Banks Lose Hundreds Of Billions As Depositors Seek Higher Deposit Yields #GotBitcoin
Updated: 3-9-2023: Banks big and small posted steep declines. PacWest Bancorp fell 25%, and First Republic Bank lost 17%. Charles Schwab Corp. fell 13%, while U.S. Bancorp lost 7%. America’s biggest bank, JPMorgan Chase & Co., fell 5.4%. Banks Lose Hundreds Of Billions As Depositors Seek Higher Deposit Yields #GotBitcoin
The four biggest U.S. banks lost $52 billion in market value Thursday. The KBW Nasdaq Bank Index notched its biggest decline since the pandemic roiled the markets nearly three years ago.
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Large declines in value aren’t necessarily a problem for banks unless they are forced to sell the assets to cover deposit withdrawals.
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Wells Fargo, and Citigroup each have over $1 trillion in deposits, per last quarter’s FDIC filings. Chase and BoA have over $2 trillion. The FDIC, by contrast, has only $128 billion in its deposit insurance fund. While not all of the big banks’ deposits are insured, it’s safe to say that if JPMorgan Chase failed tomorrow, the FDIC’s deposit insurance fund would be emptied very quickly. Realistically, there’d be a large-scale bailout as in 2008 to prevent further economic fallout, and expectation of those bailouts can and does lead these banks to act recklessly. They’re a true moral hazard.
Most banks aren’t doing so, even though their customers are starting to move their deposits into higher-yielding alternatives.
Yet a few banks have run into trouble this week, sparking fears that other banks could be forced to take losses to raise cash.
The collapse of Silvergate Capital Corp., one of the crypto market’s top banks, is a more extreme example of deposit flight. The California bank said Wednesday it would shut down after the crypto meltdown sparked a deposit run that forced it to sell billions of dollars of assets at a steep loss.
But They Didn’t Know Anything Right?
11:55 AM · Mar 10, 2023, 4.6M: Views
“This is the first sign there might be some kind of crack in the financial system,” said Bill Smead, chairman and chief investment officer of Smead Capital Management, a $5.5 billion firm that counts Bank of America Corp. and JPMorgan among its holdings. “People are waking up to the gravity that this was one of the biggest financial euphoria episodes.”
Index of banks posts biggest drop since pandemic roiled markets nearly three years ago.
Some investors got a nice payday in Thursday’s plunge. Some 5.4% of SVB’s available shares were sold short, according to FactSet data from last month. Short sellers aim to profit by borrowing and selling shares of companies they believe are overvalued, then buying them back later at a lower price.
Far fewer investors were betting against the tech-focused lender’s peers. Last month short interest was 2% at Fifth Third Bancorp, 1.4% at State Street Corp. and 1% at American Express Co.
Investors dumped shares of SVB Financial Group and a swath of U.S. banks after the tech-focused lender said it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits.
Thursday’s rout is another consequence of the Federal Reserve’s aggressive campaign to control inflation. Rising interest rates have caused the value of existing bonds with lower payouts to fall in value. Banks own a lot of those bonds, including Treasurys, and are now sitting on giant unrealized losses.
SVB said late Wednesday it would book a $1.8 billion after-tax loss on sales of investments and seek to raise $2.25 billion by selling a mix of common and preferred stock.
The bank’s assets and deposits almost doubled in 2021, large amounts of which SVB poured into U.S. Treasurys and other government-sponsored debt securities.
Soon after, the Fed began raising rates. That battered the tech startups and venture-capital firms Silicon Valley Bank serves, sparking a faster-than-expected decline in deposits that continues to gain steam.
Some venture-capital investors have advised startups to pull their money out of SVB, citing liquidity concerns, according to people familiar with the matter.
Garry Tan, president of the startup incubator Y Combinator, posted this internal message to founders in the program: “We have no specific knowledge of what’s happening at SVB.
But anytime you hear problems of solvency in any bank, and it can be deemed credible, you should take it seriously and prioritize the interests of your startup by not exposing yourself to more than $250K of exposure there. As always, your startup dies when you run out of money for whatever reason.”
SVB Chief Executive Greg Becker held a call Thursday trying to reassure customers about the bank’s financial health, according to people familiar with the matter. Mr. Becker urged them not to pull their deposits from the bank and not to spread fear or panic about its situation, the people said.
Banks don’t incur losses on their bond portfolios if they are able to hold on to them until maturity. But if they suddenly have to sell the bonds at a loss to raise cash, that is when accounting rules require them to show the realized losses in their earnings.
Those rules let companies exclude losses on their bonds from earnings if they classify the investments as “available for sale” or “held to maturity.”
Sometimes the losses catch investors by surprise, even if the problem has been slowly building and fully disclosed for a long time.
At SVB, unrealized losses had been piling up throughout last year and were visible to anyone reading its financial reports.
The Federal Deposit Insurance Corp. in February reported that U.S. banks’ unrealized losses on available-for-sale and held-to-maturity securities totaled $620 billion as of Dec. 31, up from $8 billion a year earlier before the Fed’s rate push began.
In part, U.S. banks are suffering the aftereffects of a Covid-era deposit boom that left them awash in cash that they needed to put to work. Domestic deposits at federally insured banks rose 38% from the end of 2019 to the end of 2021, FDIC data show.
Over the same period, total loans rose 7%, leaving many institutions with large amounts of cash to deploy in securities as interest rates were near record lows.
U.S. commercial banks’ holdings of U.S. government securities surged 53% over the same period, to $4.58 trillion, according to Fed data.
Most of the unrealized investment losses in the banking system are at the largest lenders. In its annual report, Bank of America said the fair-market value of its held-to-maturity debt securities was $524 billion as of Dec. 31, 2022, $109 billion less than the value it showed for them on its balance sheet.
Bank of America and its megabank peers can afford to part with a lot of deposits before they are forced to crystallize those losses.
Most of SVB’s liabilities—89% at the end of 2022—are deposits. Bank of America draws its funding from a much wider set of sources that includes more long-term borrowing; 69% of its liabilities are deposits.
And, unlike SVB and Silvergate, big banks hold a range of assets and serve companies across the economy, minimizing the risk that a downturn in any one industry will cause them serious harm.
“On the other hand, unrealized losses weaken a bank’s future ability to meet unexpected liquidity needs,” FDIC Chairman Martin Gruenberg said in a March 6 speech.
The risks are most acute for small lenders. Smaller banks must often pay higher deposit rates to attract customers than megabanks with flashy technology and extensive branch networks.
Bank of America paid an average rate of 0.96% on deposits in the fourth quarter, compared with 1.17% for the industry. SVB paid 2.33%.
SVB, based in Santa Clara, Calif., caters to tech, venture-capital and private-equity firms and grew rapidly along with those industries. Total deposits rose 86% in 2021 to $189 billion and peaked at $198 billion a quarter later.
They fell 13% during the final three quarters of 2022 and continued dropping in January and February “in part because of its concentration in investor-funded technology company deposits and the slowdown in public and private investments over the past year,” Standard & Poor’s credit analysts wrote in a note downgrading SVB to one notch above junk. They said they expect SVB’s deposits might decline further.
SVB’s debt securities declined in value substantially last year. As of Dec. 31, SVB’s balance sheet showed securities labeled “available for sale” that had a fair market value of $26.1 billion, $2.5 billion below their $28.6 billion cost.
Under accounting rules, the available-for-sale label allowed SVB to exclude the paper losses on those holdings from its earnings, although the losses did count in equity.
In a news release Wednesday, SVB said it had sold substantially all of its available-for-sale securities. The company said it decided to sell the holdings and raise fresh capital “because we expect continued higher interest rates, pressured public and private markets, and elevated cash-burn levels from our clients as they invest in their businesses.”
SVB’s year-end balance sheet also showed $91.3 billion of securities that it classified as “held to maturity.” That label allows SVB to exclude paper losses on those holdings from both its earnings and equity.
In a footnote to its latest financial statements, SVB said the fair-market value of those held-to-maturity securities was $76.2 billion, or $15.1 billion below their balance-sheet value. The fair-value gap at year-end was almost as large as SVB’s $16.3 billion of total equity.
SVB hasn’t wavered from its position that it intends to hold those bonds to maturity. Most of the held-to-maturity securities consisted of mortgage bonds issued by government-sponsored entities, such as Fannie Mae, which have no risk of default.
They do present market risk, including interest-rate risk, because bond values fall when rates rise. The yield on two-year Treasurys recently topped 5%, up from 4.43% at the end of 2022.
SVB Financial Explores Sale After Failing To Raise Capital
Silicon Valley bank is working with Centerview Partners, Sullivan & Cromwell.
SVB Financial Group is seeking a buyer after scrapping a plan to shore up its finances through a capital raise, according to people familiar with the matter.
Facing widespread customer withdrawals that have raised questions about the Silicon Valley lender’s ability to stay in business, the bank’s shares have declined sharply since Thursday, falling as much as 68% in premarket trading before the stock was halted.
That forced it to scrap the $2.25 billion sale of shares and other securities and to look for a buyer or other rescue instead, the people said.
Possibilities include a sale to a large financial institution and a stake sale, the people said. It’s conceivable there will be no deal and that the government will have to step in, the people said.
Advisory firm Centerview Partners and law firm Sullivan & Cromwell LLP were recently brought in to help SVB assess its options.
CNBC earlier reported on the scrapped share sale and bank talks.
SVB, based in Santa Clara, Calif., earlier this week surprised investors by announcing that it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits.
The stock has lost more than 80% since then, and some tech clients have rushed to pull their deposits over concerns about the bank’s health.
The developments have badly destabilized the $212 billion asset firm, which operates tech-focused Silicon Valley Bank, and dragged down the entire industry.
The four largest U.S. banks lost some $52 billion in market value Thursday, and a broader index of bank stocks had its worst day in nearly three years. Bank stocks continue to plunge Friday morning, with a number halted for volatility.
On Thursday afternoon, bankers at Goldman Sachs Group Inc. had arranged for a share sale at $95 apiece, according to people familiar with the offering.
As the stock kept tumbling and more customers pulled their deposits from the bank, that deal fell apart, these people said. The share sale was canceled Friday morning.
On Friday morning, the bank told employees to “work from home today and until further notice,” according to a copy of the email viewed by The Wall Street Journal.
SVB caters mainly to startups and the investors that fund them, an insular ecosystem that has taken a big hit since the Federal Reserve began raising rates last year to curb inflation.
Startups, as a result, drained their deposits with SVB faster than the bank expected. And new investment has stalled, meaning fresh money isn’t coming into the bank.
Rising interest rates, meanwhile, dented the value of SVB’s bondholdings. The bank late Wednesday disclosed it had sold a big chunk of those holdings at a loss. Investors dumped the stock, spooking customers and sparking fears of a bank run.
Chief Executive Greg Becker held a call with jittery customers Thursday, telling them the bank was on solid financial footing despite the loss. But concerned SVB clients were already calling rival banks looking to move large balances in excess of Federal Deposit Insurance Corp. insurance caps.
Some venture-capital investors advised startups to pull their money out of the bank to avoid losses should the bank fail, The Wall Street Journal previously reported.
Alison Greenberg, co-founder of Los Angeles-based maternity care startup Ruth Health, was in a meeting Thursday when she got a frantic email from a seed investor.
“It basically just said ‘Things are imploding at SVB, it’s urgent that you get your money out,’” Ms. Greenberg said.
The meeting came to an abrupt halt. Ms. Greenberg called the investor, who answered the phone out of breath, she said.
The investor told her she should get as much money out of the bank as she possibly could, Ms. Greenberg said.
Audrey Wu, a Ruth Health co-founder, began making transfers out of the company’s account of different denominations, hoping not to trip up any automated systems that would flag the transactions and potentially delay them.
As she prepared to carry out the final transfer from the account, SVB’s website crashed and she couldn’t log back in, she said. The company still has some money in the account.
Others were sticking with SVB. Financial-technology venture-capital firm Restive Ventures said in an email early Friday morning that it was keeping its money at the bank and encouraging portfolio companies to do the same.
It urged people to calm down. “Moving corporate treasury under time pressure, on the internet, is a recipe for disaster,” the email said.
SVB’s deposits boomed alongside the tech industry, rising 86% in 2021 to $189 billion and peaking at $198 billion a quarter later. The bank poured large amounts of the deposits into U.S. Treasurys and other government-sponsored debt securities.
Soon after, the Fed began raising rates.
Rising rates and the tech downturn caused deposits to decline, spurring the bank to sell substantially all of its available-for-sale securities.
Updated: 3-9-2023
One Bank Folds, Another Wobbles And Wall Street Asks If It’s A Crisis
* More Lenders Are Struggling To Keep Deposits From Fleeing
* ‘Silicon Valley Bank Is Just The Tip Of The Iceberg’
Silvergate Capital Corp.’s abrupt shutdown and SVB Financial Group’s hasty fundraising have sent US bank stocks diving and tongues wagging across the industry: Could this be the start of a much bigger problem?
The issue at both of the once-highflying California lenders was an unusually fickle base of depositors who yanked money quickly. But below that is a crack reaching across finance:
Rising interest rates have left banks laden with low-interest bonds that can’t be sold in a hurry without losses. So if too many customers tap their deposits at once, it risks a vicious cycle.
Across the investing world, “people are asking who is the next one?” said Jens Nordvig, founder of market analytics and data intelligence companies Exante Data and Market Reader. “I am getting lots of questions about this from my clients.”
Indeed, amid deposit withdrawals at SVB, its chief executive officer urged customers on Thursday to “stay calm.”
The immediate risk for many banks may not be existential, according to analysts, but it could still be painful. Rather than facing a major run on deposits, banks will be forced to compete harder for them by offering higher interest payments to savers. That would erode what banks earn on lending, slashing earnings.
Small- and mid-sized banks, where funding is usually less diversified, may come under particular pressure, forcing them to sell more stock and dilute current investors.
‘Terrible Kicking’
“Silicon Valley Bank is just the tip of the iceberg,” said Christopher Whalen, chairman of Whalen Global Advisors, a financial consulting firm. “I’m not worried about the big guys but a lot of the small guys are going to take a terrible kicking,” he said. “Many of them will have to raise equity.”
Every bank in the S&P 500 Financials Index tracking major US firms slumped on Thursday, taking the benchmark down 4.1% — its worst day since mid-2020. Santa Clara-based SVB tumbled 60%, while First Republic Bank in San Francisco fell 17%.
Another S&P index tracking mid-size financials dropped 4.7%. The worse performer there was Beverly Hills-based PacWest Bancorp, down 25%.
Ironically, many equity investors had piled into financial stocks to ride out the Federal Reserve’s interest-rate hikes, betting it would pave the way for lenders to earn more. For them, this week has been a shock.
“The cost of deposits rising is old news, we’ve seen that pressure,” said Chris Marinac, an analyst at Janney Montgomery Scott. But suddenly “the market has really focused on it because there’s an obvious surprise with the capital raise from Silicon Valley Bank.”
SVB announced the stock offering as its clients — firms backed by venture capital — withdrew deposits after burning through their funding. The lender liquidated substantially all of the securities available for sale in its portfolio and updated a forecast for the year to include a sharper decline in net interest income.
Hours after CEO Greg Becker urged clients to “stay calm” on a conference call Thursday, news broke that a number of prominent venture capital firms, including Peter Thiel’s Founders Fund, were advising portfolio companies to pull money as a precaution.
At Silvergate the problem was a run on deposits that began last year, when clients — cryptocurrency ventures — withdrew cash to weather the collapse of the FTX digital-asset exchange. After losses from rapidly selling securities, the firm announced plans Wednesday to wind down operations and liquidate.
US bank stocks also came under pressure this week after KeyCorp warned about the mounting pressure to reward savers. The regional lender lowered its forecast for growing net interest income in the current fiscal year to 1% to 4%, down from 6% to 9%, because of the “competitive pricing environment.” Its stock fell 7% on Thursday.
‘More Insulated’
Regulators talk openly about spending less time policing the balance sheets of small banks, giving them room to innovate, with some dabbling in financial-technology platforms or cryptocurrencies.
Authorities have instead devoted much of their time and attention since the 2008 financial crisis to ensuring the stability of large “systemically important” banks such as JPMorgan Chase & Co. and Bank of America Corp.
They’ve forced the biggest lenders to hold ever-larger amounts of capital aside — sometimes over the loud complaints of bankers — so that their health would be beyond reproach at moments like this.
Smaller lenders by contrast have been handled with “a very light-touch approach,” Michael Barr, the Fed’s vice chair for supervision, said during a speech Thursday.
“There are obviously larger institutions that are also exposed to these risks too, but the exposure tends to be a very small part of their balance sheet,” he said. “So even if they experience the same deposit outflows, they are more insulated.”
Silicon Valley Bank collapsed Friday in the second-biggest bank failure in U.S. history after a run on deposits doomed the tech-focused lender’s plans to raise fresh capital.
The Federal Deposit Insurance Corp. said it has taken control of the bank via a new entity it created called the Deposit Insurance National Bank of Santa Clara. All of the bank’s deposits have been transferred to the new bank, the regulator said.
Insured depositors will have access to their funds by Monday morning, the FDIC said. Depositors with funds exceeding insurance caps will get receivership certificates for their uninsured balances.
Once a darling of the banking business, Silicon Valley Bank collapsed at warp speed after it announced a big loss on its bondholdings and plans to shore up its balance sheet, tanking its stock and sparking widespread customer withdrawals.
The bank is the 16th largest in the U.S., with some $209 billion in assets as of Dec. 31, according to the Federal Reserve. It is by far the biggest bank to fail since the near collapse of the financial system in 2008, second only to the crisis-era shutdown of Washington Mutual Inc.
The bank’s parent company, SVB Financial Group, was racing to find a buyer after scrapping a planned $2.25 billion share sale Friday morning. Regulators weren’t willing to wait.
The California Department of Financial Protection and Innovation closed the bank Friday within hours and put it under the control of the FDIC.
SVB, based in Santa Clara, Calif., earlier this week surprised investors by announcing that it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits.
The stock has lost more than 80% since then, and tech clients rushed to pull their deposits over concerns about the bank’s health.
The bank’s troubles have dragged down the entire industry. The four largest U.S. banks lost some $52 billion in market value Thursday, and a broader index of bank stocks had its worst day in nearly three years. Bank stocks continue to plunge Friday morning, with a number halted for volatility.
Bankers at Goldman Sachs Group Inc. had arranged for SVB to sell shares at $95 apiece on Thursday afternoon, according to people familiar with the offering.
As the stock kept tumbling and more customers pulled their deposits from the bank, that deal fell apart, these people said. The share sale was canceled Friday morning.
On Friday morning, the bank told employees to “work from home today and until further notice,” according to a copy of the email viewed by The Wall Street Journal.
SVB catered mainly to startups and the investors that fund them, an insular ecosystem that has taken a big hit since the Fed began raising rates last year to curb inflation.
Startups, as a result, drained their deposits with SVB faster than the bank expected. And new investment had stalled, meaning fresh money wasn’t coming into the bank.
Rising interest rates, meanwhile, dented the value of SVB’s bondholdings. The bank late Wednesday disclosed it had sold a big chunk of those holdings at a loss. Investors dumped the stock, spooking customers and sparking a bank run.
Chief Executive Greg Becker held a call with jittery customers Thursday, telling them the bank was on solid financial footing despite the loss. But concerned SVB clients were already calling rival banks looking to move large balances in excess of FDIC insurance caps.
Some venture-capital investors advised startups to pull their money out of the bank to avoid losses should the bank fail, the Journal previously reported.
Alison Greenberg, co-founder of Los Angeles-based maternity care startup Ruth Health, was in a meeting Thursday when she got a frantic email from a seed investor.
“It basically just said ‘Things are imploding at SVB, it’s urgent that you get your money out,’” Ms. Greenberg said.
The meeting came to an abrupt halt. Ms. Greenberg called the investor, who answered the phone out of breath, she said.
The investor told her she should get as much money out of the bank as she possibly could, Ms. Greenberg said.
Audrey Wu, a Ruth Health co-founder, began making transfers out of the company’s account of different denominations, hoping not to trip up any automated systems that would flag the transactions and potentially delay them.
As she prepared to carry out the final transfer from the account, SVB’s website crashed and she couldn’t log back in, she said. The company still has some money in the account.
Others stuck with SVB. Financial-technology investor Restive Ventures said in an email early Friday morning that it was keeping its money at the bank and encouraging portfolio companies to do the same. It urged people to calm down.
“Moving corporate treasury under time pressure, on the internet, is a recipe for disaster,” the email said.
SVB’s deposits boomed alongside the tech industry, rising 86% in 2021 to $189 billion and peaking at $198 billion a quarter later.
The bank poured large amounts of the deposits into U.S. Treasurys and other government-sponsored debt securities. Soon after, the Fed began increasing rates.
Rising rates and the tech downturn caused deposits to decline, spurring the bank to sell substantially all of its available-for-sale securities.
Updated: 3-6-2023
US Banks Are Finally Being Forced To Raise Rates On Deposits
* Deposits Declined Last Year For First Time Since 1948
* Rising Funding Costs For Banks Seen Weighing On Profit Growth
US banks are being forced to do something they haven’t done for 15 years: fight for deposits.
After years of earning next to nothing, depositors are discovering a trove of higher-yielding options like Treasury bills and money market funds as the Federal Reserve ratchets up benchmark interest rates.
The shift has been so pronounced that commercial bank deposits fell last year for the first time since 1948 as net withdrawals hit $278 billion, according to Federal Deposit Insurance Corp. data.
To stem the outflows, banks are finally starting to lift their own rates from rock-bottom levels, particularly on certificates of deposit, or CDs.
More than dozen US lenders including Capital One Financial Inc. are now offering an annual percentage yield of 5% on CDs maturing in around a year, a rate that would have been unspeakably high two years ago. Even the big banks are feeling the heat. At Wells Fargo & Co., 11-month CDs now pay 4%.
The jump in rates on CDs and other bank deposits has been a boon for consumers and businesses, but it’s a costly development for the US banking industry, which is bracing for a slowdown in lending and more writedowns, says Barclays Plc analyst Jason Goldberg. And for smaller regional and community banks, losing deposits can be serious and weigh heavily on profitability.
“There are challenges ahead for banks,” Goldberg said. “Banks reflect the economy they operate in, and most forecasts call for slowing GDP growth and increasing unemployment.”
The very biggest banks can afford to slow-walk their rate increases, simply because they still have relatively high deposit levels. Overall, the average rate on a one-year CD is roughly 1.5%.
That’s up from 0.25% a week before the Fed began raising rates a year ago, but still well below inflation. After a year of record profits, the foot-dragging has earned banks plenty of ire from politicians globally.
Nevertheless, banks are feeling more pressure to boost rates, which will raise funding costs and crimp profit margins. According to Barclays, the median large-cap bank can expect growth in net interest income, a measure of lending profits, to slow to 11% this year, from 22% last year.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon made clear that some institutions will feel pressure on the firm’s earnings call in January: “Banks are competing for the capital, money, now. We’ve never had rates go up this fast.”
For depositors, CDs have been popular because they tend to offer the highest rates. For banks, they’re a way to lock up funding for a set period of time, unlike checking or savings accounts.
Rising CD rates have led to huge growth in sales of the product: CDs outstanding totaled $1.7 trillion in the US banking industry in the fourth quarter, up from $1.49 trillion in the third. That’s the biggest quarterly jump in at least two decades, according to S&P.
“The money really woke up in the late summer — banks felt pressure to really catch up on funding in a big way,” said S&P Global analyst Nathan Stovall. Boosting rates on CDs is one key way to do so, he said.
CDs are just one piece of how banks fund themselves, but funding costs are broadly rising as the Federal Reserve hikes rates.
The pressure is also evident in the fed funds market, where banks lend to one another for short periods.
Rates there have risen to the highest since November 2007, and trading volume has reached seven-year highs. The three-month London interbank offered rate for dollar, a major global lending benchmark, surpassed 5% for the first time in more than 15 years on Monday.
When the Fed boosts rates, banks usually get higher lending income quickly, as the rates on the loans they’ve made reset to higher levels. They can be slower to boost payments to depositors.
The rising income and lagging growth in expenses mean that banks can see their net interest income soar, as happened last year.
Net interest income last year for the US banking system was $632.9 billion, up 20% from the year before, according to the Federal Deposit Insurance Corp.
The lenders getting hit hardest by rising funding costs are community and smaller regional banks, said Arnold Kakuda, a bank credit strategist at Bloomberg Intelligence.
