Silicon Valley Bank Collapses

[james_s]

Low interest rates have persisted for so long a generation has grown up that doesn't realise what the world is like when money is expensive. I wonder how they will adapt. Its really annoying to hear young people complain how easy it was for their parent's generation to buy houses with the lower prices of the past, ignoring how interest rates made a mortgage on even those low prices crippling.

Yeah my parents house was a lot cheaper than mine, but their mortgage was around 18% interest while my is 2.75%, adjusted for inflation the total cost of mine is probably lower.

[Gyro]

Credit Suisse, seems to be a bit iffy at the moment. Probably not an ideal week to choose to 'disclose "material weakness" in its accounting controls'.

https://www.bbc.co.uk/news/business-64964881

[coppice]

Credit Suisse, seems to be a bit iffy at the moment. Probably not an ideal week to choose to 'disclose "material weakness" in its accounting controls'.

https://www.bbc.co.uk/news/business-64964881

Credit Suisse and Deutsche Bank have been teetering on the brink for years. It seems unlikely that either could survive significant turbulence in the market.

[Gyro]

I didn't know about Deutsche Bank. I thought the EU, like the UK, had put strict liquidity rules and 'financial challenge tests' in place [Edit: following 2008]. Credit Suisse on the other hand have had a somewhat chequered history, scandal wise, lost money for the past two years and aren't predicting profitability until 2024 (that's probably a maybe now). Saudi Bank have said that they won't inject any more money.

[Stray Electron]

The thing that annoys me about this whole thing is that it reflects a fundamental part of irrational human behavior that has always irritated me. If everyone pulls all their money out, a bank will fail, any bank. If people continue on as usual it's unlikely to fail, and it is insured by the government up to a value that no individual with any sense should have sitting in their account. People get worried about a bank collapsing, fear spreads and then these same people cause the bank to collapse in the rush to get their money out.

   I don't see what's irrational about that fear.  Everyone is afraid that with everyone else taking money from the bank that if they delay getting their money that it will all be gone and they'll lose their savings.  Yes, I know FDIC insures most individual accounts to $250,000 but many people (1) don't trust the government, (2) are afraid it will take months or years to be repaid (3) don't trust the government, (4) afraid that the US Gov or the FDIC will go broke and not everyone will be paid or (6) don't trust the government.  In the US, we've all grown up with stories of the bank crash of 1929 and 1930 and how many people lost EVERYTHING so it drives our thinking.   OTOH if the banks actually kept a significant portion of their deposits in the bank and on hand instead of playing financial Russian Roulette with it then people would be a little more inclined to trust the US banking system.  But realistically, not a single day goes by that you don't hear of another bank, credit union, investment fund, Saving and Loan or other US financial institution that was been caught with their hand in somebody else's cookie jar.

   Until the banks and other institutions and their directors, managers, etc etc etc are all held truely accountable, no one is going to trust the current system.

[TimFox]

1.  The statement "not a single day goes by" is far too absolute.  Most single days go by without a US bank failure.
2.  For the usual accounts, < $250k by today's regulation, nothing has ever been lost to the depositor and the delays are minimal.
3.  The amount of reserves kept by banks (< 100%) is a matter of regulation, and the politics involves listening either to banks (to reduce the requirement) or bank critics (to increase the requirement).  The results oscillate with a period determined by how long it takes to forget the previous problem.
4.  When the authorities do intervene on a failed bank, the shareholders and executives take the loss.

[m k]

I didn't know about Deutsche Bank. I thought the EU, like the UK, had put strict liquidity rules and 'financial challenge tests' in place [Edit: following 2008]. Credit Suisse on the other hand have had a somewhat chequered history, scandal wise, lost money for the past two years and aren't predicting profitability until 2024 (that's probably a maybe now). Saudi Bank have said that they won't inject any more money.

I remember that Deutsche Bank and Societe Generale were pretty deep in Greece and Italy.
Maybe there are still something left from there.

[Gyro]

Ah yes, now that I read the DB wikipedia page, quite a lot of news stories come back to mind. Their exposure in Greece seems minimal now, but still Spain and Italy.

