, they were destroyed by being overleveraged and then being hit by a panic.

Interestingly I've seen Peter Thiel's name came up in several places with conjecture that it may have been intentional. He apparently told a lot of people they should get their deposits out of SVB. Now the question is, of course, why?

[LFC]

Another comment on that last tweet.

[LFC]

Here's a bit more on SVB being a cause of its own demise.

After successfully lobbying for the rollback of new rules applied to Wall Street in the wake of the financial crisis, lobbyists for Silicon Valley Bank immediately began pressing their case further to the federal authority that insures bank deposits in the event of another crisis, according to lobbying disclosures reviewed by The Intercept. The lobbying effort managed to exempt banks the size of Silicon Valley Bank from more stringent regulations, including stress tests aimed at uncovering the type of weaknesses that led to the bank’s implosion Friday. Two of the bank’s top lobbyists previously served as senior staffers for House Speaker Kevin McCarthy, who himself pushed for the repeal of significant pieces of the landmark Wall Street reform legislation known as Dodd-Frank.

The meltdown of Silicon Valley Bank represents the second-largest bank collapse in American history and the first since the 2008 financial crisis. Over 90 percent of the bank’s deposits exceed the amount federally guaranteed by the Federal Deposit Insurance Corporation, meaning that those people may either never see their money again or lose substantial amounts.

Silicon Valley Bank President Greg Becker himself pushed for weaker banking regulations, telling Congress to lift “enhanced prudential standards … given the low risk profile of our activities,” as The Lever reported.

A chief culprit, economists say, is legislation President Donald Trump signed into law in 2018, which rolled back key parts of the Dodd-Frank banking regulations passed in the wake of the 2008 financial crisis. That 2018 legislation, called the Economic Growth, Regulatory Relief, and Consumer Protection Act, passed with strong support from the Republican Party and critical support from some Democrats. Among those leading the charge was McCarthy, then House majority leader.

“We’re going to move this Senate bill directly to the president’s desk to ensure these reforms help the economy to grow further by making community banks stronger,” McCarthy said of the legislation in 2018. “This is going to free up a great deal of capital and this will help a lot.”

[LFC]

About sums up how far the GOP has fallen. Well, minus the sedition.

Kaivan Shroff
@kaivanshroff

Being a Republican in 2023 means convincing yourself that SVB failed because of some nebulous Diversity, Equity, & Inclusion policy that nobody can identify and not because of massive deregulation efforts pushed by conservative elites.

[goldenvalley]

Mar 13, 2023 16:56:57 GMT LFC said:

Here's a bit more on SVB being a cause of its own demise.

Silicon Valley Bank President Greg Becker himself pushed for weaker banking regulations, telling Congress to lift “enhanced prudential standards … given the low risk profile of our activities,” as The Lever reported.

Low risk?  They were loaning money to startups.  How is that ever low risk?  Were they not around for the dot com bust?

[indy]

Mar 13, 2023 15:32:53 GMT goldenvalley said:

I guess when interests rates were low the bank was lending out money for startups that have little income.  But when interest rates go up that easy money dries up and the startups still have to pay rent, payroll so they don't deposit money into the bank anymore, leaving the bank short of cash.  When other nonstarters see the cash shortage, they start to pull out their money from SVB to make sure they can use it for running their business before the FDIC or some entity shuts down the bank.  That's the contagion part.

It does seem like the $250,000 per customer being insured by the FDIC is too low.  How many companies that aren't mega sized can spread their money around to a number of different banks?  Just keeping track of what is where takes up time that could better be spent somewhere else.

Silicon Valley had a lot of bonds from what I read. When rates go up the value of the bonds fell. Normally, that will probably not be an issue because rates will go down again and bonds are long-term investments. But the cash withdrawals combined with fewer deposits forced them to sell the bonds at a loss creating a downward spiral.

[LFC]

I've been a fan of Barry Ritholtz for years though lately I had stopped checking in for whatever reason(s). Here he tells us to not jump to conclusions over all the reasons that SVB collapsed. If repeated history is any guide we will find out a lot more that we don't know today over the course of time.

In addition to these being great reads, the big takeaway they reveal is how little we actually knew in real-time.

And now, Silicon Valley Bank and Signature Banks go bust and some very overconfident pundits Mansplain to us what just happened.

Hard pass.

Rather than tell you what happened, I would prefer to point to a few of the things we do not know. Note: these are not accusations, but simply are questions the answers to which would be informative:

10 Unknowns About SVB:

1. Why did the bank have so much capital wrapped up in long dated Treasuries? Who was advising them? Bond Investing 101 is shorten your duration during a rate hiking cycle – how was this unknown to them?

[andydp]

I've been a fan of Barry Ritholtz for years though lately I had stopped checking in for whatever reason(s). Here he tells us to not jump to conclusions over all the reasons that SVB collapsed. If repeated history is any guide we will find out a lot more that we don't know today over the course of time.

Thanks for the article.  Very simple (I understood it) good overview on what to look for in the denouement.

[andydp]

This just in:

People on Twitter are mocking George Santos for weighing in on the Silicon Valley Bank implosion: 'Tell them how you once ran Switzerland's largest bank, George'

Comments from the article:

"I never thought I'd live to see Democrats advocating for bailing out millionaire depositors of a bank!" Santos tweeted.