The largest US banks, and major regional lenders, can often borrow more in bond markets globally when they lose deposits. But smaller regional banks and community lenders have fewer options, and often have to win more deposits or get more funding from the Federal Home Loan Banking System.
The biggest banks probably won’t need to change their bond issuance plans, but bigger regional banks, like USBancorp and Truist Financial Corp., may need to borrow more in bond markets, according to BI. Kakuda estimates they may have to sell as much as $10 billion to $15 billion for each of the next few years, but that funding should be manageable for them.
On the asset side of bank balance sheets, loan growth has continued as the US economy manages to avoid a meaningful slowdown. Those loans need to be funded, and deposits are a key source of financing for banks.
A recent Fed survey hinted at strategies banks may be using to recoup lost funds as financing pressures increase. In the questionnaire, financial institutions reported that they would borrow in unsecured funding markets, raise brokered deposits or issue CDs if reserves were to fall to uncomfortable levels.
A large majority of domestic banks also cited borrowing advances from Federal Home Loan Banks as “very likely” or “likely.”
Ultimately, banks will probably have to continue raising deposit rates as they compete with other kinds of investments that provide more yield, according to Jan Bellens, a global banking and capital markets sector leader with Ernst & Young.
“Banks will just have to pay more for deposits,” he said. “Customers will start to gradually move deposits if they are no longer happy with the rates they get, and that’s why the banks are very keen to lock in consumers with CD products.”
Updated: 3-2-2023
We Are All Gamblers Now, From Sports To Crypto
FanDuel owner Flutter shows how our smartphone is a 24/7 betting shop, broker and casino combined. Can regulators keep up?
Congratulations to whoever won a bet on the World Cup via Paddy Power or FanDuel last year: You weren’t alone. Parent group Flutter Entertainment Plc took a £40 million ($47.7 million) hit from so-called “customer-friendly” sports results in December.
Chief Executive Officer Peter Jackson said he watched the spectacular six-goal final through his hands — “it was a very expensive event for us.”
There were other customer-friendly developments in Flutter’s 2022 financial results, which triggered an investor-unfriendly fall in its shares.
The company estimates it spent £150 million worth of annualized sales on safer gambling measures in the UK and Ireland, where the company imposed a £500 deposit limit for players under 25. The unwinding of the Covid-19 boom also hurt performance in Australia.
So: The house doesn’t always win. But the sobering truth is that it’s not losing the bigger battle of global domination.
Gambling has become an estimated $350 billion industry powered by the ability to bet online 24/7, a huge increase in the broadcasting of sports events, and governments looking for new tax revenues to fill a pandemic hole.
Regulators need more resources if they’re going to keep up with the attendant risks of addiction, money laundering and corruption.
Betting is becoming more mass-market, more normalized and more recreational. If the World Cup was last year’s “big one,” with 20.5 million Americans expected to have bet $1.8 billion, the Super Bowl was this year’s white whale, with more than 50 million Americans expected to have bet around $16 billion.
These tentpole events might lead to expensive results for firms like Flutter, but they’re very lucrative for market share in the long run. Americans bet about $450 million on sports every day, highlights Timothy L. O’Brien.
As the image of working-class gamblers counting out banknotes in betting shops gives way to glamorized ad campaigns targeting young men with smartphones and digital cash, a huge variety of apps are competing to tap into our psychological risk-on impulses.
Go to a wedding, a concert or a friend’s apartment, and chances are at least someone will be standing a little to the side, nervously checking their phone for the latest cryptocurrency price, memestock news or sports outcome.
Competition for consumers’ speculative dollars is intensifying as a result. The US is the El Dorado where gambling firms are converging, encouraged by the Supreme Court’s lifting of a ban on sports betting in 2018.
On Thursday, Flutter reported a 49% jump in average monthly players there, to 2.3 million; it expects the US online market will be worth $40 billion by 2030, up from $9 billion in mid-2022. Bloomberg Intelligence expects FanDuel, which competes against DraftKings Inc., will be the first of its kind to generate underlying Ebitda this year.
Flutter now wants to be listed in the US — partly so that it can tap into its own customer base for retail investors. It’s punts all the way down.
Now, it may certainly be the case that most of the wagers made on sports are harmless fun, and that problem gambling affects a tiny minority. A survey in New York (which expects to generate $615 million in tax revenues from sports betting this year) estimated that more than two-thirds of adults don’t gamble at all, around 4% are at risk and less than 1% are problem gamblers.
But the super-charged power of technology and the pressure on governments to compete amongst themselves for more tax revenue may end up making the problem worse, with reports of gambling helplines ringing off the hook and haphazard enforcement of new rules designed to keep players safe.
Gambling firms seem to want a more sustainable mass-market model: Flutter talks about its “flywheel” effect, whereby its dominant market share in US sports betting allows it to invest in better products and keep gamblers coming back for more.
But old habits like turning a blind eye to high-spending “VIPs” might die hard: Rival 888 Holdings Plc was fined £9.4 million last year over social responsibility and money-laundering failures, and its CEO has stepped down amid a probe into its Middle East operations.
In this kind of market, regulators need serious resources and staff to keep up. On crypto, the record of financial regulators has been quite good: The collapse of FTX and troubles at Silvergate Capital Corp. haven’t tanked the broader economy.
But gambling in the UK, whose social costs run to about £1.3 billion annually, is a cautionary tale. Politicians have repeatedly delayed a white paper promising to reform the industry, though that’s now due later this month.
There also needs to be more recognition of the other pressures that push the young to make all sorts of high-stakes bets on everything from crypto to sports, such as indebtedness and helplessness in the face of high house prices and stagnant wages.
Companies will howl, of course. But they’ll also appreciate that more regulation increases the barriers to entry. It may even drive mergers in the sector, such as a possible takeover of Entain Plc by MGM Resorts International.
The industry wants to justify investors’ own high-stakes bets on future growth. But that shouldn’t come at the expense of society: We aren’t all cut out to be gamblers.
Updated: 3-10-2023
SVB’s 44-Hour Collapse Was Rooted In Treasury Bets During Pandemic
* Largest Bank Failure Since 2008 Rooted In Bad Bets On Rates
* Leaders Who Recently Showed Confidence Now Seeking Quick Deal
Greg Becker sat in a red armchair at an invite-only conference in Los Angeles last week, legs crossed, one hand cutting through air.
“We pride ourselves on being the best financial partner in the most challenging times,” SVB Financial Group’s chief executive officer told the Upfront Summit on March 1, a day before his firm was up for Bank of the Year honors at a London gala.
Just a week later, it all fell apart.
SVB’s collapse into Federal Deposit Insurance Corp. receivership came suddenly on Friday, following a frenetic 44 hours in which its long-established customer base of tech startups yanked deposits.
But its fate was sealed years ago — during the height of the financial mania that swept across America when the pandemic hit.
US venture capital-backed companies raised $330 billion in 2021 — almost doubling the previous record a year before. Cathie Wood’s ETFs were surging and retail traders on Reddit were bullying hedge funds.
Crucially, the Federal Reserve pinned interest rates at unprecedented lows. And, in a radical shakeup of its framework, it promised to keep them there until it saw sustained inflation well above 2% — an outcome that no official forecast.
SVB took in tens of billions of dollars from its venture capital clients and then, confident that rates would stay steady, plowed that cash into longer-term bonds.
In doing so, it created — and walked straight into — a trap.
Becker and other leaders of the Santa Clara-based institution, the second-largest US bank failure in history behind Washington Mutual in 2008, will have to reckon with why they didn’t protect it from the risks of gorging on young tech ventures’ unstable deposits and from interest-rate increases on the asset side.
Outstanding questions also remain about how SVB went about navigating its precarious position in recent months, and whether it erred by waiting and failing to lock down a $2.25 billion capital injection before publicly announcing losses that alarmed its customers.
Investors and depositors tried to pull $42 billion on Thursday, leaving the firm with a negative cash balance of almost $1 billion, regulators said.
Still, decades of declining interest rates that started in the early 1980s — when SVB was founded over a poker game — made it heresy among market pros to suggest bond yields could climb without roiling the economy. As it turns out, American consumers are doing just fine, with jobs aplenty.
It’s banks, especially smaller ones that are flying below the Fed’s radar, that are now looking like the weakest links. SVB stands as the most extreme example yet of how Wall Street has been blindsided by the dynamics of the global economy after the Covid-induced shock.
Investors aren’t waiting to find out which institution might be next, with the KBW Bank Index dropping the most in a week since March 2020.
At SVB, “there was a lot of risk they were taking on that other banks wouldn’t,” said Sarah Kunst, a managing director at venture capital fund Cleo Capital. “That ultimately was part of their demise.”
Cash Rich
In March 2021, SVB had what might be considered an enviable problem: Its clients were flush with cash in a big way.
The bank’s total deposits exploded higher over the prior 12 months, to about $124 billion from $62 billion, according to data compiled by Bloomberg.
That 100% surge far outpaced a 24% increase at JPMorgan Chase & Co. and a 36.5% jump at First Republic Bank, another California institution.
“I always tell people I’m confident I’ve got the best bank CEO job in the world, and maybe one of the best CEO jobs,” Becker said in a May 2021 Bloomberg TV interview.
When asked if the bank’s recent run of growing revenue was sustainable, Becker, who joined SVB in 1993, smiled and spoke the lingo of tech visionaries.
“The innovation economy is the best place to be,” he said. “We’re very fortunate to be right in the middle of it.”
Still, the FDIC only insures bank deposits of up to $250,000 — and SVB’s clients had much more. That meant a large share of the money stashed at SVB was uninsured: more than 93% of domestic deposits as of Dec. 31, according to a regulatory filing.
For a while, that exposure didn’t raise any red flags. SVB easily cleared regulatory hurdles assessing its financial health.
But beneath the surface were severe losses on long-term bonds, snapped up during that period of rapid deposit growth, that had been largely shielded from view thanks to accounting rules.
It had mark-to-market losses in excess of $15 billion at the end of 2022 for securities held to maturity, almost equivalent to its entire equity base of $16.2 billion.
Still, after the bank’s posted fourth-quarter results in January, investors were sanguine, with a Bank of America Corp. analyst writing that it “may have passed the point of maximum pressure.”
It soon became clear that wasn’t the case.
Tough Spot
In a meeting late last week, Moody’s Investors Service had bad news for SVB: the bank’s unrealized losses meant it was at serious risk of a credit downgrade, potentially of more than one level, according to a person familiar with the matter.
That put SVB in a tough spot. To shore up its balance sheet, it would need to offload a large portion of its bond investments at a loss to increase its liquidity — potentially spooking depositors. But standing pat and getting hit with a multi-notch downgrade could trigger a similar exodus.
SVB, along with its adviser, Goldman Sachs Group Inc., ultimately decided to sell the portfolio and announce a $2.25 billion equity deal, said the person, who requested anonymity to discuss internal deliberations. It was downgraded by Moody’s on Wednesday anyway.
At the time, large mutual funds and hedge funds indicated interest in taking sizable positions in the shares, the person said.
That is, until they realized how quickly the bank was hemorrhaging deposits, which only got worse on Thursday after a number of prominent venture capital firms, including Peter Thiel’s Founders Fund, were advising portfolio companies to pull money as a precaution.
“Stay Calm”
Around that same time, on Thursday afternoon, SVB was reaching out to its biggest clients, stressing that it was well-capitalized, had a high-quality balance sheet and “ample liquidity and flexibility,” according to a memo viewed by Bloomberg. Becker had a conference call in which he urged people to “stay calm.”
But they were already too late.
SVB “should have paid attention to the basics of banking: that similar depositors will walk in similar ways all at the same time,” said Daniel Cohen, former chairman of The Bancorp. “Bankers always overestimate the loyalty of their customers.”
A vice president, in one call with a public company client, seemed to stick to a script and gave no new information, according to a person on the call.
That client decided to move a portion of their cash to JPMorgan to diversify assets Thursday; the transaction took two hours to navigate on SVB’s website and is still marked as “processing.”
The same client tried to move a larger amount on Friday morning, but no attempts to wire the money worked, the person said.
Quick Collapse
The collapse on Friday happened in the span of hours. SVB abandoned the planned equity raise after shares tumbled more than 60% on Thursday. By that point, US regulators had descended upon the bank’s California offices.
SVB “didn’t have nearly as much capital as an institution that risky should have had,” William Isaac, the former chairman of the FDIC from 1981 to 1985, said in a telephone interview Friday. “Once it started, there was no stopping it. And that’s why they just had to shut it down.”
Before noon in New York, the California Department of Financial Protection and Innovation closed SVB and appointed the FDIC as receiver. It said the main office and all branches would reopen on Monday.
By then, it’s SVB’s goal to find a buyer and complete a deal, even if it requires selling the company’s assets piecemeal, according to a person familiar with the matter.
Startup founders, meantime, are worrying about whether they’ll be able to make payroll. The FDIC said that insured depositors would have access to their funds by no later than Monday morning.
The amount of SVB deposits in excess of the $250,000 insurance cap: “undetermined.”
Updated: 3-11-2023
What’s Going On With Silicon Valley Bank?
Here Are Some Questions And Answers To Help Explain What Happened:
SVB Financial Group bought some of the safest assets in the world of finance. How could it possibly have failed in two days?
How Did We Get Here?
SVB Financial is the parent company of Silicon Valley Bank, which counts many startups and venture-capital firms as clients.
During the pandemic, those clients generated a ton of cash that led to a surge in deposits.
SVB ended the first quarter of 2020 with just over $60 billion in total deposits. That skyrocketed to just shy of $200 billion by the end of the first quarter of 2022.
What Did The Bank Do?
SVB Financial bought tens of billions of dollars of seemingly safe assets, primarily longer-term U.S. Treasurys and government-backed mortgage securities.
SVB’s securities portfolio rose from about $27 billion in the first quarter of 2020 to around $128 billion by the end of 2021.
Why Is That A Problem?
These securities are at virtually no risk of defaulting. But they pay fixed interest rates for many years. That isn’t necessarily a problem, unless the bank suddenly needs to sell the securities.
Because market interest rates have moved so much higher, those securities are suddenly worth less on the open market than they are valued at on the bank’s books. As a result, they could only be sold at a loss.
SVB’s unrealized losses on its securities portfolio at the end of 2022—or the gap between the cost of the investments and their fair value—jumped to more than $17 billion.
What Else Went Wrong?
At the same time, SVB’s deposit inflows turned to outflows as its clients burned cash and stopped getting new funds from public offerings or fundraisings.
Attracting new deposits also became far more expensive, with the rates demanded by savers increasing along with the Fed’s hikes.
Deposits fell from nearly $200 billion at the end of March 2022 to $173 billion at year-end 2022.
And that is accelerating this year: As of Jan. 19, SVB was forecasting its deposits would decline by a midsingle-digit percentage in 2023. But their expectation as of March 8 was for a low-double-digit percentage decline.
How Did This Come To A Head?
On Wednesday SVB said it had sold a large chunk of its securities, worth $21 billion at the time of sale, at a loss of about $1.8 billion after tax.
The bank’s aim was to help it reset its interest earnings at today’s higher yields, and provide it with the balance-sheet flexibility to meet potential outflows and still fund new lending. It also set out to raise about $2.25 billion in capital.
Why Didn’t It Work?
Following that announcement on Wednesday evening, things seemed to get even worse for the bank. The share-sale announcement led the stock to crater in price, making it harder to raise capital and leading the bank to scuttle its share-sale plans, The Wall Street Journal has reported.
And venture-capital firms reportedly began advising their portfolio companies to withdraw deposits from SVB.
On Thursday, customers tried to withdraw $42 billion of deposits—about a quarter of the bank’s total—according to a filing by California regulators. It ran out of cash.
What Will Happen To Customer Deposits?
Many of the bank’s deposits are sizable enough that they don’t carry Federal Deposit Insurance Corp. protection. SVB said it estimates that at the end of 2022 the amount of deposits in its U.S. offices that exceed the FDIC insurance limit was $151.5 billion.
The FDIC said in a statement on Friday that customers will have full access to their insured deposits no later than Monday morning. The FDIC said it hadn’t yet determined the current amount of uninsured deposits.
But it said that uninsured depositors will get an advance dividend within the next week. For the remaining amounts of uninsured funds, those depositors will get something called a “receivership certificate,” and as the FDIC sells off the assets of SVB, they may get future dividend payments.
Why Are Other Bank Stocks Getting Hit?
Already rattled by the failure of Silvergate Capital, whose own problems started with crypto but also reflected a portfolio of government debt whose value was depressed by higher rates, investors are selling bank stocks across the board.
Stocks of other midsize lenders such as First Republic Bank and Signature Bank were halted on Friday morning.
The impact of higher rates on banks’ securities isn’t limited to SVB. Across all FDIC banks, there were about $620 billion worth of unrealized losses in securities portfolios as of the fourth quarter.
Why Is The Circle Stablecoin USDC Getting Hit?
Circle Internet Financial Ltd., which issues the USD Coin stablecoin, said Friday it had $3.3 billion stuck in Silicon Valley Bank. USDC is supposed to mimic a dollar, but its price fell below 87 cents Saturday morning.
Stablecoins such as USDC hold their $1 value by assuring coin holders that the coin’s issuer has $1 in real dollars or other assets for every coin in circulation—and that users can always swap their coins for $1.
Like a bank, a stablecoin is subject to a run: If holders are worried that they might not get their $1 back, they’ll race to get rid of their coins however they can—including by selling them. Buyers on Friday and Saturday, though, were evidently only willing to take them at a discount to $1.
What Have We Learned?
One of the big questions coming out of this will be which banks misjudged the match between the cost and lifespan of their deposits and the yield and duration of their assets.
This is very different from the questions about bad lending that haunted the 2008 financial crisis.
As money flowed into banks during the pandemic, buying the shortest-term Treasurys or keeping the money in cash would have insulated them from the risk of rising interest rates.
But it also would have depressed their income. Banks’ reach for “safe” yield may be what haunts them this time around.
Updated: 3-11-2023
Banks Down? That Is Why Bitcoin Was Created, Crypto Community Says
The Silicon Valley Bank collapse on March 10 has sparked fear, uncertainty and doubt across the crypto community.
The Silicon Valley Bank (SVB) collapse on March 10 has sparked fear, uncertainty and doubt (FUD) across the crypto community, leading many to return to crypto roots — reviving the Bitcoin white paper published just weeks after the Lehman Brothers meltdown in 2008.
It’s truly amazing how many people are scared that a couple banks went down. Someone tell these people WHY BITCOIN WAS CREATED.
— Toby Cunningham (@sircryptotips) March 11, 2023
“There’s an entire generation of builders who only read about Lehman and the financial crisis and scoffed at Bitcoin. Now, their eyes are wide open. Welcome new friends,” stated Ryan Selkis, founder and CEO of Messari.
in shock
that is all
the SPEED at which all of this is happening is unbelievable
— Meltem Demirors (@Melt_Dem) March 10, 2023
Approximately six weeks after the dramatic collapse of Lehman Brothers — the fourth-largest investment bank in the United States at the time — Satoshi Nakamoto released the now-famous white paper, paving the way for the emergence of the Bitcoin network.
Some people blame the SVB failure on the rising interest rates in the United States. The Federal Reserve increased its benchmark rate over the past year to more than 4.5% — the highest rate since 2007. In January, the inflation rate in the U.S. was 6.4%.
Add “interest rate driven bank run” to the increasingly long list of “things I did not think I’d see in 2023”
— Sheila Warren (@sheila_warren) March 10, 2023
Many crypto and tech companies are affected by the collapse of Silicon Valley Bank. SVB, a Federal Deposit Insurance Corporation-insured bank, was about to shut down operations when USD Coin issuer Circle initiated a wire transfer to remove its funds.
Circle revealed it could not withdraw $3.3 billion of its $40 billion reserves from SVB, leading to a sell-off and the stablecoin’s price dropping below its $1 peg.
Less than 24 hours old and already experienced his first bank run. pic.twitter.com/PjqGh1UAXg
— Michael Bentley (@euler_mab) March 11, 2023
The stablecoin ecosystem felt an immediate effect as USDC depegged from the U.S. dollar. USDC’s collateral influence prompted other stablecoins to depeg from the dollar.
Dai, a stablecoin issued by MakerDAO, lost 7.4% of its value due to USDC’s depegging, Cointelegraph reported.
Stablecoins
Stablecoins
Stablecoins
Stablecoins
Stablecoins
Stablecoins
Unstablecoins— Cope (@Timccopeland) March 11, 2023
Other popular stablecoins, such as Tether, continue to maintain a 1:1 peg with the U.S. dollar.
Circle said it is now joining other customers and depositors in calling for the continuity of SVB, which the company alleged is important for the United States economy. Circle stated on Twitter that it would follow state and federal regulators’ guidance.
SVB was shut down by the California Department of Financial Protection and Innovation for undisclosed reasons on March 10. The California watchdog appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver to protect insured deposits.
However, the FDIC only insures deposits up to $250,000 per depositor, institution and ownership category.
US Discusses Fund To Backstop Deposits If More Banks Fail
* FDIC, Fed Weigh Special Vehicle After SVB Swiftly Collapses
* Regulators Are Racing To Stem The Fallout For Other Banks
The Federal Deposit Insurance Corp. and the Federal Reserve are weighing creating a fund that would allow regulators to backstop more deposits at banks that run into trouble following Silicon Valley Bank’s collapse.
Regulators discussed the new special vehicle in conversations with banking executives, according to people familiar with the matter. The hope is that setting up such a vehicle would reassure depositors and help contain any panic, said the people. They asked not to be identified because the talks weren’t public.
A representative for the Federal Reserve declined to comment. Representatives at the FDIC didn’t immediately respond to a request for comment.
The vehicle is part of the agency’s contingency planning as concern spreads about the health of smaller banks focused on the venture capital and startup communities.
Separately, the FDIC on Saturday queried officials from multiple small- and mid-sized lenders, including First Republic Bank, about their financial situations, according to people with knowledge of the conversations who asked not to be identified because the discussions were private.
Fears Spread
First Republic’s stock had tumbled 15% on Friday, extending the bank’s slide to 34% for the week. The firm told investors in a statement that its liquidity remained strong and that its deposit base was very diversified.
Representatives for San Francisco-based First Republic and the FDIC didn’t immediately respond to requests for comment on the interactions.
A number of other regional lenders also saw their stock plunge on SVB’s collapse, prompting their own assurances of financial stability.
Phoenix-based Western Alliance Bancorp pointed to its strong deposits and robust liquidity after its stock sank to its lowest since November 2020 on Friday.
That same day, when PacWest Bancorp shares dropped 38%, Chief Executive Officer Paul Taylor said that the firm is a “well-performing, well-diversified” commercial bank.
Representatives for Western Alliance and PacWest didn’t immediately respond to requests for comment.
SVB became the biggest US lender to fail in more than a decade on Friday, after a tumultuous week that saw an unsuccessful attempt to raise capital and a cash exodus from the startups that fueled its rise.
California state watchdogs took possession of the bank, which was valued at more than $40 billion as recently as last year.
FDIC Races To Return Some Uninsured SVB Deposits Monday
* Initial Payout Depends On Efforts To Sell Assets Over Weekend
* Figures Floated Behind Scenes Range From 30% To 50% Or More
US regulators overseeing the emergency breakup of SVB Financial Group are racing to sell assets and make a portion of clients’ uninsured deposits available as soon as Monday, according to people with knowledge of the situation.
The initial payout — the amount of which is still being determined — would aim to tide over the firm’s distressed customers, many of them Silicon Valley entrepreneurs and their companies, with more cash to follow as the bank’s assets are sold.
The amount will depend in part on the Federal Deposit Insurance Corp.’s progress in turning assets to cash by Sunday night.
Figures being floated behind the scenes for an initial payment range from 30% to 50% or more of uninsured deposits, the people said, asking not to be identified discussing private talks.
A spokesperson for the FDIC didn’t respond to requests for comment on its plans.
Silicon Valley Bank’s business clients are desperate to access their money to keep operations running and employees paid. On Friday, the bank became the biggest US lender to fail in more than a decade, unraveling in less than 48 hours after announcing plans to raise capital.
The firm, which swelled in recent years as it soaked up deposits from tech startups, began losing money as those clients burned through their funding and drew down balances.
At the end of last year, Silicon Valley Bank had more than $175 billion in deposits and $209 billion in total assets — but selling those holdings to meet demands for cash proved costly.
That’s because SVB had loaded up on bonds and Treasuries that lost value as the Federal Reserve raised interest rates.
While the FDIC insures deposits of up to $250,000, the vast majority of funds held in at SVB far exceeded that. The agency has said it will make 100% of protected deposits available on Monday.