[coppice]

I didn't know about Deutsche Bank. I thought the EU, like the UK, had put strict liquidity rules and 'financial challenge tests' in place [Edit: following 2008]. Credit Suisse on the other hand have had a somewhat chequered history, scandal wise, lost money for the past two years and aren't predicting profitability until 2024 (that's probably a maybe now). Saudi Bank have said that they won't inject any more money.

From a quick look it seems Deutsche Bank's position may have improved. The rating agencies considered them dodgy for a long time, but seem to have upgraded them a few months ago. Then again, the rating agencies are worth about as much as a campaign promise.

[james_s]

   I don't see what's irrational about that fear.  Everyone is afraid that with everyone else taking money from the bank that if they delay getting their money that it will all be gone and they'll lose their savings.  Yes, I know FDIC insures most individual accounts to $250,000 but many people (1) don't trust the government, (2) are afraid it will take months or years to be repaid (3) don't trust the government, (4) afraid that the US Gov or the FDIC will go broke and not everyone will be paid or (6) don't trust the government.  In the US, we've all grown up with stories of the bank crash of 1929 and 1930 and how many people lost EVERYTHING so it drives our thinking.   OTOH if the banks actually kept a significant portion of their deposits in the bank and on hand instead of playing financial Russian Roulette with it then people would be a little more inclined to trust the US banking system.  But realistically, not a single day goes by that you don't hear of another bank, credit union, investment fund, Saving and Loan or other US financial institution that was been caught with their hand in somebody else's cookie jar.

   Until the banks and other institutions and their directors, managers, etc etc etc are all held truely accountable, no one is going to trust the current system.

But if they didn't all take the money out, everything would be fine and the bank wouldn't fail. It is their fear-driven actions that directly cause it to fail.

[Gyro]

Yes it is. Unfortunately you're arguing against human nature though and there's no way anyone's going to change that.

[VK3DRB]

Global debt is > USD $300 TRILLION, according to the IMF in 2021. This can never be repaid. When the house of cards starts to fall, it will be catastrophic. This will once again be a precursor to global war.

Now, there is a big positive side to this... 555 timers will drop in price

[EEVblog]

Credit Suisse will be lucky if it has 24 hours left.
The CDF market yesterday priced in a 30% chance of them defaulting, today it's up to 50%. The Saudi's said no more money for you.

[themadhippy]

This will once again be a precursor to global war

Paid for on the country's credit card

[james_s]

Global debt is > USD $300 TRILLION, according to the IMF in 2021. This can never be repaid. When the house of cards starts to fall, it will be catastrophic. This will once again be a precursor to global war.

Now, there is a big positive side to this... 555 timers will drop in price

They pretty much just have to start over. I don't know what will happen but it's not going to be fun. Hopefully it occurs after I'm gone, no civilization lasts forever.

This is actually part of the reason I don't have much interest in going to Mars and such, I think the human race, or at least modern society will collapse long before we manage to develop the technology to travel to some other habitable planet. Humans have existed for only an extremely brief portion of the history of the earth and we will likely be gone long before the earth is.

[bdunham7]

Credit Suisse will be lucky if it has 24 hours left.
The CDF market yesterday priced in a 30% chance of them defaulting, today it's up to 50%. The Saudi's said no more money for you.

Yikes, I hope not--I have some CS bonds.  The CDS market itself will be in turmoil as banks and instutional investors who need to be hedged have to pay the price.  Much more is priced in than the likelihood of defaul and CDS sellers are probably raking in absolutely huge premiums.  The bonds themselves were only trading at a 10-15% discount today, if that, in a turbulent but illiquid market that had a lot of one-sided trade books (either only an offer to sell or buy, not both).  But as far as CS going down, the Swiss National Bank has stepped in and said CS has a very strong capital position and even if they have a run, SNB will 'provide liquidity', meaning they'll fire up the forklifts in the bullion warehouse if need be.  CS failing would wipe out the Swiss as a banking center even if the depositors were made whole, so I'm guessing any and all efforts will be made to prop it up.  Beirut used to be a big financial center.  Zurich does not want to become Beirut.  If CS fails I think we'll be on the way to a crisis worse than 2008.

The Saudis did say they were done, but also cited regulatory reasons as they currently hold 9.9% after putting in a few billion more.  Of course they may be glad to have that excuse.