Twitter users then flooded Santos' tweets on Silicon Valley Bank's collapse with scathing replies.

"Tell them how you once ran Switzerland's largest bank, George," read a tweet alluding to how Santos has admitted to lying about the accolades he's received on his resume.

"Says financial expert and former Goldman CEO George Santos," read a tweet from Chris Jackson, a former county commissioner in Lawrence County, Tennessee.

"A strong point made by George Santos, the Former Chairman of the Federal Reserve," wrote Twitter user WallStXYZ.

Santos has admitted to lying about going to university, being Jewish, and working at Goldman Sachs and Citigroup.


www.msn.com/en-us/money/companies/people-on-twitter-are-mocking-george-santos-for-weighing-in-on-the-silicon-valley-bank-implosion-tell-them-how-you-once-ran-switzerland-s-largest-bank-george/ar-AA18AP3z?ocid=msedgntp&cvid=0cf09deef57742acad2790f45c163994&ei=10

[indy]

A little perspective on how there only has been two bank failures this year but they are significant ones. In terms of total assets, these two are around 40% of the total failures between 2008-2012.

Overnight Credit Suisse shares tumbled as they appear to be in distress as well (https://www.cnn.com/2023/03/15/investing/credit-suisse-shares-saudi-national-bank/index.html).

This could potentially get very ugly very fast.

[LFC]

This author writing for the LA Times lays a chunk of the blame for SVB's collapse firmly on Trump era de facto deregulatory policies.

Late in 2018, two Trump-appointed banking regulators, Federal Reserve Vice Chair Randal Quarles and FDIC Chair Jelena McWilliams, went on a nationwide tour to meet with regional bank examiners.

If you’re looking for the roots of the banking crisis that took down Silicon Valley Bank and has rattled the entire financial sector for weeks, that’s as good a place to start as any.

The officials’ message to the examiners was: Back off.

Banks had been bristling for years over what they saw as overly intrusive supervision by the federal agents. That included government examiners, known as supervisors, going over the heads of executives and meeting directly with boards of directors to warn them about risky behavior.

Quarles, the Fed’s vice chair for supervision, had served several stints at the Treasury Department under Republican presidents but came to his latest post directly from the private equity business. He was especially candid about making supervision more bank-friendly.

In November 2017, only a month after taking office, he said at a conference of big banks that “changing the tenor of supervision will probably actually be the biggest part of what it is that I do,” adding that he “perceived quite an openness in the deep state at the Fed to taking a fresh look.”

The author points out that there are fingers pointing everywhere but this is a huge miss.

What everyone seems to be missing is the overall deregulatory atmosphere of the Trump administration. At the Fed, the urge to lighten oversight came from the top, in the person of Fed Chairman Jerome Powell, who had been placed on the Fed Board by Barack Obama but elevated to the chairmanship by Donald Trump.

Powell has tried to portray himself as something of an innocent bystander in the SVB crisis. But he oversaw the deregulatory steps that produced it.

“One of the senators said the bank supervisors were ‘asleep at the wheel,’” observes Dennis Kelleher, chief executive of Better Markets, a Washington-based financial watchdog. “No, Powell and Quarles had the wheel, and the supervisors were in the back seat and were being told to shut up like kids on a vacation.”

It doesn't require actual law, an executive order, or even a rule to be issued by Treasury. All it takes is a corrupt administration that decides they're going to override the law by strangling regulation. Oh, yeah. And George W. did it too but starving out the SEC, killing its regulatory mission, and having the OTS run blocker against state AGs. We all saw how well 2008 turned out.

[LFC]

The Federal Reserve produced a report on the failure of SVB. It's ugly, and not in the least shocking.

In a scathing report, the Federal Reserve on Friday outlined a series of disastrous decisions that led to the downfall of Silicon Valley Bank — including failures by the central bank’s own supervisors to ward off last month’s crisis.

The much-anticipated 114-page report set the stage for a new, aggressive push by the Fed to restrengthen bank regulation, in an attempt to tighten up many of the rules that were eased by Congress on a bipartisan vote in 2018 and loosened further by the Fed in 2019.

“SVB’s failure demonstrates that there are weaknesses in regulation and supervision that must be addressed,” Fed Vice Chair for Supervision Michael Barr wrote in a letter accompanying the report. “Regulatory standards for SVB were too low, the supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework.”

[andydp]

Here's a new one for the pile:



First Republic Bank fails: Was it a bailout?

The collapse of First Republic Bank on Monday left it under control of the U.S. government, which quickly sold the bank to JPMorgan Chase. The move aimed to shore up the financial system after a cascade of major bank failures.

JPMorgan Chase, the nation's largest bank, retained the majority of First Republic's assets and all of its deposits, JPMorgan Chase said on Monday. In turn, the deal fully protects depositors at First Republic, who immediately became customers of JPMorgan Chase.

To achieve the rescue, however, a federal agency provided $50 billion in financing to JPMorgan Chase, setting off questions about whether the government had orchestrated a bank bailout.


www.msn.com/en-us/money/companies/first-republic-bank-fails-was-it-a-bailout/ar-AA1aB2sX?ocid=msedgntp&cvid=cd46650c851f4108be80abae733bc841&ei=123