The amount of uninsured deposits was still being determined, the FDIC said on Friday.
The watchdog said it will issue an advance dividend to uninsured depositors soon, with future payments later. Wall Street executives expect there will be a market for selling the rights to recoup deposits.
Easing ‘Pain’
Behind the scenes, senior Wall Street executives have been gaming out the value of the bank’s holdings, and how much cash could be extracted quickly, absent some sort of bailout or deal to sell all or part of the bank to a stronger institution.
In those circles, paying less than half, such as 30%, is seen as too little to avoid severe fallout in the technology sector and potentially beyond.
A partial up-front payment could at least provide some relief, William Isaac, a former FDIC chairman, said in a phone interview Saturday.
“It doesn’t completely eliminate the problem or the pain, but it makes it a lot easier for customers of the bank to deal with their losses,” said Isaac, who held the role from 1981 to 1985.
Deposits aren’t the only way SVB clients have been left in the lurch. The bank also had $62.5 billion of credit commitments at the end of 2022, a figure nearly as large as its loan book.
The firm didn’t provide a detailed breakdown of those commitments, but a majority of its lending was in capital call lines of credit.
Those facilities give venture capital and private equity firms the ability to tap cash to immediately invest in a startup, which then gets repaid once the money arrives from pensions and other investors that previously committed to the funds.
If those lines of credit were to disappear, it would likely limit funds’ ability to invest quickly.
As young tech companies pondered over the weekend how they will navigate SVB’s demise, a number of fintechs stepped into the void.
Brex, a platform offering financing to startups, rolled out emergency bridge loans for ventures that need help keeping lights on, according to an offer seen by Bloomberg. In another offer, New York-based credit provider Capchase offered emergency payroll financing.
The FDIC has been laying groundwork for a potentially drawn-out sale process, according to senior executives at two investment banking firms that recently spoke with the regulator.
An official told one firm that, despite efforts to reach a resolution quickly, a piecemeal sale spanning weeks or months looked more probable, one of the people said.
The agency informally invited the other firm to pitch proposals for certain assets, a second person said, prompting dealmakers to review prospects for a variety of publicly disclosed holdings, such as a desirable portfolio of loans to California wineries and vineyards.
Updated: 3-12-2023
US Fed Announces $25B In Funding To Backstop Banks
Hot on the heels of several United States bank collapses, the Federal Reserve Board has announced $25 billion worth of funding aimed at backstopping banks and other depository firms.
The funds would ensure that eligible banks would have enough liquidity to cover the needs of their customers during times of turmoil.
@federalreserve announces Bank Term Funding Program (BTFP) to support American businesses and households, assure banks have ability to meet needs of all their depositors: https://t.co/JIMjkooIDV
— Federal Reserve (@federalreserve) March 12, 2023
In a Mar. 12 statement, the Federal Reserve Board said it created a $25 billion Bank Term Funding Program (BTFP) offering loans of up to one year to “banks, savings associations, credit unions, and other eligible depository institutions.”
Eligible firms must pledge U.S. Treasurys, agency debt and mortgage-backed securities or other “qualifying assets” as collateral, which will be valued “at par” — the price at which the assets were issued.
The Fed added it would be an “additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.”
Excellent, in my opinion.
Funding is at 1-year OIS (basically 1-year market-implied Fed Funds) plus a meagre 10 bps spread on top.
1 year guaranteed liquidity at Fed Funds plus 10 bps posting collateral deep in the mud but valued at par.
Quite the deal.
— Alf (@MacroAlf) March 12, 2023
It comes as Silicon Valley Bank (SVB) announced on Mar. 8 a significant sale of assets and stocks aimed at raising additional capital, which panicked depositors and triggered a run on the bank.
The bank run contaminated the crypto space as stablecoin issuer Circle disclosed it had $3.3 billion in SVB, causing further panic and resulting in its stablecoin USD Coin losing its peg to the U.S. dollar.
The new program comes on the same day the Fed announced that U.S. Treasury Secretary Janet Yellen approved actions for the Federal Deposit Insurance Corporation (FDIC) to make SVB depositors whole and that regulators closed New York-based Signature Bank, citing systemic risk.
US Backstops Bank Deposits To Avert Crisis After SVB Failure
* Fed Says New Lending Program To Protect The Nation’s Deposits
* US Stocks Rally, Yields Drop As Traders Unwind Fed Hike Bets
US authorities took extraordinary measures to shore up confidence in the financial system after the collapse of Silicon Valley Bank, introducing a new backstop for banks that Federal Reserve officials said was big enough to protect the entire nation’s deposits.
The Sunday announcement by the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. followed a frantic weekend that saw the surprise closure of New York’s Signature Bank along with mounting concerns about spillover effects to other regional lenders and the wider economy.
Regulators Acted On A Number Of Fronts To Contain The Potential Fallout:
The FDIC said it will resolve SVB in a way that “fully protects all depositors.” Similarly, “all depositors” at Signature will be made whole.
The Fed also announced a new “Bank Term Funding Program” that offers one-year loans to banks under easier terms than it typically provides. $25 billion is available.
The central bank relaxed terms for lending through its discount window, its main direct lending facility.
The response helped soothe investors worried about additional bank runs or the risk a fresh financial crisis would trigger a recession. US stock futures climbed on Monday after bank shares plunged last week by the most since the March 2020 pandemic shock.
In the UK, HSBC Holdings Plc began Monday by announcing it was acquiring the UK arm of Silicon Valley Bank, the culmination of a weekend where ministers and bankers explored various ways to avert the SVB unit’s collapse.
Under the new US program, which provides loans of up to one year, collateral will be valued at par, or 100 cents on the dollar.
That means banks can get bigger loans than usual for bonds, reducing the pressure to generate cash by selling securities whose prices have tumbled.
There were some concerns that the taxpayer could now be on the hook for covering losses suffered by banks and that questionable management and investments were now being protected by the government.
Banks, for example, now can limit accepting losses or selling assets given they have access to easier funding. US banks were sitting on more than $300 billion of losses on securities they planned to hold to maturity at the end of 2022.
On March 8, SVB’s parent company, SVB Financial Group, revealed it had sold $21 billion of securities from its portfolio at a loss of $1.8 billion. The Fed’s new safety net may have helped it avoid doing so.
“If the Fed is now backstopping anyone facing asset/rates pain, then they are de facto allowing a massive easing of financial conditions as well as soaring moral hazard,” said Michael Every and Ben Picton, strategists at Rabobank.
SVB’s meltdown offered an illustration of the costs of the Fed’s most aggressive monetary tightening campaign since the early 1980s.
The lender had plowed money into longer-term bonds during the pandemic, the market values of which dropped as yields then soared. Meantime, SVB’s funding costs surged as the Fed kept jacking up its benchmark.
Fed officials said on a briefing call that their new facility was invoked under its emergency authority allowing for the establishment of a broad-based program under “unusual and exigent circumstances,” which requires Treasury approval.
It was unanimously approved by the Fed board.
The Treasury will “make available up to $25 billion from the Exchange Stabilization Fund as a backstop” for the bank funding program but the Fed doesn’t expect to draw on the funds, officials said.
With a senior Treasury official cautioning there were other banks that appeared to be in similar situations to SVB and Signature, regulators’ top concern was assuring businesses and households they were made whole on their deposits.
US Treasury Secretary Janet Yellen said the actions taken Sunday will protect “all depositors,” signaling aid to those whose accounts exceed the typical $250,000 threshold for FDIC insurance.
Normally, under the Fed’s main lending program, known as the discount window, the Fed typically lends money at a discount against the assets provided as collateral, a practice known as haircuts.
The central bank said the loans under the discount window, which are up to 90 days, will now be subject to the same collateral margins as the new bank funding facility.
The Fed’s emergency lending program is “an admission not only of systemic risk but that the risks are so unusual and exigent that failure to invoke this liquidity could create a financial crisis,” said Peter Conti-Brown, associate professor at the University of Pennsylvania’s Wharton School.
US regulators emphasized that taxpayers won’t be on the hook for protecting SVB and Signature deposits, and Treasury and Fed officials rejected the idea that the banks are being bailed out — showcasing the potential political sensitivities of the weekend moves.
The regulators said shareholders and certain unsecured debtholders will be wiped out, while management was fired.
President Joe Biden, in a statement Sunday night, said the solution “protects American workers and small businesses, and keeps our financial system safe.”
For the Fed, the collapse of two powerhouse regional banks will test their resolve as they decide their next move on rates. Chair Jerome Powell just last week opened the door to a re-acceleration to a 50 basis-point hike at the Fed’s March 21-22 meeting.
Financial ructions may raise the bar for such a move, however.
While economists at JPMorgan Chase & Co. retained their forecast for a quarter-point rate hike by the Fed next week, their counterparts at Goldman Sachs Group Inc. said they no longer expect the Fed to raise rates.
“While the Fed wants tighter financial conditions to restrain aggregate demand, they don’t want that to occur in a non-linear fashion that can quickly spiral out of control,” Michael Feroli, chief US economist at JPMorgan Chase, wrote in a note to clients.
“If they indeed have used the right tool to address financial contagion risks (time will tell), then they can also use the right tool to continue to address inflation risks — higher interest rates.”
Updated: 3-12-2023
Where Were The Regulators As SVB Crashed?
Silicon Valley Bank grew too fast using borrowed money—and the risks were lurking in plain sight.
Silicon Valley Bank’s failure boils down to a simple misstep: It grew too fast using borrowed short-term money from depositors who could ask to be repaid at any time, and invested it in long-term assets that it was unable, or unwilling, to sell.
When interest rates rose quickly, it was saddled with losses that ultimately forced it to try to raise fresh capital, spooking depositors who yanked their funds in two days.
The question following the bank’s takeover Friday: How could regulators have allowed it to grow so quickly and take on so much interest-rate risk?
And it wasn’t the only problem bank last week. Just days before SVB collapsed, Silvergate Capital Corp., one of the crypto industry’s biggest banks, said it would shut down.
“The aftermath of these two cases is evidence of a significant supervisory problem,” said Karen Petrou, managing partner of Federal Financial Analytics, a regulatory advisory firm for the banking industry.
“That’s why we have fleets of bank examiners, and that’s what they’re supposed to be doing.”
The Federal Reserve was the primary federal regulator for both banks.
Notably, the risks at the two firms were lurking in plain sight. A rapid rise in assets and deposits was recorded on their balance sheets, and mounting losses on bond holdings were evident in notes to their financial statements.
SVB grew at a breakneck pace, nearly doubling deposits in just a year. Total assets at its parent, SVB Financial Group, grew to $211 billion at the end of 2021, versus $116 billion a year earlier. By the end of 2022, SVB was the 16th largest lender in the U.S.
Its implosion was the second-biggest bank failure in American history and marks the biggest test to date of the post-financial crisis regulatory architecture designed to force banks to curtail risk and monitor it more closely.
“Rapid growth should always be at least a yellow flag for supervisors,” said Daniel Tarullo, a former Federal Reserve governor who was the central bank’s point person on regulation following the financial crisis.
That’s because risk controls and buffers against potential losses often don’t grow in line with new risks being taken by fast-growing banks.
In addition, nearly 90% of SVB’s deposits were uninsured, making them more prone to flight in times of trouble since the Federal Deposit Insurance Corp. doesn’t stand behind them.
“A $200 billion bank should not fail because of liquidity,” said Eric Rosengren, who served as president of the Federal Reserve Bank of Boston from 2007 to 2021 and was its top bank regulator before that.
“They should have known their portfolio was heavily weighted toward venture capital, and venture-capital firms don’t want to be taking risk with their deposits. So there was a good chance if venture-capital portfolio companies started pulling out funds, they’d do it en masse.”
SVB and Silvergate both had less onerous liquidity rules than the biggest banks. In the wake of the failures, regulators may take a fresh look at liquidity rules, with an eye toward adjusting the requirements for holding high-quality liquid assets for banks whose funding sources go far beyond retail deposits, said Jaret Seiberg, an analyst at TD Cowen Washington Research Group, in a note.
To be sure, banks regularly borrow short-term to lend for longer periods of time. But SVB concentrated its balance sheet in long-dated assets, essentially reaching for yield to bolster results, at the worst possible time, just ahead of the Federal Reserve’s rate-hiking campaign. That left it sitting on big unrealized losses, making it more susceptible to customers pulling funds.
Timothy Coffey, associate director of depository research at Janney Montgomery Scott LLC, said regulators were aware that unrealized losses in banks’ securities portfolios could lead to trouble, but didn’t take specific steps to address the issue.
“This is something that’s been rolling through the industry for several months,” he said. “They did nothing to help this bank,” he added, referring to SVB.
Indeed, the two firms aren’t the only ones facing the risk posed by unrealized losses. The banking industry as a whole had some $620 billion in unrealized losses on securities at the end of last year, according to the Federal Deposit Insurance Corp., which began highlighting those late last year.
Another regulatory issue: accounting and capital rules that allow banks to ignore mark-to-market losses on some securities if they intend to hold them to maturity. At SVB, the bucket holding these securities—consisting largely of mortgage bonds issued by government-sponsored entities—is where the biggest capital hole is.
The idea behind such a bucket is that it insulates an institution from short-term price volatility. The problem this poses is two-fold.
First, a bank may not be able to hold such securities to maturity if it faces a cash crunch, as happened at SVB. Yet selling the securities would force the bank to recognize potentially massive losses.
Second, the treatment of the securities means banks like SVB are discouraged from selling when losses emerge, potentially causing problems to fester and grow. That appears to have been the case at SVB and many other banks as rising interest rates in 2022 caused large losses in bond markets.
Banks have an additional incentive to pile into Treasurys. They have to hold less capital against such holdings, supposedly because they are risk-free. However, this means banks are holding less capital to absorb losses, and Treasurys can lose value due to changes in interest rates.
Others said monetary policy over the past decade played a role. The Fed “suppressed the yield curve and made it very clear to the banking industry that you would do this for a considerable period,” said Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City and former vice chairman of the FDIC.
“So bankers are making decisions based on that message and based on that policy, and they fill their portfolio up with government securities of varying maturities, and they say they’re going to hold them to maturity.”
Silvergate and SVB may have been particularly susceptible to the change in economic conditions because they concentrated their businesses in boom-bust sectors.
With companies in those sectors now moving assets elsewhere in the financial system, the nature of those risks may shift, said Saule Omarova, a professor of law at Cornell University who was nominated to run the Office of the Comptroller of the Currency in 2021.
That suggests the need for regulators to take a broader view of the risks in the financial system. “All the financial regulators need to start taking charge and thinking through the structural consequences of what’s happening right now,” she said.
Everything We Know About How The Fed Is Handling The SVB Crisis
The collapse of Silicon Valley Bank was swift and brutal, and left much of the world wondering what would come next. As the only publicly traded bank focused on Silicon Valley and startups, the collapse sent ripples through both the tech and finance industries.
Fearing contagion would upend the industry, the US Federal Reserve, Treasury Department and Federal Deposit Insurance Corp. moved quickly over the weekend to protect customer deposits and shore up confidence in the banking system.
Here’s Everything We Know Right Now On The Second-Largest US Bank Failure In History:
How Did Silicon Valley Bank Collapse?
On March 8 the bank’s parent company, SVB Financial Group, announced it had sold $21 billion of securities from its portfolio at a loss of $1.8 billion and would sell $2.25 billion in new shares to shore up its finances.
That spooked prominent venture capitalists such as Peter Thiel, who instructed clients to pull their money from the bank.
Just two days later, efforts to raise new equity or find a buyer were abandoned and SVB was put into receivership, sending chills through the banking industry.
What Does The Collapse Of SVB Mean For Depositors?
As the health of the financial system came under scrutiny, the US pledged to fully protect all SVB depositors’ money, in a bid to stem runs on other financial institutions.
That was of particular consequence to those whose accounts held more than $250,000 — typically the threshold for insurance payouts, and representing almost all of the bank’s domestic deposits.
The government said customers would have access to their cash on March 13, and that taxpayers would not be liable for any losses accrued as a result of the action.
Will Contagion Spread To Other Banks?
Following the implosion of SVB, shares in a number of other regional lenders plummeted on fears of contagion, while a senior Treasury official warned other banks were in similar situations to SVB.
On Sunday, as well as vowing to protect depositors’ cash, the Fed announced an emergency lending program to give cash-squeezed banks easier terms on short-term loans.
So What Happened To Silvergate And Signature?
While SVB was unravelling last week, two other lenders were struggling for survival. Silvergate Capital Corp. and Signature Bank were both ultimately victims of their ties with the crypto world.
Silvergate announced it would wind up operations and liquidate after the crypto industry’s meltdown — sparked by the fall of FTX — sapped the bank’s financial strength and sent shares tumbling.
And Signature was closed by New York State regulators Sunday following a deluge of deposit outflows on Friday. Depositors there will have the same protections as those at SVB.
What Happens To SVB Now?
After becoming the second-largest US bank collapse ever — behind only Washington Mutual during the global financial crisis in 2008 — SVB’s assets were put up for auction by the Federal Deposit Insurance Corp.
The auction was due to end Sunday. It is not yet known if there were any bidders.
What Will The Fed Do Next?
Less than a week after Fed Chair Jerome Powell opened the door to a re-acceleration in the pace of interest-rate increases, that suddenly looks less likely.
Investors are now betting that the shocks to the finance system will herald a smaller rate hike than had been expected, as the Fed balances concerns about financial strain with its desire to bring down inflation.
What Effect Has SVB’s Collapse Had Overseas?
While government assurances may have given the US banking sector some room to breathe, attention is turning to the bank’s global footprint.
UK authorities have indicated they will provide immediate support to depositors to allow companies to pay their staff and meet cash flow obligations, without providing further details.
SVB’s joint venture in China, SPD Silicon Valley Bank Co., was also seeking to calm local clients by reminding them that operations have been independent and stable.
How Have Global Markets Reacted To The US Moves?
US stock futures rallied more than 1% and Treasuries rose on news that the US would backstop depositors and shore up the banking sector. While the dollar slid, the yen strengthened and gold rose as investors sought havens from the turmoil.
Updated: 3-12-2023
Silicon Valley Bank Collapse: Everything That’s Happened Until Now
Events surrounding Silicon Valley Bank are moving fast. Here is a breakdown of the major developments over the last week.
The sudden collapse of Silicon Valley Bank (SVB) has quickly unfolded over the last week, depegging stablecoins, leading regulators in the United States and the United Kingdom to prepare emergency plans and raising fears among small businesses, venture capitalists and other depositors with funds stuck at the California tech bank.
Cointelegraph’s team compiled a roundup of the latest and major developments surrounding the troubled bank, starting with the most recent developments:
Mar. 13: Biden To Hold Those Responsible “Fully Accountable”
U.S. President Joe Biden tweeted on Mar. 13 that he is “firmly committed” to holding those responsible for the collapse of SVB “fully accountable” adding he will “have more to say” in an address later on Mar. 13.
At my direction, @SecYellen and my National Economic Council Director worked with banking regulators to address problems at Silicon Valley Bank and Signature Bank.
I’m pleased they reached a solution that protects workers, small businesses, taxpayers, and our financial system. https://t.co/CxcdvLVP6l
— President Biden (@POTUS) March 13, 2023
Mar. 12: SVB Depositors To Be Protected, Says Fed
United States federal regulators, including U.S. Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg on Mar. 12 announced “decisive actions” that would “fully protect depositors” at both Silicon Valley Bank and the now-shuttered Signature Bank.
@federalreserve @USTreasury @FDICgov issue statement on actions to protect the U.S. economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” according to a joint statement from the regulators.
Mar. 12: Fed Creates $25B Program To Backstop Banks
The Federal Reserve Board announced on Mar. 12 a $25 billion Bank Term Funding Program (BTFP) that offers loans of up to one year to banks and “other eligible depository institutions aimed at backstopping any liquidity issues they may face.”
@federalreserve announces Bank Term Funding Program (BTFP) to support American businesses and households, assure banks have ability to meet needs of all their depositors: https://t.co/JIMjkooIDV
— Federal Reserve (@federalreserve) March 12, 2023
Mar. 12: Regulators Spring Into Action
Regulators in the U.S. and the U.K. began to take action to deal with the SVB collapse. U.S. Treasury Secretary Janet Yellen said in an interview that the Treasury was focused on depositors’ needs and would not bail out the bank.
U.K Prime Minister Rishi Sunak stated that there were “immediate plans to ensure the short-term operational and cash flow needs of Silicon Valley Bank UK customers.”
The Bank of London has made a formal bid for the U.K. branch of SVB.
Bloomberg reported that the FDIC had been conducting an auction process for SVB on the night of March 11. The Wall Street Journal reported that bidding closed at 2 pm Eastern Time on March 12.
Elon Musk said in a tweet that he was “open to the idea” of buying the bank. The administration of U.S. President Joe Biden is also reported to be preparing “material action.”
Mar. 11: Contagion Fears Spread
Reverberations were felt throughout the DeFi community as whales sought to transfer funds away from USDC. DAI issuer MakerDAO issued an emergency proposal to mitigate its $3.1 billion exposure to USDC. Swapping pool Curve Finance saw record-breaking trading of $7 billion on March 11.
Fear of contagion mounted rapidly, with regional banks seen as particularly at risk, and dire warnings were sounded. At the same time, venture capitalists and others rallied around SVB to express their willingness to continue to work with the bank should it be purchased and recapitalized.
Mar. 11: The Crypto Industry Begins To Feel The Pain
Reports emerge of crypto industry exposure to the failed bank. Circle had $3.3 billion in SVB. A spokesperson for Circle told Cointelegraph that “While we await clarity on how the FDIC receivership of SVB will impact its depositors, Circle and USDC continue to operate normally.“
Circle’s USDC stablecoin depegged and lost over 10% of its value. The USDC depeg led to a domino effect that knocked several stablecoins from their pegs as well.
DAI, USDD and FRAX were affected. Circle announced that it would use corporate “resources” to cover the shortfall caused by the SVB collapse.
Mar. 10: The World Responds To The Bank’s Crisis
The Bank of England stated on March 10 that SVB UK will “stop making payments or accepting deposits,” as the central bank intends to apply to the court to place SVB UK into a “Bank Insolvency Procedure.”
U.S. depositors lined up to withdraw funds. According to an unconfirmed report, the FDIC was planning to cover 95% of uninsured SVB deposits, with 50% of them to be paid out in the coming week.
The bank’s downfall was swift, coming less than 48 hours after management disclosed that it needed to raise $2.25 billion in stock to shore up operations.
Its stock price subsequently plunged, falling over 60% on March 9.
Mar. 10: Silicon Valley Bank Shut Down By California Regulator
Silicon Valley Bank (SVB) was shut down by California’s financial watchdog on March 10 after announcing a significant sale of assets and stocks aimed at raising additional capital.
The California Department of Financial Protection and Innovation confirmed that Silicon Valley Bank was ordered to close but did not specify the reason for the shutdown.
The California watchdog appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver to protect insured deposits. However, the FDIC only insures up to $250,000 per depositor, per institution and per ownership category.
The bank held over $5 billion in funds from major venture capital firms. Silicon Valley Bank is one of the top 20 largest banks in the United States, providing banking services to crypto-friendly venture companies such as Sequoia Capital and Andreessen Horowitz.
Customers lining up outside of Silicon Valley Bank at its Menlo Park, CA branch. pic.twitter.com/SDNrSUC1C0
— Cointelegraph (@Cointelegraph) March 10, 2023
First Republic Gets Additional Funding From Fed, JPMorgan
Fresh funding gives the bank $70 billion in unused liquidity.
First Republic Bank said it has shored up its finances with additional funding from the Federal Reserve and JPMorgan Chase & Co.
The fresh funding gives the bank, which was under pressure following the collapse of SVB Financial Corp. last week, $70 billion in unused liquidity.
That doesn’t include money First Republic is eligible to borrow through a new Fed lending facility designed to help banks meet withdrawals.
“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” the bank’s executive chairman and its chief executive said in a joint statement.
The infusion is the first such lifeline announced for a collection of midsize banks that have run into trouble in the past week. Silvergate Capital Corp. on Wednesday said it would shut down after its bet on crypto customers left it with huge losses.
SVB was seized by the government on Friday after a bank run. New York-based Signature Bank met the same fate Sunday. Those two closures were the second- and third-largest bank failures in U.S. history.
Investors grew concerned last week that First Republic had a similar profile to SVB. Shares of First Republic had fallen about 30% since Wednesday, and some customers started to get skittish about leaving their deposits at the bank.