[SiliconWizard]

Global debt is > USD $300 TRILLION, according to the IMF in 2021. This can never be repaid. When the house of cards starts to fall, it will be catastrophic. This will once again be a precursor to global war.

Now, there is a big positive side to this... 555 timers will drop in price

They pretty much just have to start over. I don't know what will happen but it's not going to be fun. Hopefully it occurs after I'm gone, no civilization lasts forever.

Don't you already see what is happening?

[Rick Law]

The thing that annoys me about this whole thing is that it reflects a fundamental part of irrational human behavior that has always irritated me. If everyone pulls all their money out, a bank will fail, any bank. If people continue on as usual it's unlikely to fail, and it is insured by the government up to a value that no individual with any sense should have sitting in their account. People get worried about a bank collapsing, fear spreads and then these same people cause the bank to collapse in the rush to get their money out.

   I don't see what's irrational about that fear.  Everyone is afraid that with everyone else taking money from the bank that if they delay getting their money that it will all be gone and they'll lose their savings.  Yes, I know FDIC insures most individual accounts to $250,000 but many people (1) don't trust the government, (2) are afraid it will take months or years to be repaid (3) don't trust the government, (4) afraid that the US Gov or the FDIC will go broke and not everyone will be paid or (6) don't trust the government.  In the US, we've all grown up with stories of the bank crash of 1929 and 1930 and how many people lost EVERYTHING so it drives our thinking.   OTOH if the banks actually kept a significant portion of their deposits in the bank and on hand instead of playing financial Russian Roulette with it then people would be a little more inclined to trust the US banking system.  But realistically, not a single day goes by that you don't hear of another bank, credit union, investment fund, Saving and Loan or other US financial institution that was been caught with their hand in somebody else's cookie jar.

   Until the banks and other institutions and their directors, managers, etc etc etc are all held truely accountable, no one is going to trust the current system.

It is beyond merely holding institutions and their directors accountable.  Before that, there are other criteria we must achieve first -- they must get their priority right and get people who knows what they are doing.  Both for the feds and for businesses.

Are we/they watching the ball carefully?  I submit no.  As recent as March 7, the feds didn't see it coming.  On March 7, the Treasury department head (Secretary of the Treasury Janet Yellen) was delivering a speech to the Financial Risk Advisory Committee about "the risks that climate change poses to U.S. financial stability"^[1].  Granted, she probably can multi-task and look at more than one thing at a time.  How come this Treasury Bond liquidity issue came as a surprise whey they also control the interest rate?  Interest rate is probably the most if not the only thing that controls Treasury Bond value, other than USA declaring bankruptcy.  Who on her staff should be telling her: "Don't do it!  This is like worrying about the weather insulation may not be adequate come next winter while the building is currently on fire and is about to flashover.  Deal with the fire first!"  Anyone?

As for business, just the fact that they have been running 8 months without a CRO (Chief Risk Management Officer)^[2] said it all.

In seeing what I just listed above, my opinion is both the feds and SVB (and the likes) are either incompetent or they simply don't knew what they are doing.

Footnote:
[1]  Press release where I drawn the quote:
https://home.treasury.gov/news/press-releases/jy1325
[2]  SVB running without a CRO
https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer/

[BravoV]

The whole Western economies are collapsing, all printing money like crazy USD or EUR, the only way out is to launch nuke attack "simultaneously" on Russia and China. 

On Western front, EU/NATO cannon fodders will go 1st to sacrifice them self for the sake of freedom and democracy  on destroying the evil Russia, while on the East front, the "mighty" Australians (now with nuke subs) with Japan, S.Korea and "cute" cannon fodder like Philippine will self sacrifice them self 1st for the sake of freedom and democracy .. of US, of course. 

US will be protected at both fronts, will stay safe and untouched watching from far far away giggling that the big problem of economy will be reseted and fixed, yay ... no more national debt. 

[ejeffrey]

   I don't see what's irrational about that fear.  Everyone is afraid that with everyone else taking money from the bank that if they delay getting their money that it will all be gone and they'll lose their savings.  Yes, I know FDIC insures most individual accounts to $250,000 but many people (1) don't trust the government, (2) are afraid it will take months or years to be repaid (3) don't trust the government, (4) afraid that the US Gov or the FDIC will go broke and not everyone will be paid or (6) don't trust the government.  In the US, we've all grown up with stories of the bank crash of 1929 and 1930 and how many people lost EVERYTHING so it drives our thinking.   

