Good day all. I haven’t written anything about the recent collapse of the SVB Bank in Kalifornistan. one reason is that there is a lot regarding this collapse that I just flat do not know, or in many cases understand.
The other is that this is still an ongoing mess and we’re seeing a lot of garbage being put out. From what I understand, the SVB Bank underwent a good, old fashioned run as corporate depositors started pulling out their funds. The bank had been experiencing some issues and their stock value had plummeted. Friday, the bank basically ran out of cash and couldn’t liquidate assets fast enough to cover the withdrawals. (Apparently, they did have sufficient assets, but selling them was the problem)
Over the weekend, there have been some big money people screaming to the high heavens that the Federal Government has to bail out the bank or the entire world economy will collapse and the Zombie Apocalypse will begin. Yes, that is an exaggeration, but not by much. Now the Secretary of the Treasury, Janet Yellen has announced that there will be no bailout. Here are the details from Newsmax:
U.S. authorities were preparing “material action” on Sunday to shore up deposits in Silicon Valley Bank (SVB) and try to stem any broader financial fallout from its sudden collapse, sources familiar with the matter told Reuters.
One of the issues is that a lot of companies were using SVB as their primary, and in many cases, only bank. Their assets in their accounts far exceeded the FDIC’s depositor insurance level of about $250K. They might not be able to make their payrolls or pay bills until the SVB assets are unwound, and that could take weeks or months.
As fears deepened of a broader fallout across the U.S. regional banking sector and beyond, Yellen said she was working to protect depositors but ruled out a bailout.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen told CBS’ “Face the Nation” show.
“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 we are not going to do that again,” Yellen added.
She’s talking about the 2008 debacle. The result of this led to the Dodd-Frank law, which gave us other problems, such as banks being “To big to fail.” Now as for the reasons for the collapse of Silicon Valley Bank, they are complicated. From what I understand, they had sunk a lot of money into long term government bonds thinking they would be safe.
Well, guess what happened? The Biden Maladministration and the Democrats out of control spending has led to the Federal Reserve jacking up interest rates big time. The bonds that SVB bought provided interest at around 2%. Considering how low interest rates were at the time, this seemed like a good deal. The problem appears to be that SVB wasn’t considering what would happen if interest rates started climbing.
As I understand this, the bonds they had would not increase the interest rate provided. However, depositors were expecting increases in the rates they were getting with their accounts, including short term bonds and CD’s. Now take what I am saying with a large grain of salt. In fact, I would order a truckload of salt. I am not a financial planner or guru and I’m trying to understand the things I’ve been reading for the last few days. I may be incorrect in some of this. (Or all of it. Who the Hell knows?)
Now the panic is setting in, and lots of money people are saying that Yellen’s decision is wrong and that the Federal Government must step in and cover the corporate deposits.
Billionaire hedge fund manager Bill Ackman said in a tweet on Saturday that failure to protect all depositors could lead to the withdrawal of uninsured deposits from other institutions.
“These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions,” Ackman, who said he does not have direct SVB exposure, warned.
SVB was not the “Standard” type of bank. They were very heavy into Venture Capitol and funding tech startups. Most banks, while they may do some venture capitol financial stuff, don’t make it their primary business. Also, most banks don’t screw up their risk the way SVB did. I have little doubt that many banks were spending the weekend reviewing their potential risks and moving to minimize them as much as possible.
Now what is going to happen to Silicon Valley Bank. Frankly, it’s dead. The government is working to find a bigger bank or other investors to buy the bank and take it over. The FDIC is working to make sure the private depositors accounts, those under the $250K limit, will have their funds available when the bank opens. From what I have read, SVB does have the assets to cover all their deposits and then some, but the problem is converting those assets to cash. That is going to take time.
I suspect that SVB is going to be broken up and sold off in bits and pieces. There are parts that would be of interest to other parties. This may include any loans or mortgages outstanding. The rest of the bank? I think it’s going to be liquidated and the cash used to pay back the corporate depositors. As an independent corporate entity, I suspect that Silicon Valley Bank will cease to exist in fairly short order.
Thatisall
(4 votes, average: 5.00 out of 5)
Loading...
~The Angry Webmaster~