“You see your bank is down 30%, that’s a little worrying,” said Abraham Parangi, chief executive of AI startup Akkio. “Even more worrying is when they tell you ‘Hey, everything’s fine!’”
As SVB floundered on Friday, Mr. Parangi said he moved 90% of his company’s cash at First Republic into an insured cash sweep program that spreads the funds around to accounts at other banks to increase the amount covered by FDIC insurance.
Venture-capital firm Omega Venture Partners sent a note to portfolio companies encouraging them to open a cash brokerage account or make sure their bank deposit accounts are insured if they had money in regional banks such as First Republic.
“A spillover risk to these institutions is more likely than not!”
First Republic, which has $213 billion in assets, tried to stem the panic. On Friday, the lender released a statement saying that it had a diversified group of depositors and “over $60 billion of available, unused borrowing capacity at the Federal Home Loan Bank and the Federal Reserve Bank.”
On Sunday, bank executives emailed customers to reassure them about its finances.
JPMorgan officials had reached out to First Republic over the past week to tell them they were standing by to help the bank, an important client, if it needed access to funding, a person familiar with the matter said.
It ultimately committed to putting up several billion dollars in a credit facility First Republic can tap, the person said.
The Federal Reserve on Sunday said it would make additional funding available to banks through a new “Bank Term Funding Program,” which will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral.
Up to $25 billion from the Treasury’s exchange-stabilization fund will backstop the Fed lending program.
A joint move by the Fed and Treasury Department also took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, giving regulators flexibility to backstop uninsured deposits.
Regulators hoped that and other moves to protect deposits would contain fallout elsewhere Monday morning.
First Republic’s business and stock-market valuation were long the envy of the banking industry. Its customers are wealthy individuals and businesses primarily on the coasts.
Its lending business revolved around making huge mortgages to clients such as Mark Zuckerberg. Few of those loans ever went bad.
The bank’s profits rose in 2022, but the Fed’s aggressive rate increases took a toll. Its wealthy customers were no longer as content to leave huge sums of money in bank accounts that earned no interest.
While the bank’s deposits skewed more heavily toward wealthy individuals than SVB’s did, many of its deposits are uninsured. More than $140 billion of its deposits are in accounts that are over the limit for federal deposit insurance.
The new backing for the bank soothed Mr. Parangi’s anxiety, but he still plans on diversifying his company’s banking this week.
“But probably don’t need to be camping outside the bank at 5am now,” Mr. Parangi texted.
Updated: 3-13-2023
Biden Vows To Hold Accountable Those Responsible For SVB, Signature Collapse
United States President Joe Biden said on Twitter that he is “firmly committed” to holding those responsible for the Silicon Valley Bank and Signature Bank collapse “fully accountable.”
The president of the United States, Joe Biden, has vowed to hold those responsible for the failure of Silicon Valley Bank and Signature Bank while assuring Americans that their deposits are safe.
On March 12, the New York District of Financial Services took possession of Signature Bank. The Federal Reserve said that the crypto-friendly bank was closed to protect the U.S. economy and strengthen public confidence in the banking system.
The Fed also announced a $25 million fund aimed at backstopping certain banks that could face liquidity issues in the future.
Biden tweeted to his 29.9 million followers on March 13 that he’s pleased that the agencies have “reached a solution that protects workers, small businesses, taxpayers and our financial system.”
At my direction, @SecYellen and my National Economic Council Director worked with banking regulators to address problems at Silicon Valley Bank and Signature Bank.
I’m pleased they reached a solution that protects workers, small businesses, taxpayers, and our financial system. https://t.co/CxcdvLVP6l
— President Biden (@POTUS) March 13, 2023
The president added he was also “firmly committed” to holding those responsible for the mess “fully accountable.” He added that he would “have more to say” in an address on Monday, March 13.
Meanwhile, a host of other United States politicians have also shared praise over the recent federal regulator actions aimed at stemming contagion from the recent banking collapses.
U.S. Senator Sherrod Brown and Representative Maxine Waters said they were also pleased to see that both insured and uninsured SVB depositors would be covered, according to March 12 statement by the U.S. Senate Banking and Housing Committee:
“Today’s actions will enable workers to receive their paychecks and for small businesses to survive, while providing depository institutions with more liquidity options to weather the storm.”
“As we work to better understand all of the factors that contributed to the events of the last several days and how to strengthen guardrails for the largest banks, we urge financial regulators to ensure the banking system remains stable, strong, and resilient, and depositors’ money is safe,” the statement added.
Silicon Valley Bank depositors, both insured & uninsured, will be made whole by the plan from the FDIC, the Federal Reserve, the Treasury & the White House. And the Fed has created a new facility to support all banks that need liquidity to ensure our banking system is safe.
— Maxine Waters (@RepMaxineWaters) March 13, 2023
Meanwhile, U.S. Securities Exchange Commission Chairman Gary Gensler has used the moment to double down on his agency’s pursuit of wrongdoers, without naming any industries in particular.
The chairman reinforced that the SEC would be on the lookout for violators of U.S. securities laws in a March 12 statement:
“In times of increased volatility and uncertainty, we at the SEC are particularly focused on monitoring for market stability and identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly.”
“Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” the SEC chairman added.
The shuttering of SVB temporarily triggered the depegging of Circle’s USD Coin to as low as $0.88 on March 11, as $3.3 billion of Circle’s $40 billion USDC reserves are held by SVB.
However, USDC is nearly back at $1 after the Federal Reserve confirmed that all customer deposits at Signature Bank and SVB would be made in “whole.”
Another prominent crypto-bank, Silvergate Bank, announced last week that it would shut down and voluntarily liquidate “in light of recent industry and regulatory developments.”
Shortly after, Gensler wrote a March 9 opinion piece for The Hill that threatened U.S. crypto companies to “do their work within the bounds of the law” or be met with enforcement action.
As Chair of @SECGov, I have one goal with regard to the crypto markets: to ensure that investors and the markets receive all the protections that they would in any other securities market. How?
Read my op-ed in @thehill:
— Gary Gensler (@GaryGensler) March 9, 2023
European Bank Shares Plunge As SVB Fallout Continues
Regional US Banks Plummet, Big Lenders’ Fall Less Severe
* Biden Says US Banking System Safe, Will Seek Stronger Regulation
* Traders Price Fed Year-End Rate Cuts; Peak ECB Rate Estimates Decline
* Government Bonds Across The World Stage Rally In Rush For Havens
* US Regional Banks Plummet, Bigger Banks’ Decline Less Severe
* Investors Race To Hedge Bank Credit Risk
New York Governor Kathy Hochul said the takeover of Signature Bank by federal regulators on Sunday “was not a bailout” that puts state taxpayers at risk.
“This is simply using fees that are assessed on all banks,” Hochul said at a briefing Monday with Adrienne Harris, superintendent of the state Department of Financial Services.
“This is an unusual circumstance, but the main message I want to deliver to New Yorkers is that their money is secure.” Daniel Taub, Finance Editor
Regional Banks Are Leading This Downturn, But Some Of The “Goliaths” Are Falling As Well
* Wells Fargo and Citi are down, with both having their worst day since January 2021.
* Bank of America fell as much as 7.9%, it’s worst day since June 2020. BAC stock has fallen 22% in the last month, the biggest loser of the big six banks amid SVB’s collapse. Maxwell Zeff, Stocks Reporter
There’s not just one-off names experiencing a downturn in shares today. Even JPMorgan Chase & Co. is off about 0.7% or so. Here’s an interesting explanation from David Chiaverini over at Wedbush.
“It’s ironic to note that we’ve had three bank failures in the past week despite not being in a recession, at least not yet. We believe continued deposit pressure could lead lower credit availability in the banking system, which could slow the economy and lead to rising credit costs for banks.
We expect bank stocks to rally following the government’s actions, but we remain cautious on the trajectory on the economy and bank stocks given our expectation of a coming recession. “Jennifer Surane, Finance Reporter
“We do feel good about the government’s actions here,” said Jake Fingert, managing partner at Camber Creek, a Washington, DC-based venture fund focused on real estate. “It’s not a silver bullet, but it’s making the best out of a bad situation.”
Camber Creek has 34 portfolio companies and only one that had “material exposure” to SVB.
“We were able to move cash out of SVB on Thursday night,”” Fingert said. “The cash cleared Friday morning.” Camber Creek moved that startup’s money to JP Morgan, he said. “This is not over. We’re still monitoring the situation very closely.”
Lucy Papachristou, Bloomberg Reporter
KeyCorp is also getting pummeled today and the stock has lost 40% of its value in the last week. This is the 20th largest US bank and they have in recent months also talked about the possibility of restructuring their available-for-sale securities portfolio.
“Historically, you don’t love to burn those capital dollars,” Chief Strategy Officer Clark Khayat said last month. “If there’s an opportunity to make an economically positive trade, we’ll think about it. To date, it’s been kind of a wash, but the curve is changing.”
Now for Silicon Valley Bank, the move to restructure the AFS portfolio was partly what sparked the beginning of the end. But KeyCorp would ostensibly have access to this new Fed facility if it wanted to take that step.
Jennifer Surane, Finance Reporter
Bloomberg Opinion’s Marc Rubinstein points out that bank failures are surprisingly common, with 565 of them in the US since the turn of the millennium.
While many occurred in the aftermath of the global financial crisis, banks have gone bust even during quieter periods. Between 2011 and 2020, banks collapsed at a rate of around two a month, Rubinstein notes.
“What makes Silicon Valley and Signature Bank special is not only their size — they are the second- and third-largest bank failures in US history — but also how much time elapsed since a bank before them failed. Prior to Silicon Valley Bank entering receivership on Friday, the last bank to fail was Almena State Bank, of Almena, Kansas, in October 2020.” Daniel Taub, Finance Editor
Over in bond markets, one of the most notable moves is the collapse in rate-hike expectations for the Fed, BOE and ECB. Check out this chart by my colleague James Hirai to see what a difference the past week has made. Kristine Aquino, Markets Today
You Are Looking For Banking Stocks To Buy Right Here, Right Now? Well. KBW Analysts Have You Covered:
“KBW recommends 11 stocks that we believe investors should own right here, right now, with a barbell theme: 1. safe haven stocks (USB, SSB, ONB, AXP, DFS, AIG, RGA, AGNC) or 2. high-quality/ higher risk stocks that we believe were unfairly punished as investors looked for SIVB read-throughs (FRC, WAL, APO).”
Jan-Patrick Barnert, Senior Reporter, Global Equity Markets
“The panic out of these stocks is absolutely absurd in my view. But panics happen and you can’t do anything about them,” says Odeon Capital’s Chief Financial Strategist Dick Bove. “You just have to wait till they run out.”
Maxwell Zeff, Stocks Reporter
Back to the KBW Bank Index for a moment: Much like we saw on Friday, it’s a tale of two banking sectors. The smaller banks — Western Alliance, First Republic — are the ones with shares plummeting, with those two banks down more than 65% this morning.
The giants are hurting too, but not nearly as badly. JPMorgan is down just 0.9%, while Citigroup and Bank of America have each slumped 4.5%. Daniel Taub, Finance Editor
As Max mentioned, banks like First Republic, Western Alliance and PacWest are getting crushed right now. All three have been halted multiple times for volatility today. Matt Turner, Stocks Reporter
KPMG Faces Scrutiny For Audits of SVB and Signature Bank
Accounting firm blessed books of two banks weeks before failure.
Silicon Valley Bank failed just 14 days after KPMG LLP gave the lender a clean bill of health. Signature Bank went down 11 days after the accounting firm signed off on its audit.
What KPMG knew about the two banks’ financial situation and what it missed will likely be the subject of regulatory scrutiny and lawsuits.
KPMG signed the audit report for Silicon Valley Bank’s parent, SVB Financial Group, on Feb. 24. Regulators seized the bank on March 10 after a surge of withdrawals threatened to leave it short of cash.
“Common sense tells you that an auditor issuing a clean report, a clean bill of health, on the 16th-largest bank in the United States that within two weeks fails without any warning, is trouble for the auditor,” said Lynn Turner, who was chief accountant of the Securities and Exchange Commission from 1998 to 2001.
Two crucial facts for determining whether KPMG missed the banks’ problems are when the bank runs began in earnest and when the bank’s management and KPMG’s auditors became aware of the crisis.
What is known about Silicon Valley Bank is that deposit outflows accelerated last month. In its March 8 statement, Silicon Valley Bank said “client cash burn has remained elevated and increased further in February.”
The bank said its deposits at the end of February were lower than it had predicted in January.
Both bank audits were for 2022, so auditors weren’t scrubbing the banks’ books when they ran into trouble. But auditors are supposed to highlight risks faced by the companies they audit.
They are also supposed to raise important issues that occur after companies close their books and before the audit is completed.
A spokesman for KPMG declined to comment on the specific audits, due to client confidentiality. In a statement, the firm said it isn’t responsible for things that happen after an audit is completed.
Silicon Valley Bank’s deposits peaked at the end of the first quarter of 2022 and fell $25 billion, or 13%, during the final nine months of the year. That means deposits were declining during the period of KPMG’s audit.
If the decline was affecting the bank’s liquidity when KPMG signed off on the audit report, that information likely should have been included. Since it wasn’t, the question becomes, did KPMG know or should have known what was going on?
Auditors are supposed to warn investors if companies are in trouble. They are required to evaluate “whether there is substantial doubt about the entity’s ability to continue as a going concern” for the next 12 months after the financial statements are issued.
Auditors also use their reports to highlight “critical audit matters” that involve challenging, subjective or complex judgments. KPMG in that section of its report focused on the accounting for credit losses at Silicon Valley Bank.
But it didn’t address Silicon Valley Bank’s ability to continue holding debt securities to maturity—which, in the end, the bank lacked.
Even if the bank wasn’t struggling last year, KPMG was required to evaluate developments that occurred after the balance-sheet date so the company’s financials were presented fairly.
Signature Bank, which was seized by regulators on Sunday, also faced a run last week but it didn’t have the same balance-sheet issues as Silicon Valley Bank. KPMG signed off on its audit on March 1.
Signature’s bet on crypto assets led to a surge in deposits, which went into reverse as that market struggled. A large amount of its deposits were uninsured, making it more likely the customers would flee at any sign of trouble.
But it hadn’t suffered the same losses on its investments as Silicon Valley Bank, giving it a greater ability to pay depositors.
The auditing firm could face additional scrutiny. KPMG also audited First Republic Bank, whose shares were down 76% Monday morning, even after the bank got a liquidity boost from JPMorgan Chase and the Federal Reserve.
KPMG’s audit work likely will be scrutinized by regulators, including the Public Company Accounting Oversight Board and the SEC, as well private litigants that lost money when Silicon Valley Bank collapsed, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
A shareholder lawsuit against the firm concerning its Silicon Valley Bank audit “won’t be an easy one for people to win, even though the timing is spectacularly embarrassing for KPMG,” Mr. Gordon said.
A PCAOB spokeswoman said the regulator “cannot comment on ongoing inspection or enforcement matters.” An SEC spokesman declined to comment on the Silicon Valley Bank audit.
One argument KPMG could try in court is that the run on the bank started after the firm signed its audit report. A state banking regulator, the California Department of Financial Protection and Innovation, in a filing Friday said the bank was “in sound financial condition prior to March 9,” when depositors withdrew $42 billion.
Douglas Carmichael, the PCAOB’s chief auditor from 2003 to 2006, said it was unclear how the California regulator could have determined the bank’s financial condition. “It seems like a premature analysis. How could they know without examining?” he said.
“Auditors are always under the microscope when the company fails shortly after the issuance of a clean opinion,” Mr. Carmichael said. “The shorter the period the greater the concern would have to be.”
Silicon Valley Bank almost doubled its assets and deposits during 2021. It got in trouble because it bought long-term, low-yielding bonds with short-term funding from depositors that was repayable upon demand.
Accounting rules said it didn’t have to recognize losses on the assets as long as it didn’t sell them.
When rising interest rates caused the bonds’ value to drop, it got stuck in them, and they kept falling. Silicon Valley Bank still had to maintain enough liquidity to pay withdrawals, which became increasingly difficult.
The $1.8 billion investment loss Silicon Valley Bank disclosed last week stemmed from Silicon Valley Bank’s decision to sell all its “available for sale” securities during the first quarter.
Silicon Valley Bank didn’t say when it started or when it completed the sales. It isn’t clear if Silicon Valley Bank used the proceeds of those sales to help cover withdrawals.
In the March 8 disclosure, Silicon Valley Bank said it expected to reinvest proceeds from the sales. But money is fungible, and it is unclear if selling the available-for-sale securities may have freed up other sources of cash to help pay departing customers.
Most of the capital hole in Silicon Valley Bank’s balance sheet was in government-sponsored mortgage bonds that Silicon Valley Bank classified as “held to maturity.”
That label allowed Silicon Valley Bank to exclude unrealized losses on those holdings from its earnings, equity and regulatory capital.
In a footnote, Silicon Valley Bank said the fair-market value of its held-to-maturity securities was $76.2 billion as of Dec. 31, or $15.1 billion below their balance-sheet value.
The fair-value gap was almost as large as Silicon Valley Bank’s $16.3 billion of total equity—which, KPMG could point out, is something anyone reading the financial statements could have seen.
Silicon Valley Bank stuck to its position that it intended—and had the ability—to hold those bonds to maturity. KPMG allowed the accounting treatment. Now it will be up to the Federal Deposit Insurance Corp. to sell the securities.
The bank’s troubles put KPMG in a no-win situation. If it had called attention to Silicon Valley Bank’s falling deposits, or issued a warning about Silicon Valley Bank’s ability to continue as a going concern, it could have set off a run on the bank.
By not raising these issues, it will face questions about how it missed the signs that the bank was headed for trouble.
One of the agencies likely to ask pointed questions of KPMG is the FDIC. After a bank fails, the FDIC’s Office of Inspector General regularly conducts investigations and publishes detailed reports called failed-bank reviews that identify the causes of the collapse and the parties most responsible.
Such reports are studied carefully by private litigants eyeing defendants to sue for damages. On that front KPMG caught a break over the weekend: The government said it would backstop all of both banks’ uninsured depositors, in effect helping to bail out KPMG as well. The backstop won’t affect losses suffered by the banks’ investors.
Updated: 3-13-2023
The Banking Crisis Is Not Crypto’s Fault
Crypto might have a banking problem, but banks don’t have a crypto problem.
Silvergate Bank voluntarily wound down on March 8 ($12 billion in assets), Silicon Valley Bank (SVB) went into FDIC receivership on March 10 ($200 billion in assets), Signature Bank was shut down by state regulators on March 12 ($100 billion in assets).
All these banks serviced some crypto clients. Some serviced more than others. Silvergate, in particular, banked several crypto exchanges and operated a 24/7 instant settlement network among Silvergate clients.
The collapse of FTX weighed on Silvergate, and a scathing letter sent by U.S. Senator Elizabeth Warren (D-Mass.) to the bank’s executives late last year partially weakened public perception of the bank. The Biden administration also voiced concerns.
So Silvergate was run into the ground by a classic bank run that was at least partially encouraged by the U.S. government and not because of crypto (even if Senator Warren maintains it was).
Especially when you consider that, in the end, Silvergate’s liquidation was voluntary and its plan includes a “full repayment of all deposits.”
Shortly after Silvergate, SVB was taken over by the Federal Deposit Insurance Corporation (FDIC) following an old-fashioned bank run.
The bank run was spurred on both by SVB mismanaging risk, losing money by putting customer deposits in the wrong financial securities (like long-dated Treasurys or the wrong flavor of mortgage backed securities) and by fear stoked by the venture capitalists who own massive financial interests in many of the companies banked by SVB.
Adding more kindling to the SVB fire – Reuters reported over the weekend that credit rating agency Moody’s was preparing to downgrade SVB’s credit rating, which potentially drove SVB to manage risk like this.
On the downgrade news, SVB reportedly looked to Goldman Sachs for advice.
SVB subsequently sold $20 billion of bonds over a weekend, which generated a loss, and then aimed to fill that hole by raising equity capital. That equity raise failed and now SVB no longer exists. (This is starting to smell like 2007, isn’t it?)
Do note, though, that SVB is more dependent on Silicon Valley startups than it is on crypto companies.
Now, on Sunday, we had Signature shut down by state regulators. Signature is viewed as another crypto-friendly bank as Silvergate was.
We’ve seen Barney Frank – yes, the Frank in Dodd-Frank – come out and say that clients may have overestimated Signature’s exposure to crypto. Frank knows this because, and I cannot believe this is true, he is a board member at Signature.
Frank also adds that Signature could have remained a going concern. Obviously regulators disagreed after customers withdrew more than $10 billion of deposits on Friday and Signature was taken over by the FDIC on Sunday.
Crypto Outcry
Setting aside Silvergate for a moment because, let’s face it, it’s far less of a systemic risk to the broader banking system than SVB and Signature are (it is much smaller and it didn’t get a government backstop), there is a very interesting thing that ties SVB and Signature together: Media outlets and general outcry blames crypto for these bank failures.
That is simply not true.
Even Barney Frank suggested that it wasn’t necessarily a crypto problem but a messaging about a crypto problem.
He Told CNBC: “I think part of what happened was that regulators wanted to send a very strong anti-crypto message…We became the poster boy because there was no insolvency based on the fundamentals.”
Each of these failures is the result of poor risk management of customer deposits and a subsequent bank run. Taking one step back, suggesting that a single asset class, whose companies have issues getting banking services in the first place, would be able to take down the banking system on its own is patently absurd. What is this? Real estate?
Crypto has a banking problem, but banking doesn’t have a crypto problem.
Fed Starts ‘Stealth QE’
Bitcoin and crypto react bullishly to news that the Fed is providing liquidity again after the failure of Silicon Valley Bank and Signature Bank.
Bitcoin begins a new week with a bullish surge above $22,000 as the United States Federal Reserve injects liquidity into the U.S. economy.
In a move which can rival any classic Bitcoin comeback, BTC/USD is up a full 15% off the two-month lows seen on March 10.
The volatility — and temporary relief for bulls — is due to events in the U.S. after the failure of one bank and the forced shutting of another.
Silicon Valley Bank (SVB) and Signature Bank are the latest victims in a brutal year for financial institutions under the Fed’s rising interest rates — will the trend continue?
Despite Signature being crypto-focused and a major on-ramp from fiat, crypto markets have so far seen no reason to abandon optimism at the prospect of the Fed providing fresh money.
Not everyone believes this constitutes a “pivot” on interest rate hikes or overall policy.
As the dust continues to settle and news floods in from the ongoing events, Cointelegraph breaks down the main factors moving BTC’s price in the short term.
Fed Bails Out Silicon Valley Bank Depositors
The story of the moment is, of course, the fallout from Silicon Valley Bank (SVB) failing on March 10.
Swallowing hundreds of billions of dollars in deposits, SVB was forced to take a massive $1.8 billion loss thanks to parking consumer funds in mortgage-backed securities, the price of which also suffered during the Fed’s rate hikes.
A snowball effect soon began as depositors became wary that something might be wrong regarding liquidity.
Everyone attempted to withdraw from SVB at once, and the funds were unavailable, necessitating the sale of assets at a loss and an emergency funding round which ultimately failed.
The result has come from the Fed stepping in to backstop depositors’ money. On March 12, it announced the “Bank Term Funding Program” (BTFP).
“Depositors will have access to all of their money starting Monday, March 13,” an accompanying joint statement from the Department of the Treasury, Fed Board and Federal Deposit Insurance Corporation (FDIC) confirmed.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
@federalreserve @USTreasury @FDICgov issue statement on actions to protect the U.S. economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
As market commentators were quick to point out, the decision effectively marks a return to Fed liquidity injections — quantitative easing (QE) — whereas before, liquidity was being withdrawn from the U.S. economy.
Risk assets rallied instantly on the news, as increasing liquidity ultimately increases investor appetite for risk.
Crypto was no exception, despite U.S. authorities announcing the sudden closure of Signature Bank in a move that some argue was a direct attempt to stop crypto markets from capitalizing on the SVB aftermath.
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the joint statement read.
Reacting to the creation of the BTFP, popular commentator Tedtalksmacro described it as a form of “stealth QE.”
“Unofficial quantitative easing begins on Monday. This is so bullish,” part of subsequent Twitter posts added.
“TL;DR the Fed’s balance sheet will expand and that will increase USD liquidity.”
As Cointelegraph reported, crypto as a whole is highly sensitive to central bank liquidity trends — not just those in the United States.
Among those underlining this is Arthur Hayes, former CEO of derivatives exchange BitMEX, who, in a blog post earlier in the year, described how changing liquidity conditions would likely impact Bitcoin and altcoin performance.