Yes, exactly all of that is the part that is irrational.

When banks have failed since the FDIC was created, insured people have access to their money within a handful of days, not weeks or months.  It's easy to look that stuff up.  Even beyond the 250k legal limit, when the FDIC manages the liquidiation of a failed bank like SVB they put themselves on behalf of depositors as the highest priority creditor, above even secured creditors.  That is basically how almost everyone is going to get their money back from SVB -- because they are in line ahead of bondholders.

Also, while financial failure of the US government would be a serious problem, if you are an American living in the US it's not materially worse if you withdrew your money from the bank before it failed or not.  That's the principle of sovereign debt.

So yes, it's irrational panic.  That isn't to say that SVP didn't have bad practices, and maybe they deserved to fail.  But a bank run is basically by definition irrational panic, and that's why the FDIC was created.  Banks are incredibly useful, but even the best run bank could be destroyed in a panicked bank run and frequently was before the FDIC.

OTOH if the banks actually kept a significant portion of their deposits in the bank and on hand instead of playing financial Russian Roulette with it then people would be a little more inclined to trust the US banking system.  But realistically, not a single day goes by that you don't hear of another bank, credit union, investment fund, Saving and Loan or other US financial institution that was been caught with their hand in somebody else's cookie jar.

If you are suggesting that banks not lend or invest depositors money, including longer term investments that would be tremendously unhelpful, defeat the purpose of banks and more or less permanently end economic growth.  If you are saying that we shouldn't let banks write the rules on risk management for banks, then I totally agree.

[EEVblog]

So the US federal government shuts down a Signature Bank and stipulates that the bank that buys it not be involved in crypto in any way? (presumably also going forward?)
How is this not a direct federal government attack on the crypto industry?
CBDC conflict of interest much.
The rug pull is in plain sight.

https://www.coindesk.com/policy/2023/03/16/signature-banks-prospective-buyers-must-agree-to-give-up-all-crypto-business-report/

[james_s]

If you are suggesting that banks not lend or invest depositors money, including longer term investments that would be tremendously unhelpful, defeat the purpose of banks and more or less permanently end economic growth.  If you are saying that we shouldn't let banks write the rules on risk management for banks, then I totally agree.

What if they were to limit the rate at which money could be withdrawn? I suppose that would cause all manner of other problems. The problem happens when too many people withdraw too much too rapidly.

[iMo]

If you are suggesting that banks not lend or invest depositors money, including longer term investments that would be tremendously unhelpful, defeat the purpose of banks and more or less permanently end economic growth.  If you are saying that we shouldn't let banks write the rules on risk management for banks, then I totally agree.

What if they were to limit the rate at which money could be withdrawn? I suppose that would cause all manner of other problems. The problem happens when too many people withdraw too much too rapidly.

That is a common practice, at least in Europe. They also limit/stop withdrawals from ATMs first. The problem is whether the bank's bosses are ready to make this kind of decision early enough, as the setting the limits actually publicly indicates the bank is a crap.

[wilfred]

So the US federal government shuts down a Signature Bank and stipulates that the bank that buys it not be involved in crypto in any way? (presumably also going forward?)
How is this not a direct federal government attack on the crypto industry?
CBDC conflict of interest much.
The rug pull is in plain sight.

Wasn't the whole point of crypto so those involved in crime and money laundering could do it safely hidden from bank system regulation?

When ordinary bank depositors are at additional risk from crypto rot in the banking system they might be glad of the no crypto edict.

[EEVblog]

Wasn't the whole point of crypto so those involved in crime and money laundering could do it safely hidden from bank system regulation?

No. It was so individuals could be free from central banking fiat systems. Blackchain based crypto by its very nature is 100% traceable, that's the point of it.
Criminals have to jump through a lot of hoops to avoid detection using it.

When ordinary bank depositors are at additional risk from crypto rot in the banking system they might be glad of the no crypto edict.

That's not the real reason though.