Now, he was conspicuously bullish.
“Get ready for a face ripping rally in risk assets. MONEY PRINTER GO BRRR!!!” he told Twitter followers about the BTFP in one of several posts on March 12.
Speculation Gathers Over Fed Interest Rate “Pivot”
With liquidity returning to the market, it was not just crypto wondering about the fate of the Fed’s quantitative tightening (QT) policy in place for the past 18 months.
Speculation was rampant on the day that this month’s decision on interest rate adjustments may yield either a reduction or see the Fed leave the current rate unchanged.
Previously, markets had been swinging between a 0.25% and a 0.5% increase to the benchmark rate at the March 22 meeting of the Federal Open Market Committee (FOMC).
“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman Sachs economist Jan Hatzius wrote in a note on March 12, quoted by CNBC and others.
David Ingles, the chief markets editor at Bloomberg TV, interpreted the comments as Goldman considering the Consumer Price Index (CPI) a “non event.”
Cointelegraph contributor Michaël van de Poppe, founder and CEO of trading firm Eight, looked closer to home, noting that the coming week would produce another price catalyst in the form of February’s CPI inflation data.
“’QE’ and ‘Bailout’ for the banks, which means temporary relief + potential good CPI and no more rate hikes (or 25bps) is fuel,” he wrote as part of Twitter comments on March 13.
“Markets now waiting for CPI to give the green light,” popular trading and analytics account Daan Crypto Trades continued.
“If CPI comes in hot we’ll see some chaos as we’d basically have an increasing CPI + Easing Fed. If CPI comes in below estimates I don’t see a reason for the market to hold back.”
More cautious was Alasdair Macleod, who, in light of the BTFP decision, warned against assuming that the Fed had abandoned QT for good.
“Initial market reaction to banking crisis is based on perceived Fed pivot. But this could be a mistake,” he tweeted.
“Irrespective of Fed monetary policy, contracting bank credit forces up the price of loans, if you can get one. Monitor money markets!”
According to CME Group’s FedWatch Tool, overall expectations still favored a further hike rather than a stagnating benchmark rate on March 22. However, 0.5% was off the table.
BTC Price Jumps To $22.7K In Blistering Comeback
With that, Bitcoin was clearly bullish during the Asia trading session on March 13.
Ahead of the Wall Street open, BTC/USD traded at around $22,100 at the time of writing, having hit local highs of $22,775 on Bitstamp, according to data from Cointelegraph Markets Pro and TradingView.
The bulk of the recovery from its March 10 lows of under $20,000 came following the Fed liquidity announcement, but this entirely erased any trace of the SVB implosion.
“Bitcoin recovered from the biggest US bank collapse since 2008… in just 3 days,” popular commentator Bitcoin Archive summarized.
Among traders, targets remained varied as volatility moved BTC/USD up and down before the opening.
Van de Poppe argued that $21,300 must hold to facilitate a long trade, potentially reaching $23,700.
“22.7K liquidity looks ripe for the taking,” fellow trader Crypto Chase continued.
“For any local longs, stops below 21K should be safe IMO. Back below there wouldn’t make much sense to me if this is going to keep ripping.”
Full-time trader Jackis noted that last week’s low had exactly matched the 0.618 Fibonacci retracement level from the 2023 highs above $25,000.
“No surprise we are pumping off of major monthly support,” Credible Crypto added about current price behavior on 4-hour timeframes.
Bitcoin’s weekly close thus came in far higher than expected at more than $22,000. For trader and analyst Rekt Capital, this “likely” put pay to the bearish double top pattern previously playing out on weekly timeframes.
“Weekly Close above $21770 likely invalidates the Double Top,” part of a tweet on March 12 read.
Further analysis nonetheless gave April as the nearest point that Bitcoin could begin to effect a longer-term trend change.
“Great BTC reaction from ~$20000, the Range Low of this Macro Range,” Rekt Capital wrote.
“As long as ~$20000 holds, $BTC has a chance at challenging the Macro Downtrend in the coming weeks once again At the earliest this April.”
‘QE In Another Name’: New Bank Backstop Points To The End of Fed QT
* Citi Strategists Analyze Impact Of Fed’s New Funding Program
* Banks Have Seen Deposits Leave For Higher-Yielding Substitutes
The Federal Reserve may need to end its quantitative-tightening program early to preserve the amount of bank reserves in the financial system while also maintaining its hawkish signaling on interest rates, according to Citigroup Inc.
As Citigroup sees it, the Fed’s new Bank Term Funding Program, introduced over the weekend after the collapse of Silicon Valley Bank, will create additional reserves in the financial system to avert funding stress.
Essentially, that risks being seen as a form of quantitative easing at a time when the Fed is engaged in a major effort to do just the opposite: Since mid-2022, it’s been unwinding its massive pile of Treasury and mortgage-backed securities — aiming to ultimately remove trillions of dollars of excess liquidity from the financial system.
“Their new BTFP facility is QE in another name – assets will grow on the Fed balance sheet which will increase reserves,” Citi strategists Jabaz Mathai, Jason Williams and Alejandra Vazquez Plata wrote in a note to clients on Monday. “Although technically they are not buying securities, reserves will grow.”
As part of its move to combat soaring inflation and withdraw the unprecedented policy accommodation unleashed amid the pandemic, the Fed ramped up its so-called quantitative tightening to full speed in September.
It’s now shrinking its bond portfolio by as much as $95 billion a month, while at the same time pursuing an aggressive campaign of interest-rate hikes.
Banks Facing Stiffer Competition For Funds As Fed QT Rolls On
For the Fed, an overarching concern is that it avoids pulling back too far on liquidity in the financial system as it tightens policy, creating strains in the markets where banks fund themselves.
Bank deposits have fallen since the Fed started its hiking cycle a year ago, spurring customers to shift cash to higher-yielding instruments.
That has in turn forced institutions to increase rates on offerings like certificates of deposit more in line with Treasury bills and money markets to stem the exodus.
Banks Forced To Up CD Rates To Stanch Deposit Bleeding
They’ve also been tapping wholesale funding markets for additional dollars. For example, the daily fed funds rate for borrowers in the 99th percentile in terms of volume, the entities that need those funds the most, has climbed since the end of 2022, Fed data show.
The longer QT goes on, “the more at-risk banks are of losing aggregate reserves in the system,” the Citigroup strategists wrote. “Deposit outflows should continue to be directional with reserves and it is very easy to see paths where reserves scarcity is hit later this year if the Fed wishes to keep all hawkish options on the table.”
Fed’s Choices
The strategists see three options for the Fed. One would be stopping QT early or reducing the monthly amount of bonds it allows to roll off, to ensure reserves are relatively stable for the rest of the year.
Another choice would be to lower the maximum amount each money-market fund is allowed to park at the Fed’s reverse repurchase agreement facility from $160 billion, while allowing QT to run in the background.
A third possible route, according to Citigroup, is that the Fed stops hiking but continues its balance-sheet unwind, forcing money funds to extend the weighted average maturity of their holdings and pulling cash out of the RRP as they buy longer maturities.
The strategists see this as unlikely since the Fed has shown it’s more comfortable tightening economic conditions via short-end rates.
Still, it’s too early to determine how the Fed’s new facility will evolve and whether it will carry a stigma similar to the discount window and a Fed facility known as the Standing Repo Facility.
In that case, the outflow of deposits may continue, pushing more cash into bigger banks and money funds, which may ultimately move it to the Fed’s reverse repo facility.
“While BTFP will likely support sentiment in the short-term and reduce any uninsured deposit flight, this is no guarantee that bank deposits will not shift into the RRP facility or leave to competing banks – thus risks remain on the table,” the strategists wrote.
Bitcoin Was Built For This Moment
Amid a U.S. banking crisis, value is flowing into bitcoin. Is this the beginning of the “Great Reset?” investor and author Tatiana Koffman asks.
The failure of Silicon Valley Bank, Silvergate Bank and Signature Bank continue to ripple through the markets, causing U.S. bank stocks to plummet. Most recently, Charles Schwab’s stock was halted in trading Monday morning.
Meanwhile, bitcoin and the rest of the cryptocurrency market are experiencing a double-digit rally, which may be the first time that bitcoin is rallying in a risk-off environment. Perhaps this is exactly the moment bitcoin was built for.
The Bitcoin network was created as a direct response to the Great Financial Crisis in 2008, during a period when many hardworking people felt both the government and the financial system were working against them.
In fact, the very first block of Bitcoin had an inscription in the code: “The Times 03/Jan/2009 Chancellor on the brink of the second bailout for banks.”
Now that regulators are gearing up to backstop another centralized financial institution, which collapsed in part due to an aggressive monetary policy at the Federal Reserve and what appears to be either poor risk management or greed, it’s important to heed Satoshi Nakamoto’s message.
For years I’ve been talking about the “Great Reset”, a concept that advocates for us to stop trusting centralized institutions with the things that matter most.
After all, these institutions are run by people who are not necessarily better or smarter than us but they make all the decisions and mistakes for us.
Bank Runs
If we look at the sequence of events over the last week, we quickly begin to recognize the errors of human centralization. Last Wednesday, Federal Reserve Chairman Powell outlined a new approach to the Federal Reserve’s policy path, indicating that interest rates may continue to rise for a longer period than previously expected.
The expectation of higher interest rates for a prolonged period of time almost immediately sent a ripple effect through the bond market, causing bond prices to drop drastically because prices move opposite to yields.
At the same time, Silicon Valley Bank was forced to sell some of the 10-year bonds on its balance sheet at a 20%-30% discount to meet obligations amid a period of climbing withdrawals.
As rumors of a cash shortfall began to circulate, a full-on run on the bank ensued and regulators took over. This caused even further panic.
Could every regional bank go under? After all, according to fractional banking rules, most of these banks only hold only 5%-10% of your capital in reserves, making every bank vulnerable to a bank run.
And then there was the obvious question as to who led the risk management department that decided it was okay to buy 10-year securities for an institution that has daily cash flow obligations to their depositors.
When the current economic slowdown began last year, many were worried crypto failures, such as those at FTX, Three Arrows Capital and Terraform Labs, would spread to traditional finance.
But the exact opposite happened because the Silicon Valley Bank failure directly impacted the stablecoin market.
Who Do We Trust?
Our assets may be bouncing back but the shock to our nervous system, however, remains. How can we trust anything centralized? How can we keep our money in banks above the FDIC-insured limit of $250,000?
Could the insurance fail? How can we keep our money in stablecoins that use the same banking partners?
Bitcoin’s beauty lies in its ability to store value in a decentralized manner backed by math, without requiring humans to validate or support it. No one lends out 90% of your deposits to make a profit, there is no possibility of a bank run and no one gambles with your hard-earned money on bonds.
Bitcoin was made for this moment, and it seems the market agrees. The Great Reset presupposes a future where bitcoin is the most valuable asset and the ultimate measure of value.
It is what we use to store our wealth, perhaps selling small pieces for stablecoins to pay our daily expenses, but nonetheless only trusting this decentralized store of value.
The concept of decentralization, however, applies to other areas as well, such as how we run our communities, allocate resources and decide what our government should or should not control. A significant shift is underway, and more people are opting out of the traditional system.
We do not know how long it will take, but the Great Reset is happening and bitcoin will be its chosen currency.
Updated: 3-14-2023
Credit Suisse Finds Material Weaknesses In Financial Reporting
CEO Ulrich Körner says the bank’s financial results were unaffected for 2022 and previous years.
Credit Suisse Group AG said it had found material weaknesses in its financial reporting over the past two years because of ineffective internal controls, the latest setback in its efforts to move past a series of costly blunders.
The bank’s management, including Chief Executive Ulrich Körner and Chief Financial Officer Dixit Joshi, who both started in their jobs in 2022, concluded that the controls weren’t effective, Credit Suisse said in its annual report. The weaknesses meant that controls around 2021 financial reporting also weren’t effective.
Despite the lapses, Credit Suisse said its financial statements “fairly present, in all material respects, the group’s consolidated financial condition.”
Credit Suisse had to delay its annual report last week because of last-minute questions from the U.S. Securities and Exchange Commission around earlier cash flow statements, which the bank had revised in its 2021 annual report for 2019 and 2020.
Mr. Körner said the bank’s financial results for 2022 and previous years were unaffected by the finding, and that it made the disclosure following the SEC’s questions, which he said were part of a longer dialogue.
“We wanted to appropriately respond to feedback which we had from the SEC, and we did,” Mr. Körner said. “This has led into…material weaknesses in the financial reporting controls, which we are, as you would expect from us, addressing very forcefully with the appropriate actions,” he said at a banking conference.
As part of the annual report, PricewaterhouseCoopers, the bank’s auditor, issued an adverse opinion on the effectiveness of its internal controls over financial reporting as of Dec. 31.
PwC said the bank’s control system for preparing consolidated financial statements had deficiencies, including ineffective controls over how noncash items were classified and presented in its consolidated cash flow statements.
Credit Suisse has stumbled repeatedly over the past few years. The 2021 collapse of clients Greensill Capital Management and Archegos Capital Management sparked uncertainty about its future and was followed by an investor and client exodus that the bank has been unable to reverse.
The bank’s stock fell 4% early Tuesday before recovering to trade flat, having hit a new low Monday on concerns about its financial prospects. Market jitters surrounding the collapse of Silicon Valley Bank hammered bank stocks globally.
Credit Suisse raised $4 billion in new shares last year and it is cutting 9,000 jobs and spinning off its investment bank. So far the effort hasn’t stabilized the situation, with funding costs continuing to rise.
In a reflection of the stress on the bank, prices have slid on Credit Suisse’s so-called bail-in bonds, which get wiped out if the bank runs into trouble.
Its 2027 perpetual securities issued last year dropped to 72 cents on the dollar Tuesday from 89 cents at the start of March, according to Tradeweb. That is lower than in early December in the days after Credit Suisse warned of large customer outflows.
Material weakness in internal controls is an embarrassment for any big company. It is often seen by analysts and investors as reflecting badly on a company’s finance function. Such failures can also worry shareholders and heighten the risk of a restatement and other accounting problems.
“Investors are extremely concerned about changes in numbers, but much less concerned about weaknesses in internal controls that don’t result in restatements,” said Jeffrey Johanns, accounting professor at the University of Texas at Austin.
The weaknesses first emerged in the bank’s 2021 annual report cycle, according to Credit Suisse disclosures and people familiar with the matter. In the 2021 report, Credit Suisse said it had identified accounting issues that led it to revise consolidated cash-flow statements for 2019 and 2020.
It moved some items involving securities lending and borrowing and share-based compensation to different lines on its consolidated cash flow statements, without affecting overall financial results.
In the 2021 annual report, bank management, including then-chief executive Thomas Gottstein and then-chief financial officer David Mathers, concluded that the internal controls over financial reporting were effective, as did PwC.
The cash-flow revisions caught the SEC’s attention, and led to months of questions that weren’t fully resolved before last week on the eve of the bank publishing its annual report.
Companies are required under U.S. securities law to test and disclose the effectiveness of their controls.
Cash-flow statements are a required part of a company’s results, though bank investors often spend more time concentrating on profit-and-loss statements and balance sheets.
Also as part of its annual report, Credit Suisse said Chairman Axel Lehmann will waive part of his pay this year, after making around $3.5 million in 2022. The bank will also cut future pay for the chairman role after a comparison with other Swiss companies.
The highest-paid executive board member in the year was the former CFO, Mr. Mathers, who left the role in September. He made around $4.3 million in 2022.
Updated: 3-15-2023
Swiss National Bank Says It Will Support Credit Suisse If Necessary
Swiss regulators reaffirm the soundness of the Swiss financial system, following recent concerns about Credit Suisse.
The Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority released a joint statement on March 15 on the stability of the Swiss banking system and Credit Suisse. The problems of “certain banks in the USA” do not pose a risk for the Swiss financial system, they wrote.
The statement was reportedly produced at the request of Credit Suisse. The regulators said Credit Suisse meets all capital and liquidity requirements, but “if necessary, the SNB will provide CS [Credit Suisse] with liquidity.”
However, Credit Suisse still “meets the capital and liquidity requirements imposed on systemically important banks.” The statement acknowledges that Credit Suisse has been “affected by market reactions in recent days.”
On March 14, Credit Suisse Group CEO Ulrich Körner confirmed that the bank is conservatively positioned against interest rate risks.
That day, the bank admitted “material weakness in our internal control over financial reporting” after its 2022 performance was the worst since the 2008 global financial crisis.
We fulfill and basically overshoot all regulatory requirements. Our capital, our liquidity basis is very strong”. Watch the full interview: https://t.co/hdfAD18JRZ pic.twitter.com/QD3wGZq2yK
— Credit Suisse (@CreditSuisse) March 15, 2023
The SBN statement comes as Credit Suisse shares fell precipitously at the start of trading on March 15, losing up to 30%, and had been temporarily halted during a heavy sell-off. Trading was halted for several other European banks at the same time.
Saudi National Bank Chair Ammar Al Khudairy said on March 15 that the Saudi central bank — the largest Credit Suisse shareholder, with 9.8% of its stock — would “absolutely not” provide support for Credit Suisse.
European Central Bank officials have contacted banks they supervise to ask about their Credit Suisse exposure, and the French finance minister will call his Swiss colleague to discuss the developments at Credit Suisse. A U.S. Treasury official told the news service that it was monitoring the bank’s situation.
Credit Suisse Seeks Circuit Breaker With $54 Billion Line
* Swiss Government To Hold Special Session On Bank Crisis
* Moves Demonstrate Decisive Action, CEO Ulrich Koerner Says
Credit Suisse Group AG sought to arrest a collapse in investor confidence Thursday by opening a 50 billion Swiss franc ($54 billion) credit line with the country’s central bank and offering to buy back debt, as executives and government officials plot the next steps for the troubled lender.
Shares in Credit Suisse initially surged as much as 40% before paring gains, remaining lower than Wednesday when they lost the most since the 2008 financial crisis. As analysts began to question how much time the announcement has bought, the Swiss Federal Council was setting up a special meeting for Thursday to discuss the situation.
Meanwhile, Credit Suisse’s top shareholder earlier said “everything is fine” and the bank isn’t likely to seek more capital, the day after his comments helped spark the share turmoil.
Worries about Credit Suisse’s financial health have roiled global markets over the past 24 hours, alarmed regulators across Europe and the US and prompted some firms to reassess their exposure to the bank.
The government, central bank and regulator Finma have been in close contact to discuss ways to stabilize Credit Suisse.
Ideas floated — beyond the public show of support — include a separation of the bank’s Swiss unit and a long-shot orchestrated tie-up with larger Swiss rival UBS Group AG, people familiar with the matter said, cautioning that it’s unclear which, if any, of these steps would actually be executed.
Credit Suisse has not yet used the credit line at the Swiss National Bank, according to a person familiar with the matter.
Credit Suisse shares traded up 22% at 2.08 Swiss francs as of 1:02 p.m. in Zurich. They’ve lost about 25% of their value this year.
In the meantime, executives are insisting that a strategic revamp announced in October remains the core plan to turn around the bank, and the debt repurchases underline the core strength of the bank.
“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation,” Chief Executive Officer Ulrich Koerner said in a statement. “My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.”
Analysts at JPMorgan Chase & Co. however see a takeover of the bank as the most likely outcome.
Analysts led by Kian Abouhossein laid out three scenarios for Credit Suisse amid a crisis of investor confidence in the bank, and say that a takeover — with rival UBS Group AG a probable option for this — is the most likely.
A deal could be followed by a listing or spinoff of the Swiss Bank part of the lender, worth 10 billion Swiss francs ($10.8 billion), given the market concentration between Credit Suisse and UBS, said the analysts, who have a neutral rating on Credit Suisse.
Debt Repurchase
Credit Suisse announced at least its second debt repurchase in just the past six months as it looks to restore investor confidence.
It offered to buy back about $3 billion of its debt in October last year, saying at that time it wanted to “take advantage of market conditions to repurchase debt at attractive prices.”
The latest tender offer applies to ten senior debt securities for up to $2.5 billion, as well as four euro-denominated senior debt securities for as much as 500 million euros.
The borrowing comes in the form of a covered loan facility as well as a short-term liquidity facility, which are fully collateralized by high quality assets, the bank said.
As of the end of 2022, Credit Suisse had a CET1 ratio of 14.1% and an average liquidity coverage ratio of 144%, which has since improved to approximately 150% as of March 14, it added. The Swiss National Bank declined to comment further on the terms of the facility.
Switzerland’s second-largest lender, which traces its roots back to 1856, has been battered over the last several years by a series of blowups, scandals, leadership overhaul and legal issues. The company’s 7.3 billion franc loss last year wiped out the previous decade’s worth of profits, and the bank’s second strategy pivot in as many years has so far failed to win over investors or halt client outflows.
Client Outflows
The lender said in its annual report earlier this week that client outflows continued into March, though Koerner later said on Bloomberg Television that the bank attracted funds after the collapse of Silicon Valley Bank.
The ground for Credit Suisse’s sudden lurch had been laid earlier in the week as investors sought to move away from banking risk after turmoil induced by the failure of the US lender.
The Swiss bank’s stock then plunged to the lowest level on record after the the chairman of Saudi National Bank said it wouldn’t boost its share of the bank past the current level of just under 10%.
Koerner on Tuesday asked for patience and said the bank’s financial position is sound. He pointed to the firm’s liquidity coverage ratio, which indicates the bank can handle more than a month’s worth of outflows in a period of stress.
Chairman Axel Lehmann had said at a conference on Wednesday that government assistance “isn’t a topic” and the firm’s efforts to return to profitability aren’t comparable to the severe liquidity issues hitting smaller lenders in the US.
Credit Suisse Erupts Into Full-Blown Crisis As Rivals Back Away
* Global Lenders Rush To Safeguard Against Potential Contagion
* BNP Seeks To Trim Counterparty Exposure To Troubled Bank
The long-brewing troubles at Credit Suisse Group AG exploded into a full-blown crisis Wednesday as its stock and bonds cratered and some of the world’s biggest banks raced to shield their finances from the potential fallout.
The stock fell as much as 31%, hitting record lows, and prices on its benchmark bonds sank to levels that indicate the Swiss lender is in deep financial stress — something rarely, if ever seen at a major global bank since the throes of the 2008 crisis.
Meanwhile, banks that trade with Credit Suisse snapped up contracts, known as credit-default swaps, that will compensate them if the crisis deepens.
At least one bank, BNP Paribas SA, went a step further and informed clients it will no longer accept requests to take over their derivatives contracts when Credit Suisse is the counterparty, according to people familiar with the matter.
This adds to the steps that many banks in the US had been taking over the course of months to slowly reduce their exposure to the lender.
As the day went on and the crisis convulsed global financial markets, authorities in Switzerland sought to stem the damage, releasing a statement in their evening pledging to provide Credit Suisse with emergency financing if needed. The bank’s shares and CDS rebounded slightly.
“The trading levels have become somewhat a crisis in confidence in Credit Suisse,” said Mark Heppenstall, president of Penn Mutual Asset Management. “People are looking for any way possible to get protection.”
Wednesday’s panic was sparked by a statement from Credit Suisse’s biggest shareholder, the Saudi National Bank. When the bank’s chairman, Ammar Al Khudairy, was asked if he was willing to inject more cash into the lender, he responded “absolutely not.”
That was nothing new, really — and came just a day after Credit Suisse Chief Executive Officer Ulrich Koerner said that business was starting to improve — but it was enough to unnerve investors already on edge after three regional US banks failed in a span of days.
In the aftermath, the Swiss lender’s dollar bonds plunged as much as 40 cents, by far the worst performing notes globally.
Quotes for one-year credit default swaps surged above levels on longer durations as banks tried to give themselves a near-term shield from their counterparty exposure, according to people with knowledge of the matter.
While Credit Suisse’s American depositary receipts pared losses after the announcement by Swiss authorities, they were still down 14% at the close of regular trading in New York.
The pain bled into the rest of the banking sector, with Morgan Stanley and Citigroup Inc. each tumbling more than 5%, while JPMorgan Chase & Co., Goldman Sachs Group Inc. and Wells Fargo & Co. all sank more than 3%.
Market Angst
All of which underscores just how high angst now is — both surrounding the fate of Credit Suisse and, more broadly, a global economy that’s been shaken by soaring interest rates as central bankers seek to tame rampant inflation.
Recession fears sent the price of oil tumbling below $70 a barrel for the first time since 2021 in the US.
Amid the tumult, broader concern about the outlook for the banking system began to seep into dollar funding markets.
Rates on overnight repurchase agreements moved higher for a period, pointing to stronger demand and general jitteriness.
A number of other market indicators, including the gap between forward-rate agreements and overnight index swaps, also indicated heightened tension.
Unlike the regional banks that fell in the US, “Credit Suisse is a global systemically important banking institution,” said Scott Kimball, managing director of fixed income at Loop Capital Asset Management, which has a position in the lender’s bonds.
“The persistent problems at Credit Suisse carry bigger problems for the credit markets,” he added. “They can’t seem to get the ship right.”
The global effort to safeguard against further distress at Credit Suisse extended beyond banks. Izzy Englander’s Millennium Management instructed portfolio managers to cease derivatives trades with the bank, according to a person with knowledge of the situation.
Having already stopped uncleared transactions with the lender, the hedge fund on Wednesday went a step further, halting trades that go through a clearing house.
“CDS and stock prices can drive a negative feedback loop, especially in volatile markets,” Bloomberg Intelligence’s Alison Williams and Ravi Chelluri wrote. “Credit Suisse’ risk-management issues have evolved over the past couple of years, and we think that big banks have managed counterparty-risk exposures accordingly.”
Credit Suisse Is In Crisis. What Went Wrong?
Switzerland’s role as banker to the world’s rich was built on a reputation for institutional discretion and dull reliability. That only makes the scandals, public legal battles and mounting losses at Credit Suisse Group AG more striking and hard to comprehend.
By mid-March, unease about the bank’s problems had turned into full-blown panic, its shares slumped and management was forced to call for help from the country’s central bank.
1. What Went Wrong?
Credit Suisse’s failings have included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media.
Its willingness to engage with clients that some other banks avoided, such as disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management, lost it billions of dollars and compounded the sense of an institution that didn’t have a firm grip on its affairs.
Many fed up customers voted with their feet, leading to unprecedented client outflows in late 2022. The loss of business was especially dramatic in Asian wealth management, which for many years had been an important source of profit growth.
2. What Triggered The Latest Share Slump?
Chief Executive Officer Ulrich Koerner launched a massive outreach to woo back nervous clients and their cash. The effort appeared to be paying off by January, when it reported “net positive” deposits.
However, on March 9, the US Securities and Exchange Commission queried the bank’s annual report, forcing it to delay its publication.
Panic spread after the failure of regional US lender Silicon Valley Bank underscored how higher interest rates were eroding the value of the banking industry’s bond holdings. Investors began ditching anything that smelled of banking risk and deposit flight.
3. How Bad Did The Situation Get?
Credit Suisse stock slumped as much as 31% on March 15 when the chairman of its largest shareholder, Saudi National Bank, ruled out investing any more in the company. This prompted Credit Suisse to ask the Swiss central bank for a public statement of support.
The cost of insuring the bank’s bonds against default for one year surged to levels not seen for a major bank since the global financial crisis of 2008.
In another sign of stress, its additional tier 1 bonds — which are subordinate to all other ranks of debt and may be written down if capital falls below a predetermined level — dipped below 80% of face value, a level typically signaling distress.
4. What Were Swiss Authorities Doing About It?
Aware of the potential economic fallout if Credit Suisse collapsed, the central bank offered to lend it as much as 50 billion Swiss francs ($54 billion) and buy back as much as 3 billion francs of debt.
The investor panic subsided, giving the bank’s management and the Swiss government some time to seek a way out of the mess.
The government has floated the idea of acquiring a stake in Credit Suisse as part of a capital increase if necessary. Other options being discussed included a separation of the lender’s Swiss unit and a long-shot orchestrated tie-up with larger Swiss rival UBS Group AG.
5. Could This Be Another Lehman Brothers Moment?
The Wall Street giant, whose failure in 2008 triggered the global financial crisis, succumbed when funding dried up and other banks stopped dealing with it.
Unlike Lehman and SVB, Credit Suisse has substantial liquid assets to call upon and access to central bank lending facilities and is less sensitive than many rivals to sharp moves in interest rates.
It has rebuilt its cushion against more deposit withdrawals since the worst wave of outflows in October. It also has enough money-like liquid assets to pay back half of all its liabilities in deposits and loans from other banks, according to Bloomberg Opinion banking columnist Paul J. Davies.
Koerner said the firm’s liquidity coverage ratio showed it can handle over a month of heavy outflows in a period of stress.
6. Why Does This Matter?
The crisis at Credit Suisse and the failure of three US regional lenders may push other banks to lower their risk profile, which means issuing fewer of the loans that enable economies to grow. That would make it harder for central banks to keep raising benchmark rates to cool red-hot inflation without causing recessions.
Investors have been abandoning bets on more rate hikes and now see US rate cuts coming as early as the summer. European Central Bank President Christine Lagarde said the financial market turmoil could hit credit conditions and dampen confidence.
However, she said the banking sector was “in a much, much stronger position than where it was back in 2008.”
7. What Was Koerner Doing To Turn Things Around?
His plan — if the bank escapes the latest turmoil unscathed — involves dismantling the investment banking behemoth assembled over five decades and returning Credit Suisse to its origins as banker to the world’s ultra-wealthy.
That means reviving the First Boston brand it acquired in 1990 and spinning out some of the division’s strongest businesses with a view to a listing in 2025.
A return to the Swiss bank’s roots might assuage some critics, including former Chief Executive Officer Oswald Gruebel, who say the foray into investment banking brought a culture of risk taking in search of big profits. Koerner’s downsizing hasn’t been made any easier by the volatility in markets after the SVB collapse.
Credit Suisse Default Swaps Are 18 Times UBS, 9 Times Deutsche Bank
* Cost Of Protection Is Closing In On Level Signaling Concern
* Credit-Default Swap Curve Is Inverted, Indicating Distress
The cost of insuring the bonds of Credit Suisse Group AG against default in the near-term is approaching a rarely-seen level that typically signals serious investor concerns.
The last recorded quote on pricing source CMAQ stood at 835.9 basis points on Tuesday. Traders were seeing prices of as high as 1,200 basis points on one-year senior credit-default swaps Wednesday morning, according to two people who saw the quotes and asked not to be named because they aren’t public.
There can be a lag between pricing seen by traders and those on CMAQ at times of frantic activity.
Spreads of more than 1,000 basis points in one-year senior bank CDS is an extremely rare phenomenon. Major Greek banks traded at similar levels during the country’s debt crisis and economic slump.
The level recorded on Tuesday is about 18 times the contract for rival Swiss bank UBS Group AG, and about nine times the equivalent for Deutsche Bank AG.
A spokesperson at Credit Suisse declined to comment when contacted by Bloomberg News.
The CDS curve is also deeply inverted, meaning that it costs more to protect against an immediate failure at the bank instead of a default further down the line.
The lender’s CDS curve had a normal upward slope as recently as Friday. Traders typically ascribe a higher cost of protection over longer, more uncertain periods.
Shares in the lender were also plunging on Wednesday, reaching a new record low and dragging other banking stocks in the region lower. The stock fell as much as 22% after its shareholder, Saudi National Bank Chairman Ammar Al Khudairy, ruled out investing any more in the company.
Credit Suisse is in the midst of a complex three-year restructuring in a bid to return the bank to profitability. It was hard hit by the recent wave of bearishness triggered by Silicon Valley Bank’s demise, with its five-year CDS spreads hitting a record.
Chief Executive Officer Ulrich Koerner said in a Bloomberg Television interview on Tuesday that business momentum improved this quarter and that the bank attracted funds after the collapse of SVB.
As a systemically important bank, Credit Suisse follows “materially different standards” in terms of capital strength, funding and liquidity than lenders such as SVB, Koerner said.
He said the lender had a CET1 capital ratio of 14.1% in the fourth quarter and a liquidity coverage ratio of 144% that has since increased.
“The other point is, the volume of our term fixed income securities as part of our HQLA portfolio is absolutely not material,” he said, referring to the bank’s holdings of high-quality liquid assets. “And the exposure to interest rates is fully hedged on top of it.”
Outflows of client money, which were at unprecedented levels in early October amid a social media firestorm that questioned the bank’s health, haven’t reversed as of this month, though have stabilized at much lower levels, according to Tuesday’s annual report.
Chairman Axel Lehmann said Wednesday that government assistance “isn’t a topic” for the lender and that it wouldn’t be accurate to compare the Swiss bank’s current problems with the recent collapse of SVB. He was speaking at the Financial Sector Conference in Saudi Arabia.
Updated: 3-15-2023
New Fed Bank Backstop Has Scope To Inject As Much As $2 Trillion
* Facility Unlikely To Be Used By Largest Banks: JPM Strategists
* Wrightson ICAP Sees Window, New Facility Use Rising By $100B
Market observers are on alert to find out just how much extra funding the Federal Reserve’s new bank backstop program will ultimately add into the system, with analysts at JPMorgan Chase & Co. positing that it could inject anywhere up to $2 trillion in liquidity.
That’s their maximum estimate. The analysts’ prediction based on the amount of uninsured deposits at six US banks that have the highest ratio of uninsured deposits over total deposits is closer to $460 billion.
That’s a smaller amount, but still enormous compared to historic usage of the so-called discount window, another Fed facility that is often seen to carry a stigma and has historically involved banks taking a haircut on the amount borrowed relative to collateral.
The Fed has said that it plans to publish figures weekly in the same balance-sheet statement that it uses to reveal uptake of funding from the window. That release is scheduled for around 4:30pm Thursday New York time.
“The usage of the Fed’s Bank Term Funding Program is likely to be big,” strategists led by Nikolaos Panigirtzoglou in London wrote in a client note Wednesday.
While the largest banks are unlikely to tap the program, the maximum usage envisaged for the facility is close to $2 trillion, which is the par amount of bonds held by US banks outside the five biggest, they said.
The US authorities set up the program earlier this month following a collapse of three lenders with the aim of preventing a firesale of sovereign debt to obtain funding.
Treasury two-year yields have tumbled more than 60 basis points this week amid speculation the Fed will skip an interest-rate hike next week as it seeks to stabilize the banking sector.
While there are still $3 trillion of reserves in the US banking system, a significant proportion of that is held by the largest banks, the JPMorgan strategists wrote.
Tighter liquidity has been caused both by the Fed’s quantitative tightening and also the rate hikes that have induced a shift to money-market funds from bank deposits, they said.
The Bank Term Funding Program should be able to inject enough reserves into the banking system to reduce reserve scarcity and reverse the tightening that has taken place over the past year, the JPMorgan strategists wrote.
Lou Crandall at Wrightson ICAP appears more circumspect about how quickly banks will ramp up their funding from the new facility. His reserve balance projections assume that combined activity at the discount window and the new Bank Term Funding Program rose by roughly $100 billion over the past week.
That would take it above the discount window’s previous highs for the year to levels last seen amid the pandemic-related upheaval of 2020.
“Our guess is that the new program will be attractive to a large number of institutions beyond those currently facing liquidity questions,” Crandall wrote. “We expect the advantageous financial terms of the new program to overcome stigma concerns at many institutions in the weeks ahead. However, the speed and magnitude of the run-up in Fed lending is highly uncertain.”
Updated: 3-15-2023
Senator Warren Says Fed Chair ‘Has To Recuse Himself’ From Reviewing Regulatory Failures
Jerome Powell called for a “thorough, transparent, and swift review” of the Federal Reserve’s supervision and regulatory activities following Silicon Valley Bank’s closure.
Massachusetts Senator Elizabeth Warren, one of the more prominent anti-crypto voices in the United States Congress, has called on Federal Reserve Chair Jerome Powell to recuse himself amid an internal probe at the Federal Reserve.
Speaking to reporters in Washington, D.C., on March 15, Warren said Powell had led “the de-regulatory movement” at the Fed, potentially touching upon some of the conditions that had led to the collapse of Silicon Valley Bank.
The Fed chair called for a “thorough, transparent, and swift review” of its activities on March 13, following the bank’s shutdown by the California Department of Financial Protection and Innovation.
“For this review to have any credibility at all, Chair Powell has to recuse himself,” said Warren. “He is the one who not only presided over the Fed, who not only came to Congress and answered questions from me and from others about this de-regulatory move, but actually led it.”
Warren Added:
“It’s important that while we’re examining what went wrong, that Chair Powell take a step back and let Michael Barr […] conduct an independent investigation.”
Barr announced he would be leading a review of the Fed’s supervision and regulation of Silicon Valley Bank, to be released on May 1. The U.S. Department of Justice and the U.S. Securities and Exchange Commission have also reportedly announced their own probes related to some of the bank’s executives selling stock in the weeks leading up to the closure.
While the collapse of three major banks have had different causes not necessarily related to crypto, digital assets seem to be taking some of the blame in the media and among certain government officials.
On March 8, Silvergate Bank’s parent company said it would voluntarily close down the crypto bank, saying its plan included “full repayment of all deposits.” Silicon Valley Bank shuttered following a run from firms with roughly $40 billion in assets, but the U.S. government stepped in to announce most uninsured depositors would be made whole.
To many, Signature Bank stands out as an aberration among these failures, as it closed following actions from the New York Department of Financial Services claiming “to protect the U.S. economy by strengthening public confidence” in the banking system.
Signature board member Barney Frank suggested government officials were attempting to send a “strong anti-crypto message,” while the NYDFS reportedly said the bank had failed to provide “reliable and consistent data” to the regulator.
Anti-Crypto US Senator Elizabeth Warren Had Close Ties With Sam Bankman-Fried
Bankman-Fried’s father Joseph Bankman endorsed a tax-related bill proposed by crypto critic Senator Elizabeth Warren in 2016.
In the wake of the recent FTX collapse, Stacks co-founder Peter Shea has pulled back the curtains on a messy web of Sam Bankman-Fried’s myriad romantic and political relationships, including US Senator Elizabeth Warren.
In a Twitter thread, Shea revealed that Bankman-Fried’s parents, Stanford law professors, had long been associated with anti-crypto Senator Elizabeth Warren’s Democratic party. Warren is arguably one of the most vocal crypto opponents on Capitol Hill.
SBF And Parents Linked To Democrats
According to Shea, Bankman-Fried’s father, Joe Bankman, endorsed a tax bill introduced by Senator Elizabeth Warren in Apr. 2016. His mother, Barbara Fried, is in charge of a political action committee that helps secure Democratic funding from Silicon Valley companies.
This Is Crazy:
— Ryan Shea (@ryaneshea) November 15, 2022
Shea points out the irony in Warren’s response to the FTX collapse, with the Massachusetts senator generalizing that the crypto industry needs “more aggressive” enforcement and “stronger rules,” while failing to mention Bankman-Fried’s $39 million donation to her political party for the U.S. midterm elections.
The collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors. We need more aggressive enforcement and I’m going to keep pushing @SECGov to enforce the law to protect consumers and financial stability.
— Elizabeth Warren (@SenWarren) November 10, 2022
The implosion of FTX must be a wake up call for Congress and financial regulators to hold this industry and its executives accountable.
Too much of the crypto industry is smoke and mirrors. It’s time for stronger rules and stronger enforcement to protect ordinary people.
— Elizabeth Warren (@SenWarren) November 11, 2022
Updated: 3-16-2023
Credit Suisse Will Borrow Up To $53.7 Billion
Option to raise funds from Swiss central bank aims to strengthen liquidity.
Credit Suisse Group AG, the Swiss bank whose shares tumbled Wednesday as fears about the health of global banks jumped the Atlantic Ocean, said it would exercise its option to raise as much as 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss National Bank in a bid to stanch liquidity concerns.
The firm, based in Zurich, called the decision a “decisive action to pre-emptively strengthen its liquidity.”
Credit Suisse added that the move “would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs.”
European stock markets opened in positive territory early Thursday. The Stoxx Europe 600 index, a regional benchmark, rose more than 1%. An index of bank stocks rose 3%.
Credit Suisse bonds shot up in value, though they didn’t regain all the lost ground from the previous day’s plunge.
Credit Suisse also said it would buy back some debt securities in a bid to reduce interest expense and take advantage of the depressed prices of many of its bonds.
The firm said tender offers would cover 10 senior U.S. dollar bonds worth $2.5 billion and four senior euro bonds worth 500 million euros, or about $529 million.
The firm billed the borrowing and debt tenders as “ decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders.”
The firm’s market meltdown Wednesday prompted European Central Bank officials to call banks it supervises to ask about their exposure to the bank, The Wall Street Journal reported.
Investor fears about contagion drove a market rout that wiped out nearly $75 billion in the value of European bank stocks, according to an analysis by Dow Jones Market Data.
CEO Ulrich Koerner said Wednesday night, “My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.”
Seeking to set itself apart from SVB Financial Corp., the parent of Silicon Valley Bank, which failed last week following the flight of a quarter of its deposit base in a single day, Credit Suisse said it “is conservatively positioned against interest rate risks.”
Unlike SVB, which held a large, largely unhedged portfolio of long-term bonds whose market value was decimated by rising interest rates, Credit Suisse said its “volume of duration fixed income securities is not material” relative to its holdings of high-quality liquid assets such as Treasurys and German bunds.
The bank said it “is fully hedged for moves in interest rates.”
Fears of deposit flight continue to vex U.S. regional banks, many of whose shares declined again Wednesday.
Here’s Why A Failure Of Credit Suisse Would Matter To U.S. Investors
Thousands of miles away from U.S. shores early Wednesday, a headline began working its way across Europe, then Wall Street, sparking fresh panic as it dawned on investors they may be facing yet another banking crisis.
In Zurich, shares of Credit Suisse CS CH:CSGN tumbled more than 20% at one point to a new record under €2 after the chairman of top shareholder, the Saudi National Bank, said they won’t invest any more in the bank.
His comment sparked a sell off, spreading from European banks to U.S. stock index futures, leaving the Dow industrials DJIA down over 500 points early Wednesday, though it recouped some of that.
The selling appeared to mark the end of a brief respite for markets following days of stress in the U.S. banking sector, triggered by the collapse of Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank, all within the space of a week.
By Thursday, Credit Suisse shares were rebounding after the lender said it would borrow up to $54 billion from the Swiss central bank, calling it “decisive action” to calm investors.
That’s as the head of the Saudi National Bank, Chairman Ammar Al Khudairy, was walking back his comments, telling CNBC on Thursday that it was all just “a little bit of panic.”
And for U.S. investors who have had quite enough anxiety lately, a logical question would be to ask how a meltdown for a Swiss bank could damage their portfolios?
“I don’t think there are any direct consequences for U.S. investors, but it’s extremely negative for sentiment if a major Swiss bank fails, hot on the heels of SVB/SBNY,” Simone Ree, the founder of Tao of Trading options academy school and author of the book by the same name, told MarketWatch.
“The market will be (temporarily) wondering who’s next. It could start to have the optics of a global banking crisis, rather than an idiosyncratic failure of a niche US regional bank,” said Ree.
The Stoxx Europe 600 banking sector XX:SX7P bounced around on Thursday, following a 7% slump the prior session that hit Swiss, Spain and Italian markets fairly hard.
Among U.S.-listed banking shares, Credit Suisse stock CS was up 5%, but Deutsche Bank DB was down 3%.
The Swiss banks troubles amid a revamp and five straight money-losing quarters, after a painful legacy that includes billions worth of exposure to the collapsed Archegos family office and $10 billion worth of funds tied to Greensil Capital it had to freeze.
“The SNB and the Swiss government are fully aware that the failure of Credit Suisse or even any losses by deposit holders would destroy Switzerland’s reputation as a financial center,” said Otavio Marenzi, CEO of Opimas, a management consulting firm focused on global capital markets, in a note to client on Wednesday.
The plummeting stock price and soaring bond yields was “mimicking Silicon Valley Bank’s recent collapse in a frightening way. In terms of the outflow of deposits, Credit Suisse’s position looks even worse,” said Marenzi.
One-year senior credit-default swaps on Credit Suisse, basically the cost of insuring the bank against near term default, surged hundreds of points to an almost unheard of 1,200 basis points on Wednesday, Bloomberg reported, citing sources.
Those swaps were a massive issue during the 2008 great financial crisis. By Thursday, they had cooled, but remain elevated, Bloomberg said.
Over There?
Stephen Innes, managing partner at SPI Asset Management, told MarketWatch, that U.S. investors need to be watching the situation carefully.
If “SVB elicited the kind of reaction in the markets it did, CS has a much bigger footprint in global markets; hence I don’t think this a something investors could ringfence,” Innes said.
The bank could be “forced to sell down more securities to cover a likely run on large institutional deposits in light of what is going on in broader markets,” he said, adding that gold may be looking like a better hedge right now.
And following days of stress for markets, the European Central Bank pulled the trigger Thursday on a 50 basis point hike, after warning that “inflation is projected to remain too high for too long.” The decision weighed on U.S. stocks.
Investor interest in Europe stocks could take a hit from Credit Suisse concerns. In a rare outperformance, the Stoxx Europe 600 index XX:SXXP is up nearly 3% year to date, versus the S&P 500’s SPX 1.5% rise.
Some point to better economic data in Europe, easing energy prices, and the region’s higher gearing to China.
“There are times to add risk and times to manage risk. Today is a time to manage risk. I’m very content to be patient and watch how things evolve,” said Tao of Trading’s Ree.
“The SVB failure highlights the potential for other skeletons to be hidden in closets and the market will spend the next few weeks/months hunting them out.
Even just the extreme volatility we’ve seen on bond markets the last 5 days renders any attempt to ascribe a value to other asset classes redundant,” he said.
His view is shared by many analysts, who in part point to increasing uncertainty around how the Federal Reserve will react going forward as it tries to balance market and economic risks. Some now see full percentage rate cuts by year-end, amid banking stress.
Samantha LaDuc, the founder of LaDucTrading.com who specializes in timing major market inflections, said she stands by her advice (that she shared with MarketWatch in February) that investors are being “paid to wait,”by staying in cash.
“I have been literally recommending and tweeting to clients that we are PAID TO WAIT in T-bills at 5% until [the] bond market can figure out if we have recession or not. All that happened last week pulled forward recession risk,” she told MarketWatch.
Prior to the SVB crisis, she had been recommending clients short reflation trades, such as banks XLF KRE, energy XLE and metals and mining XME COPX SLX, and has been saying she sees “unattractive risk-reward for either stocks or bonds.”
Jane Foley, senior FX strategist at RaboBank said investors need to watch Credit Suisse share prices and large shareholder reaction in coming days.
“Various commentators are fearful that the support offer to Credit Suisse by the central bank may be little more than a sticking plaster and that further remedial action will need to be taken,” she said.
Opimas’ Marenzi said the threat to Wall Street from Credit Suisse was simple:
“You mean what do American investors who do not own any non-American stocks and do not own a passport and could not find Switzerland on a map and who think that anyone who speaks any language other than English is a bit weird have to worry about? Not a lot, other than the contagion spreading back into the US banking system and causing a meltdown,” he told MarketWatch.
Updated: 3-19-2023
US Banks On Bumpy Path As First Republic’s Troubles Persist
* The Future Of SVB, First Republic Remains Up In The Air
* FDIC Got A Deal For One Failed Lender: Signature Bank
Just weeks ago, they were bit players in the giant US banking system. Now, a handful of regional lenders are at the heart of a crisis that’s shaken the country and engaged the likes of Warren Buffett and Jamie Dimon.
At the last tally in the rapidly evolving turmoil, one of the two collapsed lenders remained for sale while the fate of a third bank looked increasingly bleak.
Billionaire investor Buffett was in touch with the Biden administration about potentially providing aid, while smaller banks and lawmakers demanded that the government offer more protection for customer deposits.
The continued upheaval — despite regulators’ efforts to contain it — came amid another wrenching moment in banking: UBS Group AG agreed buy Credit Suisse Group AG after a crisis of confidence at the stricken lender. While that deal ends a week of intense speculation over the Swiss bank’s fate, the prospects for America’s regional banks remain uncertain.
Updated: 3-20-2023
The 11 Days of Turmoil That Brought Down Four Banks And Left A Fifth Teetering
The speed with which four banks collapsed — and one continues to struggle — has left investors reeling. While the failures came in the span of just 11 days, the scenarios that brought them down were each unique.
Here’s how the companies’ turmoil played out, and how regulators responded, amid concern the crisis might still spread:
Silvergate
Silvergate Capital Corp. was the first US bank to collapse, done in by its exposure to the crypto industry’s meltdown. With authorization from the Federal Reserve, the Federal Deposit Insurance Corp. had tried to step in, discussing with management ways to avoid a shutdown.
But the La Jolla, California-based company couldn’t recover amid scrutiny from regulators and a criminal investigation by the Justice Department’s fraud unit into dealings with Sam Bankman-Fried’s fallen crypto giants FTX and Alameda Research.
Though no wrongdoing was asserted, Silvergate’s woes deepened as the bank sold off assets at a loss to cover withdrawals by its spooked customers. It announced plans on March 8 to wind down its operations and liquidate its bank.
Silicon Valley Bank
With Silvergate’s obituary mostly written, investors and depositors in SVB Financial Group’s Silicon Valley Bank were already on edge when the company on March 8 announced a plan to sell $2.25 billion of shares — as well as significant losses on its investment portfolio.
Shares of the company sank 60% the next day on the news, and it collapsed into FDIC receivership the following day. US regulators moved toward a breakup of the bank when they failed to line up a suitable buyer.
But more hopeful news emerged on Monday, when the FDIC extended the bidding process after receiving “substantial interest” from multiple potential buyers.
First Citizens BancShares Inc., one of the biggest buyers of failed US lenders, is still hoping to strike a deal for all of Silicon Valley Bank, Bloomberg News reported Monday, citing people familiar with the matter.
Signature Bank
Signature Bank became the third-largest bank failure in US history on March 12, following a surge in customer withdrawals that totaled about 20% of the company’s deposits.
Silvergate’s implosion four days earlier had left clients skittish about keeping their deposits at Signature Bank, despite its much smaller exposure to crypto.
Federal regulators said they lost faith in the company’s leadership, and they swept the bank into receivership. Both insured and uninsured customers were given access to all their deposits, under a provision regulators tapped known as the “systemic risk exemption.”
Signature Bank’s deposits and some of its loans were taken over by New York Community Bancorp’s Flagstar Bank late Sunday. The acquirer agreed to purchase $38 billion of assets, including $25 billion in cash and about $13 billion in loans, from the FDIC.
It also assumed liabilities of about $36 billion, including $34 billion in deposits. Signature’s branches will now operate as Flagstar locations.
Credit Suisse
Credit Suisse Group AG fell Sunday when Swiss officials brokered a deal with UBS Group AG for a 3 billion-franc ($3.2 billion) acquisition aimed at avoiding a broader financial crisis. The only other option under consideration was full or partial nationalization.
The end of the 166-year-old Swiss institution followed Chief Executive Officer Ulrich Koerner’s attempt to save the bank with a massive outreach to clients, who had pulled an unprecedented amount of funds from the bank last year.
The attempt ultimately wasn’t enough to counter multiple scandals and multibillion-dollar losses on Credit Suisse’s dealings with disgraced financier Lex Greensill and failed investment firm Archegos Capital Management.
On March 9, the US Securities and Exchange Commission queried the bank’s annual report, forcing it to delay its publication. Panic spread after the failure of US regional lenders, and the chairman of the bank’s largest shareholder, Saudi National Bank, ruled out investing any more in the company.
First Republic
First Republic Bank has fallen victim to the same customer flight that ultimately sank three of its US rivals, with one estimate of potential deposit outflows pegging the figure at $89 billion.
Eleven US lenders tried to prop up First Republic Bank with a $30 billion cash infusion last week. But the San Francisco-based company, which caters to the personal-banking needs of tech’s elite and other wealthy individuals, has nonetheless dropped to an all-time low amid multiple credit-rating downgrades.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon has hatched a new plan to aid First Republic that would convert some or all of the 11 banks’ $30 billion deposit injection into a capital infusion, Bloomberg reported Monday, citing people familiar with the situation.
Updated: 3-21-2023
Yellen Defends Government Intervention To Avoid Another SVB
The U.S. Treasury Secretary Janet Yellen said the federal government would intervene if necessary to protect other small lenders.
Nearly two weeks after three United States banks collapsed — Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank — U.S. Treasury Secretary Janet Yellen said the federal government is ready to take action if needed.
According to a Bloomberg report of excerpts from a speech Yellen will give on Tuesday at the American Bankers Association in Washington D.C., the Treasury Secretary said:
“Our intervention was necessary to protect the broader US banking system, and similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
Yellen is set to defend recent measures taken by the government to defend the banks and the greater economic impact of the situation, calling the government actions “decisive and forceful actions.”
Additionally, Yellen said the government intervention helped to maintain the “important role” of small and mid-size lenders in the U.S. economy.
“The Treasury is committed to ensuring the ongoing health and competitiveness of our vibrant community and regional banking institutions.”
U.S. regulators began swiftly working on a plan following the banking crisis, during which Yellen initially said no bailout would be necessary. Instead, the regulators guaranteed insured and uninsured deposits at both SVB and Signature. The U.S. Federal Reserve also launched a new way to help lenders cover withdrawals.
A meeting has been announced by Congress, scheduled for March 29, which will delve into the failures of SVB and Signature Bank.
U.S. President Joe Biden said he is “firmly committed” to holding whoever was responsible for the recent collapses accountable. Biden also stated that shielding depositors involved with SBV and Signature will be at “no cost to the taxpayer.“
The Department of Justice and the Securities and Exchange Commission have both reportedly opened inquiries into the incident. Meanwhile, economists have analyzed that over 186 banks in the U.S. are well-positioned for collapse.
US Exploring Ways To Guarantee The Country’s 18T Of Bank Deposits: Report
The current deposit insurance cap under the FDIC is $250,000, but recent banking collapses have seen calls to increase that amount.
U.S. officials are reportedly studying ways to expand the current scope of deposit insurance that would guarantee all U.S. bank deposits should the current banking crisis worsen.
The current deposit insurance cap under the Federal Deposit Insurance Corporation stands at $250,000, however, following the collapse of several banks in March, there have been calls to increase that amount.
Organizations such as the Mid-Size Bank Coalition of America called on March 18 for the cap to be lifted for the next two years, citing a need to protect depositors and to stop capital being pulled from smaller banks for supposedly safer-looking heavyweights.
According to a March 21 Bloomberg report citing “people with knowledge of the talks,” Treasury Department staff members are currently discussing the possibility of the FDIC being able to expand the current deposit insurance beyond the max cap to cover all deposits.
According to the FDIC, domestic U.S. bank deposits totaled $17.7 trillion as of December 31.
After some intense “studying” they realised that they needed $17 trillion to guarantee all bank deposits. pic.twitter.com/Z15HLiBp23
— Coin Bureau (@coinbureau) March 21, 2023
The move would ultimately hinge on what level of emergency authority federal regulators have and if the insurance cap can be increased without formal consent from Congress.
Bloomberg’s sources indicated, however, that U.S. authorities don’t deem such a drastic move necessary at the moment, as recent steps taken by financial regulators are likely to be sufficient.
As such, they stated that a potential strategy is being whipped up just in case the current situation gets worse.
The US Govt says it studies ways to guarantee all bank deposits if the banking crisis grows.
They say that because they know that the banking crisis will grow?
They don’t have the $18 trillion required to protect depositors.#RunOnTheBank while you can.
Gold, Silver, Crypto.— Kim Dotcom (@KimDotcom) March 21, 2023
In response to Silvergate, Signature Bank and Silicon Valley Bank going bust in recent weeks, the Federal Reserve rolled out the $25 billion Bank Term Funding Program (BTFP) on March 13, as the government pushed to stem any further contagion.
Meanwhile, in a March 20 press briefing, White House Press Secretary Karine Jean-Pierre was specifically asked if the federal government was supportive of a push from small- and mid-size banks to expand FDIC insurance beyond $250,000.
But Jean-Pierrre was tight-lipped on the Biden Administration’s view, saying on that “our goal is to ensure the financial system is stable” and emphasizing that creating a fair playing field was the “focus of Treasury and the bank regulators.”
“And as you saw, due to our actions this week at the direction of the President, Americans should be confident of their deposits. We’ll be there when they — when they need them.”
“And — and so, again, that’s what our focus is going to be. We don’t have any new announcements at this time. But clearly, we want to make sure that our financial system is stable,” she added.
Updated: 3-22-2023
Could The US Really Guarantee All Bank Deposits?
A once-unthinkable measure is being floated in Washington’s corridors of power as a possible way to ease the strains suddenly bearing down on small and regional US banks. Normally, the Federal Deposit Insurance Corp. guarantees bank deposits up to $250,000, a limit high enough to make most bank customers sleep easily at night. But recent stresses in the banking industry have put a temporary increase of the cap, or scrapping it, on the table.
1. Why Is There A Limit On Insured Deposits?
The goal of federal insurance is to boost confidence in the US banking system without guaranteeing every penny deposited in banks — almost $18 trillion currently. First implemented in 1934 in response to a bank panic the year prior, federal deposit insurance began with a cap of $2,500, equivalent to about $56,00O today. It was “an immediate success in restoring public confidence and stability to the banking system,” according to the FDIC. The cap on insured deposits has been raised seven times, most recently in 2008 to its current $250,000.
2. Why Is There Talk Of Raising The Limit?
A pair of bank failures, including the largest in more than a decade, served as frightening reminders to wealthy Americans and small businesses that their uninsured deposits — those over $250,000 in any single account — could be vulnerable. As they moved money to larger banks that seemed more stable, the withdrawals from smaller regional lenders increased the pressure on them — a vicious circle. Raising the limit could reassure customers at small banks that their money is safe, breaking that cycle. Among those advocating for the move is Elon Musk, the richest American and the chief executive officer of Twitter Inc. and Tesla Inc., who said increasing the limit was “absolutely required” to stop bank runs.
3. Who Has The Power To Raise Or Scrap The Limit?
Normally, increasing the FDIC’s insurance limit requires Congress to sign off, a sizable hurdle in an era of deep political divides. But authorities have been discussing a legal framework they could use to temporarily expand FDIC insurance in an emergency, according to people with knowledge of the talks. It would use the Treasury Department’s authority to take emergency action and lean on its Exchange Stabilization Fund, which is typically used to buy and sell currencies but has also backstopped emergency lending facilities in recent years. “I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits,” the Treasury secretary, Janet Yellen, told lawmakers on March 22. At another congressional hearing a day later, again addressing the topic of the safety of Americans’ deposits, she said, “Certainly, we would be prepared to take additional actions if warranted.”
4. What Are The Chances Of This Happening?
At the moment, even those brainstorming this scenario have no intention of carrying it out, the people familiar with officials’ thinking said. But they want a plan in place in case the situation worsens. Some US lawmakers such as Senator Sherrod Brown, the Democrat who chairs the Senate Banking Committee, see a window for bipartisan cooperation on FDIC changes. Those could include eliminating the cap permanently or temporarily and creating a different insurance category for businesses. But any legislative effort would face a steep uphill battle in a divided, factious Congress.
5. How Much Insurance Would Be Needed To Guarantee All US Deposits?
It doesn’t take $18 trillion to insure $18 trillion in deposits. Banks typically have far more assets than deposits; if an institution fails, the assets are sold off to cover payouts to depositors. Sometimes the assets don’t generate enough cash in a quick sale, leaving a shortfall, which is where the FDIC’s insurance comes in. As of the end of 2022, the FDIC had just over $128 billion in its Deposit Insurance Fund, backing more than $10 trillion in insured deposits.The Deposit Insurance Fund is funded two ways: through premiums charged to the insured banks, and through interest earned on funds invested in US government securities.
6. Who’s Opposed To The Idea?
Some conservative lawmakers have come out staunchly against any increase in FDIC insurance, with the hardline House Freedom Caucus saying it would oppose any universal guarantee of bank deposits above $250,000 and with Senator Josh Hawley, Republican of Missouri, warning against bypassing Congress to enact what he considers a bailout. Other Republicans in the Senate, though, have indicated an openness to the idea — while their progressive Democratic colleagues want to tie action on deposit insurance to stiffer regulations for banks.
Citi CEO Fraser Warns Mobile Money is ‘Game Changer’ For Bank Runs
* ‘A Couple Of Tweets’ And A Quick End To Silicon Valley Bank
* Fraser Says Only A Few Banks Are Hurting, Sees No Wider Crisis
Citigroup Inc. Chief Executive Officer Jane Fraser said mobile apps and consumers’ ability to move millions of dollars with a few clicks of a button mark a sea change for how bankers manage and regulators respond to the risk of bank runs.
Fraser said the fast demise of Silicon Valley Bank also made it difficult for banks to assess and prepare bids for its assets.
Speaking just two weeks after the California-based lender collapsed under the weight of tens of billions of withdrawals by its venture capital clients, Fraser said her firm hopes a buyer will emerge in the coming days.
“It’s a complete game changer from what we’ve seen before,” Fraser said Wednesday in an interview with Carlyle Group Inc. co-founder David Rubenstein at an Economic Club of Washington event. “There were a couple of Tweets and then this thing went down much faster than has happened in history. And frankly I think the regulators did a good job in responding very quickly because normally you have longer to respond to this.”
In the space of just 11 days this month, four banks collapsed, including three regional US lenders and the Swiss financial giant Credit Suisse Group AG. A fifth firm — First Republic Bank — is teetering. Amid the turmoil in global financial markets, stocks have careened wildly and investors have lost billions of dollars.
Citigroup was among 11 banks that joined to provide $30 billion in deposits last week to First Republic, in an effort to shore up the San Francisco-based lender beset by client withdrawals and credit-rating downgrades. Wall Street leaders and US officials are searching for a rescue plan, and are exploring the possibility of government backing to make the firm more attractive to investors or a buyer.
Citigroup isn’t interested in making a bid for First Republic, Fraser said. She declined to comment on the lender’s current state, though she said the company is “actively working through the challenges that they’re facing right now.”
Fraser stressed that the string of bank failures was isolated, noting the biggest US banks remain well capitalized.
“We’re talking about a few banks,” Fraser said. “This is not something that is spread across the entire banking system. This isn’t like it was last time. This is not a credit crisis. This is a situation where a few banks have some problems and it’s better to make sure we nip that in the bud.”
Banks Are Still Drawing On The Fed For $164 Billion of Emergency Cash
* Loans To The Fed’s Discount Window Fell To $110.2 Billion
* Borrowing From Fed’s New Lending Progam Rose To $53.7 Billion
Banks reduced their borrowings only slightly from two Federal Reserve backstop facilities in the most recent week, a sign that institutions are taking advantage of the central bank’s liquidity in the wake of turmoil.
US institutions had a combined $163.9 billion in outstanding borrowings in the week through March 22, compared with $164.8 billion the previous week, according to Fed data Thursday.
Data showed $110.2 billion in borrowing from the Fed’s traditional backstop lending program known as the discount window compared with a record $152.9 billion in outstanding credit the previous week. The loans can be extended for up to 90 days and the window accepts a broad range of collateral.
Outstanding borrowings from the Bank Term Funding Program stood at $53.7 billion, compared with $11.9 billion the previous week. The BTFP was opened March 12 after the Fed declared emergency conditions following the collapse of California’s Silicon Valley Bank and New York’s Signature Bank.
Credit can be extended one year under the program and collateral guidelines are tighter.
Fed loans to bridge banks established by the Federal Deposit Insurance Corp. to resolve SVB and Signature Bank rose to $179.8 billion from $142.8 billion the previous week.
“There’s nothing here, which suggests things aren’t spreading,” said Blake Gwin, head of US interest rates strategy at RBC Capital Markets.
Funding markets had been showing signs of stress, though pressures have subsided with the take-up of emergency measures.
That included huge shifts in rates of short-dated securities and some other moderate dislocations in the instruments where banks and others ordinarily go for their short-term money.
Repurchase agreement rates were elevated for a number of days, cross-currency basis swaps have whipsawed and the gap between direct floating-rate agreements and index-tied ones — often used as a measure of the difficulty banks have in getting access to funds — also swelled.
Still, there’s concerns as to whether deposits will continue fleeing banks for other places in the financial system. Money market funds have been scooping up cash recently, fueled in large part by depositors pulling their money away from US banks.
The amount of money parked at money-market funds climbed to a fresh record in the week through March 22 as banking concerns continued to rock global markets.
Initially much of that flow was driven by more attractive rates, but concern about the steadiness of some smaller lenders helped boost the trend this month.
Major central banks also tapped swap lines with their US counterpart for just $590.5 million in the past week even after officials moved to make the facilities available daily in light of global banking concerns.
For the first time since November, banks tapped the Fed’s foreign repurchase agreement facility for $60 billion. That’s equivalent to the per counterparty limit for participants.
Fed Chair Jerome Powell and his colleagues raised the benchmark lending rate a quarter point Wednesday to a target range 4.75% to 5%. When asked if this would exacerbate problems in the banking system, Powell said he was indeed trying to tighten borrowing costs for the economy while keeping backstop liquidity abundantly available for banks.
“When we think about the situation with the banks, we’re focused on our financial stability tools in particular our lending facilities,” he said.
Updated: 3-23-2023
Yellen Says US Prepared For Additional Deposit Actions If Needed
* Regulators Under Scrutiny For Handling Of Recent Bank Failures
* Yellen Appears At House Panel After Senate Hearing Wednesday
Treasury Secretary Janet Yellen told US lawmakers that regulators would be prepared for further steps to protect the banking system if warranted, a day after her remarks on nationwide deposit insurance rattled markets.
Her reassurance came at the top of a hearing Thursday, before a subcommittee of the House Appropriations Committee, when she read prepared remarks that were almost identical to what she delivered a day before in the Senate, but added: “Certainly, we would be prepared to take additional actions if warranted.”
That appeared aimed at avoiding a repeat of the market volatility when she said Wednesday that Treasury officials had neither considered nor examined the possibility of expanding federal insurance temporarily to all US bank deposits without congressional approval.
Yellen’s fresh comments come amid close scrutiny of how regulators have responded to series of bank failures and rising concerns about the stability of financial system.
She and Federal Reserve Chairman Jerome Powell have said since the collapse of Silicon Valley Bank earlier this month that regulations need to be strengthened, while stressing the banking system is sound.
While policymakers are still on watch for signs of banking instability, the issue didn’t appear to be a top agenda item for the House subcommittee members on Thursday, who only briefly touched on the topic while spending most of the hearing asking Yellen, and White House Budget Director Shalanda Young, about the deficit and debt ceiling.
Investors had been looking for clarity on the readiness of regulators to backstop bank deposits after sudden outflows contributed to the collapse of multiple US regional lenders this month.
The KBW Bank Index on Thursday ended down 1.7% after fluctuating when Yellen’s prepared remarks were released.
Seeking Clarity
The day before, Yellen had said that to guarantee all deposits nationwide would require legislation, although regulators were prepared to repeat — on a case-by-case basis — depositor rescues if an individual bank failure threatened to provoke a wider contagion of bank runs.
According to Andy Laperriere — head of US policy for investment bank Piper Sandler & Co. and a former adviser to ex-House Republican leader Dick Armey — only Congress can alter the Federal Deposit Insurance Corp.’s current $250,000 cap on deposit insurance.
On Tuesday, speaking to the American Bankers Association, Yellen had said regulators stood ready to repeat the steps they took earlier this month when California’s SVB and New York’s Signature Bank shut their doors in the face of overwhelming depositor runs.
In those cases, to prevent contagion, the FDIC invoked the so-called systemic-risk exception to guarantee all deposits at those banks.
Treasury officials have been reviewing whether regulators could expand federal insurance temporarily to all US bank deposits, Bloomberg News reported earlier this week. That had encouraged some observers to think the government may make it a sweeping shift in policy.
Updated: 3-24-2023
Companies Big And Small Lose Access To Credit Amid Bank Stress
Treasury market volatility keeps companies on sidelines during normally busy time for corporate debt financings.
The capital markets have been on ice since the collapse of Silicon Valley Bank two weeks ago.
No companies with investment-grade credit ratings sold new bonds over the seven business days from March 9 through March 17, the first week in March without a new high-grade bond sale since 2013, according to PitchBook LCD.
The market for new junk-bond sales has largely stalled this month, and no companies have gone public on the New York Stock Exchange in more than two weeks.
March is typically busy for new corporate debt financings: Companies look to secure financing before the blackout period between the end of the first quarter and the kickoff of earnings season, when they typically refrain from bond sales.
Lately, a lack of investor confidence and wild swings in the Treasurys market have kept companies on the sidelines.
Those with the highest ratings have sold $59.9 billion in new bonds this month, compared with March’s five-year average of $179 billion.
The riskier corporations that borrow by issuing higher-yielding junk bonds and leveraged loans are finding it even harder to sell new debt. Companies have raised some $5 billion of junk bonds this month versus the five-year average of $24 billion.
Although the market for investment-grade offerings thawed in recent days with nearly a dozen deals from utilities, insurers and other companies, the lull in activity among the largest, safest corporate borrowers suggests there could be further pain ahead.
Companies from mom-and-pop operations to multinationals will find it harder to access credit in the wake of sudden stress in the global banking system, analysts say.
“Ultimately, financial conditions will tighten further, either via additional central-bank tightening as they try to tame inflation or via a deterioration in the current banking crisis,” said Seema Shah, chief global strategist at Principal Asset Management.
The March 10 collapse of Silicon Valley Bank upended capital markets, reducing the risk appetite of the asset managers and pension funds that lend to companies by buying their bonds. Extreme stress in the Treasury market further complicated borrowing plans.
Liquidity—the capacity to trade quickly at quoted prices—fell sharply, and government bond yields saw their biggest single-day moves in years.
Corporate bond borrowing rates are determined by adding a risk premium to the Treasury yield, or risk-free rate. If Treasury yields are moving much more than normal, a company that launches a bond sale in the morning expecting to pay one rate could find the market has changed rapidly by the time the deal is priced in the afternoon.
That uncertainty over interest costs, a major expense for some companies, can keep them out of the bond market when volatility is high.
The Federal Reserve is watching lending conditions closely and announced another quarter-percentage-point rate increase Wednesday to fight inflation.
Fed Chair Jerome Powell said that if recent bank stress makes it harder to borrow, the economy will slow and the Fed may not have to tighten policy as much.
“It’s possible that [bank stress] will contribute to significant tightening in credit conditions over time, and in principle that means monetary policy will have less work to do,” Mr. Powell said in a news conference.
Already, the Fed’s rapid campaign of rate increases has made it much more expensive to borrow, and inflicted particular pain on companies that borrow by issuing leveraged loans, a type of syndicated loan with a floating interest rate used by companies with poor credit ratings.
John McClain, a fixed-income portfolio manager at Brandywine Global Investment Management, said the biggest risks lie in the leveraged-loan market. Roughly $300 billion in loans are coming due over the next three years, according to PitchBook LCD, and refinancing will be difficult.
“It’s going to be a triple whammy for the leveraged-loan space. Companies’ interest costs go up, the economy is ticking down so their earnings are going down, and the main buyer in that space, CLOs, may or may not be around,” said Mr. McClain, referring to the collateralized loan obligations that are a major source of demand for risky company loans.
Small businesses that rely on bank loans for capital expenditures are also facing a new reality, analysts say. Easy lending standards since the Fed cut rates to near-zero at the start of the pandemic in 2020 helped fuel a boom in small-business activity that has largely continued, despite now higher interest rates.
As the regional banks that have come under pressure in recent weeks adjust lending standards, some of their small-business clients may find they are offered loans under stricter terms, in smaller amounts, or not at all.
Many regional banks have also faced significant deposit flights in recent days, meaning they have less capital available to lend in the first place.
Even though small-business owners are now paying more for short-term loans—about 8% interest on average, compared with 4% in 2020, according to National Federation of Independent Business survey data—they have generally accessed credit with ease.
In the February NFIB small-business economic trends survey, just 3% of small-business owners said their borrowing needs weren’t satisfied. That figure topped 11% in 2010 during the global financial crisis.
“From the small firms’ point of view, credit has been pretty friendly,” said Bill Dunkelberg, NFIB chief economist. “But they don’t like the increase in rates. And we haven’t had time yet for the regional banks and little community banks to adjust their policies.”
Analysts are rushing to quantify the potential impact on the U.S. economy.
In the base case for Goldman Sachs Group Inc., tighter lending standards will subtract one-quarter to one-half of a percentage point from U.S. GDP growth in 2023, equivalent to the impact of Fed rate increases of the same size, according to Jan Hatzius, the bank’s chief economist.
“The risks are tilted toward a larger effect and the uncertainty will likely linger for a while,” Mr. Hatzius wrote in a research note.
Deutsche Bank Stock Tumbles on Contagion Fears
Concern over Germany’s leading lender emerges days after Credit Suisse was forced into a takeover.
Investors sparked a selloff in Deutsche Bank and thrust one of Europe’s most important lenders into the center of concerns about the health of the global financial system.
Shares of Germany’s largest lender tumbled as much as 15%, their third consecutive day of losses, though they later regained some ground and were recently down 10%. The cost to insure against its default using credit-default swaps soared to their highest levels since 2020.
The concern over Deutsche Bank emerged days after Credit Suisse Group AG was forced into a takeover by its larger and more stable rival UBS Group AG. Since the collapse of Silicon Valley Bank in the U.S. earlier this month, investors have scoured the globe for institutions perceived as vulnerable.
“People want to avoid anything that could come under focus,” said Jon Jonsson, credit portfolio manager at Neuberger Berman.
Deutsche Bank sits at the heart of the German economy. Despite years of retrenchment to make the bank smaller and safer, it remains a globally vital bank, with a major footprint on Wall Street trading bonds, derivatives and currencies.
It serves multinational companies with bread-and-butter basics of lending, managing money and corporate accounts.
“Deutsche Bank has thoroughly modernized and reorganized its business model and it is a very profitable bank,” German Chancellor Olaf Scholz told reporters at an European Union summit in Brussels on Friday. “There is no reason whatsoever to be concerned.”
Some analysts and investors appeared perplexed that Deutsche Bank was taking the brunt of the market’s ire. Though it has long been considered one of Europe’s most problematic banks, an overhaul launched in 2019 stabilized its operations.
Unlike Credit Suisse, Deutsche Bank’s deposit base has remained steady in recent quarters. Last year was the Frankfurt-based bank’s most profitable since 2007.
“The market is on edge. It seems to just be looking for targets,” said Tatjana Greil Castro, portfolio manager at Muzinich & Co.
Shares of other European banks also fell Friday, but by less than Deutsche Bank. Shares of crosstown rival Commerzbank AG dropped 6.5%. Barclays PLC was down 5.8%, as was France’s most valuable bank, BNP Paribas SA.
One factor hammering Deutsche Bank: Mentions of the German bank have exploded on social media in recent days, a bout of activity reminiscent of the social-media frenzy that surrounded Credit Suisse last fall and which that bank’s executives said was partly to blame for its eventual demise.
Markets have reeled since the sudden collapse of Silicon Valley Bank, reminding investors how quickly confidence can erode in banks. SVB was an institution few had on their radar screens. It failed in a matter of days despite an investment-grade credit rating and a seemingly devoted base of customers and investors.
Signature Bank followed within days, and then a week later Credit Suisse was pushed into a deal after more than a century and a half of independence.
The terms of the UBS takeover of Credit Suisse engineered by Swiss regulators shook European banking markets this week, especially a provision to write down $17 billion of Credit Suisse bonds.
Known as additional tier one bonds or AT1s, these instruments are an important part of European bank capital, money regulators require them to raise to protect themselves from losses.
The price of AT1 bonds fell hard this week. The fewer investors are willing to pay for AT1 bonds and bank bonds in general, the higher the borrowing costs banks have to pay, squeezing their ability to turn a profit.
A Deutsche Bank AT1 bond issued in 2014 declined to 69 cents on the dollar on Friday from 95 cents at the start of the month, according to Tradeweb. Other bank AT1s also fell despite assurances from U.K. and European regulators about the importance of the capital instruments.
Deutsche Bank tried to ameliorate investor concerns over its debt on Friday by offering to redeem a separate type of subordinated bond, due in 2028. The offer promised to buy back the bonds at 100% of the principal, plus accrued interest, showing the bank has money to spare.
The price of those specific bonds jumped after the redemption offer. While that helped individual bondholders, it did little to assuage wider concerns.
Friday’s fall adds to the reversal in the shares from a huge upswing they and other European bank shares enjoyed to start the year. Rising interest rates in Europe and the U.S. promised fatter profits.
Deutsche Bank, like other European banks, suffered for years from Europe’s negative interest rates. When interest rates are near zero or negative, banks struggle to charge much more to lend than they pay on deposits, squeezing what is known in the industry as the net-interest margin.
Worries over the banks prompted investors Friday to dive into government bonds for safety, lowering yields, further suppressing the ability for banks to profit.
Deutsche Bank’s checkered past has long drawn skeptics. It paid regulatory fines for facilitating money laundering in Russia, for holding accounts for convicted sex offender Jeffrey Epstein and for weak internal controls.
Its asset-management arm, DWS, is under investigation in the U.S. for allegedly overstating sustainability claims over its investments.
Last year, it agreed to extend the term of an outside compliance monitor after Justice Department prosecutors found the bank violated a criminal settlement by not disclosing a complaint about how DWS managed its ESG, or environmental, social and governance investments.
Deutsche Bank was also a key lender to former President Donald Trump, and became ensnared in a long-running fight between the president and Congress over access to his tax returns.
But investors and regulators have by and large lauded Deutsche Bank’s turnaround under Chief Executive Officer Christian Sewing, who took over in 2018. He shrank Deutsche Bank’s investment-banking business in the U.S., cut costs and focused on serving Germany’s mighty companies.
Unlike Credit Suisse, Deutsche Bank is profitable and its big litigation woes are mostly behind it, analysts said. The German lender avoided losses on the meltdown of Archegos Capital Management in 2021, which spread $10 billion of losses across Wall Street, with Credit Suisse taking about half of the pain.
“Deutsche is NOT the next Credit Suisse,” said analysts at Autonomous Research, a unit of AllianceBernstein. They added that interest-rate risk in Deutsche Bank’s books, which sparked troubles in U.S. banks, is in line with European peers and well below the levels of some U.S. regional banks.
Updated: 3-16-2023
Eleven Banks Deposit $30 Billion In First Republic Bank
Regulators say move by JPMorgan and others demonstrates system’s resilience.
The biggest banks in the U.S. swooped in to rescue First Republic Bank with a flood of cash totaling $30 billion, in an effort to stop a spreading panic following a pair of recent bank failures.
The bank’s executives came together in recent days to formulate the plan, discussing it with Treasury Secretary Janet Yellen and other officials and regulators in Washington, D.C., people familiar with the matter said.
JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. are each making a $5 billion uninsured deposit into First Republic, the banks said in a statement, confirming an earlier report by The Wall Street Journal. Morgan Stanley and Goldman Sachs Group Inc. are kicking in $2.5 billion apiece, while five other banks are contributing $1 billion each.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the Treasury Department, Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency said in a joint statement.
Big banks received an influx of billions of deposits from midsize lenders including First Republic over the past week in the wake of the collapse of Silicon Valley Bank and Signature Bank. JPMorgan and the others are now effectively giving back some of the money they have raked in.
The deposits don’t carry any special deal and earn a rate in line with those of the bank’s other depositors, according to people familiar with the matter.
The cash infusion could solve First Republic’s immediate issues of a falling stock price and fleeing depositors. The bank will still have to grapple with a tougher business environment in a world of higher interest rates and depositors suddenly aware of the pitfalls of large uninsured balances.
Ms. Yellen sought to reassure jittery depositors in congressional testimony Thursday. “Americans can feel confident that their deposits will be there when they need them,” she said.
She spoke with JPMorgan Chief Executive Jamie Dimon on Tuesday, kicking off the effort to get funds to First Republic, according to a person familiar with the matter.
Ms. Yellen also spoke with other bank chief executives and met with Mr. Dimon in her office at the Treasury on Thursday afternoon, the person said.
The pact is an extraordinary effort to protect the entire banking system from widespread panic by turning First Republic into a firewall. After the failures of Silicon Valley Bank and Signature, fears had grown that First Republic could be next.
The jitters have spread around the world. Credit Suisse Group AG, beset by a series of missteps and customer departures, was forced to secure a $50 billion-plus lifeline Wednesday from its own central bank after the Swiss firm’s share price fell to record lows.
First Republic’s stock rose 10% on Thursday, reversing declines from earlier in the day on the news. The stock had been down more than 60% this week, while its market capitalization had fallen from $21 billion on March 8, when the SVB crisis began, to below $5 billion.
Silicon Valley Bank’s collapse last week sparked concern about other regional banks with large collections of uninsured deposits. First Republic catered to a similar Bay Area clientele as the failed bank.
Customers yanked billions of deposits out of First Republic, and the bank sought to stem the tide Sunday, announcing additional funding from the Fed and JPMorgan that gave the bank a total of $70 billion in available liquidity.
That funding included using the Fed’s discount window, a short-term borrowing program banks can use for quick funds, people familiar with the matter said. Banks have been wary of the stigma of tapping into the program, often dubbed the industry’s lender of last resort.
First Republic said Thursday that it had borrowed as much as $109 billion from the Fed one night within the past week. It said that insured deposits have remained stable over the past week and that deposit outflows have “slowed considerably.”
But S&P Global Ratings on Wednesday downgraded the bank’s bonds to junk status, and investors continued selling, adding more uncertainty.
The fast-moving situation is reminiscent of the drama in the banking system in the 2008 financial crisis, when Mr. Dimon played the role of white knight, purchasing Bear Stearns and then Washington Mutual.
Lawsuits, losses and political pressure followed. Mr. Dimon has said he would never do a government-led rescue deal again.
First Republic’s business and stock-market valuation were long the envy of the banking industry. Its customers are wealthy individuals and businesses, primarily on the coasts. Its lending business revolves around making huge mortgages to such clients as Mark Zuckerberg.
Few of those loans ever went bad. The bank had about $213 billion in assets and $176 billion in deposits as of the end of 2022.
Its profits rose in 2022, but the Fed’s aggressive rate increases took a toll. First Republic’s wealthy customers were no longer as content to leave huge sums of money in bank accounts that earned no interest.
The industry has tried to come together before in times of crises, but with mixed results. In 1998, the hedge fund Long-Term Capital Management suffered steep losses, and most of the biggest banks agreed to bail it out for fear of their own exposures.
In 2008, their chief executives tried a similar approach to bail out Lehman Brothers but failed to reach agreement.
They have also taken less dramatic steps to shore up confidence in the financial system. In early 2020, as the pandemic was gripping markets, the biggest banks announced they would all borrow from the Fed’s discount window.
They didn’t need the funds, but wanted to reduce the borrowing stigma.
The other banks contributing to the First Republic rescue package are U.S. Bancorp, PNC Financial Services Group Inc., Truist Financial Corp., Bank of New York Mellon Corp. and State Street Corp.
Updated: 3-24-2023
How Bank Oversight Failed: The Economy Changed, Regulators Didn’t
Overseers paid insufficient heed to risks of falling bond values and fleeing deposits. Social media and selling by smartphone made that worse.
On March 8, Silicon Valley Bank and Signature Bank were both, according to public disclosures, “well capitalized,” the optimal level of health by federal regulatory standards.
Days later, both failed.
“The question we were all asking ourselves over that first week was, ‘How did this happen?’” Federal Reserve Chair Jerome Powell said Wednesday.
Interviews with past and current regulators and examiners, bankers and people close to the failed banks point to a combination of fast shifts in the economy plus regulators who adjusted only slowly, if at all, to those changes.
Even when supervisors spotted problems, they didn’t move quickly or decisively enough to stop them from snowballing into a crisis.
As interest rates surged after years of quiescence, regulators didn’t fully anticipate the hit banks would take to the value of their bondholdings. The Fed as late as mid-2021 expected the era of ultralow rates to continue.
Not until late 2022, when rates had already risen substantially, did regulators warn SVB that its modeling of interest-rate risk was inadequate.
A second factor was failure to appreciate the danger in bank dependence on deposits above the $250,000 federal insurance limit. Banks had come to depend more on such deposits.
Regulators acknowledge they didn’t stress such a concern because the big deposits were from SVB’s and Signature’s core customers, who, it was thought, would stick around.
In fact, deposits fled far faster than had ever happened before, aided both by social media-fueled fear and by technology that allowed people to move vast sums with a few taps on a smartphone.
SVB showed “classic red flags for bank examination 101,” said Aaron Klein, a senior fellow at the Brookings Institution.
“Finding problems late and moving slowly is a recipe for supervisory failure. It sure looks like that’s what happened here.”
A third factor was that the nature of supervision itself had changed, becoming more bureaucratic and process-oriented—just when banking was moving faster. Examiners raised problems with SVB but didn’t escalate their concerns to formal enforcement actions before a run began.
“The supervisory process has not evolved for rapid decision making. It is focused on consistency over speed,” said Eric Rosengren, former president of the Federal Reserve Bank of Boston. “In a fast-moving situation, the system is not as well-designed to force change quickly.”
Banking regulators will spend months, if not years, getting to the bottom of what happened. The Fed, FDIC and Treasury have for now limited the contagion by guaranteeing all SVB and Signature deposits and extending additional support to all banks.
Mr. Powell has announced an internal Fed review of what went wrong, to report by May. Lawmakers plan to hold hearings beginning next week.
Representatives for SVB, now under FDIC control, and its former chief executive declined to comment. A spokesman for New York Community Bancorp, whose subsidiary purchased Signature’s assets, declined to comment.
SVB was a smaller bank that grew rapidly in the past several years along with its tech clientele. Its principal regulators were the Fed in Washington, the Federal Reserve Bank of San Francisco and California’s Department of Financial Protection and Innovation.
Examiners had found issues at SVB in the past. In 2019, the Fed alerted management to problems with the bank’s risk controls. Last summer, the Fed warned about flaws in liquidity and risk management and governance, according to people familiar with the matter.
Ultimately, SVB was placed in a “4M” restriction, which meant it couldn’t make acquisitions, one of the people said.
The alerts came in the form of “matters requiring attention” and “matters requiring immediate attention”—in effect, supervisory memos urging but not compelling action.
By 2022, the key issue for both the economy and banks was inflation, which jumped above 5% after decades around 2%. A Fed that until mid-2021 signaled it would hold rates near zero for years has, in the past 12 months, raised them at the sharpest pace since the early 1980s.
Rising rates cause bond prices to fall, especially bonds that don’t mature for many years, which some banks, including SVB, had favored for their additional yield.
By the end of 2022, that left such banks with big unrealized losses, something the FDIC began warning about in the second half of the year.
A fall in the value of banks’ bondholdings could in theory reduce their capital, the cushion between assets and liabilities that absorbs losses. In 1991, Congress instructed regulators to devise a formula for measuring the effect of interest rates on capital.
But in 1996 the Fed, FDIC and Office of the Comptroller of the Currency said that the “burdens, costs, and potential incentives of implementing a standardized measure and explicit capital treatment currently outweigh the potential benefits.”
Instead, they would “work with the industry to encourage efforts to improve risk measurement techniques.” The effect of changes in interest rates is one of the things bank examiners are instructed to look at.
The Fed didn’t prioritize interest-rate risk in some of its recent regulatory exercises. The stress tests it administers to large financial institutions haven’t considered a scenario of high inflation and interest rates in years.
This year, the Fed in its stress tests asked banks to show how they would be affected by a rise in inflation. But that scenario was released after inflation had hit its recent peak, and the results wouldn’t have had any practical impact on banks’ operations.
By 2022, SVB was large enough to be assigned its own Fed supervisory team, according to a former Fed examiner.
As the bank approached $250 billion in assets, bank staff scrambled to prepare for the heightened regulatory scrutiny that this threshold would entail, according to people familiar with the matter.
Meetings with Fed examiners became more intense, said a former employee who worked in risk management.
Some bank employees knew that higher interest rates put SVB’s bond portfolio at risk and tried to push executives to make a change, according to people familiar with the situation.
Company management, though, effectively bet that interest rates would decline. The bank in a presentation of second-quarter results last year told investors it was “shifting focus to managing downrate sensitivity.”
Some employees have wondered, in the wake of SVB’s collapse, why the Fed’s oversight hadn’t forced management to take immediate action.
Last fall, the San Francisco Fed met with senior leadership of the bank and highlighted problems with the bank’s handle on interest-rate risk in a rising rate environment, people familiar with the matter said.
SVB did model interest-rate risk, but it ran the models assuming that higher interest rates boosted profits, according to people familiar with the matter. The Fed issued another “matter requiring attention” alert regarding the bank’s interest-rate modeling, one of the people said.
“The supervisory team was apparently very much engaged with the bank [and] repeatedly was escalating,” Mr. Powell said at a press conference Wednesday.
Over the decades, bank supervision has evolved to put priority on consistency, fairness and transparency rather than speed. As barriers to interstate banking fell in the 1990s, federal regulators sought to formalize rules across state lines, bringing more decision-making to Washington.
Supervision became even more centralized and bureaucratic after the 2007-2009 financial crisis and passage of the 2010 Dodd-Frank financial regulation law, said Mr. Rosengren, who was president of the Boston Fed from 2007 to 2021 and before that its head of bank supervision.
Although examiners frequently alert banks to matters requiring attention or immediate attention, forcing them to change course with a cease-and-desist order or a formal enforcement action takes several more steps.
“The goal is not to surprise anybody. It is to get change over time,” said Mr. Rosengren, now a scholar at the MIT Golub Center for Finance and Policy.
One FDIC official said problems rarely escalate into cease-and-desist orders unless there’s a long-term pattern of noncompliance.
He said that absent some emergency—which wasn’t apparent with SVB until it was too late—it can be challenging for supervisors to push back against management if the bank is in compliance with all of its capital and liquidity requirements, as SVB was.
Politics also began to intervene. By 2018, with the financial crisis well in the rearview mirror, banks, including SVB, began lobbying for lighter treatment, finding a sympathetic ear from Republicans and some Democrats.
That year, Congress raised the threshold for the Fed’s most vigorous oversight to $250 billion in assets from $50 billion.
The Fed also tailored its regulations to lighten the burden on less-complex firms. In March 2021, under Vice Chair of Supervision Randal Quarles, the Fed issued what it called “guidance on guidance” that said that supervisory guidance—a common way for federal regulators to explain to banks and examiners what was expected of them—didn’t have the force of law.
After that, it became more of a battle to get a bank to agree to changes, according to a former big-bank examiner for the San Francisco Fed, who said the move “created 10,000 more steps.”
Mr. Quarles disputed that either the 2018 law or the 2021 guidance played any part in SVB’s troubles. The purpose of the guidance, he said, was to strengthen supervision by ensuring that examiners’ actions were grounded in law and better able to withstand a court challenge.
It’s difficult for supervisors to take formal action in the absence of clear proof a bank is in danger, and SVB continued to meet all its necessary capital ratios.
A bank’s bondholdings have to be carried at market value on its books if they are classified as “trading” or “available for sale.” In 2022, SVB reclassified a chunk of its bonds as “held to maturity,” where they didn’t have to be carried at market value.
SVB had also availed itself of an option made available by the Fed in 2013 to not let losses on “available for sale” securities flow through to its regulatory capital level.
That SVB’s capital, if marked to market, was lower than its reported capital mattered only if the bank had to sell bonds, such as to meet deposit redemptions.
Since the financial crisis, banks had steadily sought more funding from corporate and individual deposits, as opposed to tapping funds from financial markets, which were seen as more volatile and unreliable. A growing share of aggregate bank deposits was uninsured.
Regulators had at times cited the potential risks associated with uninsured deposits, and were weighing asking banks to issue more long-term debt. But the issue wasn’t high on their list of worries about the financial system.
Data included in the Fed’s twice-yearly financial-stability report last November showed uninsured deposits had steadily risen as a share of financial system funding with the potential to leave quickly.
Yet the report didn’t cite this as a risk. It did observe approvingly that big banks had tamped down their reliance on volatile financial markets for short-term funds.
Not only were roughly 90% of SVB’s deposits uninsured, they were unusually concentrated in companies and people linked to technology and venture capital.
Some deposits were in the hundreds of millions of dollars, or were kept in the bank as part of an agreement between a VC firm and SVB.
Ideally, when bank examiners pointed out problems, the bank’s management would agree and voluntarily comply. But former examiners for the San Francisco Fed said that a bank might involve its lawyers if it didn’t agree with the examiners’ findings, treating the process as a court case rather than a routine oversight matter.
If examiners thought the bank should prepare for a scenario such as rapid growth, soaring interest rates and abrupt loss of deposits, as later happened to SVB, examiners would be hobbled by the absence of explicit regulatory guidance calling for such preparations, another examiner said.
The bank could point out such a combination of events had never happened before and preparing for it would hurt shareholder returns, this former examiner said.
Signature Bank lacked SVB’s bond exposure, but shared its dependence on uninsured deposits. Its regulators didn’t raise this as an issue, according to former Rep. Barney Frank, co-sponsor of the Dodd-Frank law.
Regulators from the Federal Deposit Insurance Corp. and New York State Department of Financial Services met with Signature Bank’s board on Feb. 15 and “didn’t say anything about ‘We’re worried that your uninsured depositors are going to fly,’” said Mr. Frank, who was a director.
“There was no alarm, no warning at that meeting that you guys are in trouble or this is a problem.” Within weeks, a run on Signature’s deposits prompted regulators to seize the bank.
The FDIC said its “examiners raised serious concerns in written and verbal communications, including less than satisfactory ratings for liquidity management, to Signature’s management team at least five years before it experienced a liquidity crisis.
Candid discussions with its Board about deficiencies in liquidity, deposit volatility, and corporate governance occurred as recently as February 15.” The NYDFS declined to comment.
What none of the regulators or bankers anticipated was how fast depositors could flee, which appears to be a new reality in the age of smartphone apps and social media.
In past times, deposit outflows were modulated by how fast tellers could count out cash or ATMs could be refilled. Customers who wanted to close their accounts or move large sums had to visit their branch.
That gave regulators and executives time to craft a plan to calm anxious customers. The newfound ability to move money with a smartphone eliminated that grace period.
FDIC officials are discussing how to manage public confidence as social media expands people’s ability to “electronically panic,” a person familiar with the talks said.
“The speed of the run…is very different from what we’ve seen in the past,” Mr. Powell said Wednesday. “And it does kind of suggest that there’s a need for possible regulatory and supervisory changes, just because supervision and regulation need to keep up with what’s happening in the world.”
Updated: 3-26-2023
US Explores Additional Bank Support, Favoring First Republic: Report
Despite banking laws stating remedies should not be aimed at benefiting a specific bank, this change could be structured “in a way to ensure” that First Republic benefits, according to unnamed sources.
United States authorities are reportedly deliberating on “expanding” an emergency credit line for banks, which may provide First Republic Bank a time buffer to address balance sheet concerns, according to people familiar with the situation.
In a March 26 Bloomberg report citing unnamed sources, it was claimed U.S. officials are pondering what support, “if any,” can be provided to First Republic; however, an “expansion of the Federal Reserve’s offering” is one of the options being explored.
First Republic was reportedly deemed “stable enough to operate” by regulators without the need for an “immediate intervention,” as efforts are made by the bank in the meantime to “shore up its balance sheet.”
The sources reportedly said that while the Fed’s liquidity offerings would be expanded in accordance with banking laws, which stipulate that it must be “broadly based” and not aimed at benefiting a specific bank, they also warned that the alteration could be “made in a way” that ensures First Republic Bank benefits.
It was reported that despite First Republic facing structural challenges with its balance sheet, “the bank’s deposits are stabilizing,” and it is not at risk of experiencing “the kind of sudden, severe run” that led regulators to close down Silicon Valley Bank. Sources added:
“It has cash to meet client needs while it explores solutions, the people said. That includes $30 billion deposited by the nation’s largest banks this month.”
This comes after the Fed announced a plan on March 19 to strengthen liquidity conditions through “swap lines,” which involve an agreement between two central banks to exchange currencies.
Coordinated central bank action to enhance the provision of U.S. dollar liquidity: https://t.co/Qs4cYY8BFO
— Federal Reserve (@federalreserve) March 19, 2023
“To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of seven-day maturity operations from weekly to daily,” the Fed said in a statement
The swap line network, which involves the Bank of Canada, Bank of England, Bank of Japan, European Central Bank and the Swiss International Bank, commenced on March 20 and is set to run until at least April 30.
Updated: 4-11-2023
Big Banks That Shored Up First Republic Pushed To Boost Reserves
* Biggest Contributors Plan To Add About $100 Million Provision
* Accounting Rules Covering For Potential Losses Spur Decision
The biggest US banks are planning to bolster reserves in a move tied to their unusual effort to shore up ailing lender First Republic Bank last month.
Some of the banks that contributed the largest chunk of the $30 billion in deposits are planning to set aside about $100 million each, according to people with knowledge of the matter.
The group included JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Bank of America Corp., which each put up $5 billion.
Accounting rules meant to ensure banks stockpile provisions to cover potential losses for a wide range of assets are dictating the move, two of the people said, asking not to be identified discussing private information.
The cash infusion was intended to be a vote of confidence in the banking system, with executives expecting to fully recover their deposits. Still, the reserves are an acknowledgment that the decision to park their money with First Republic for at least 120 days wasn’t entirely risk free.
Representatives for the four biggest banks as well as Morgan Stanley and Goldman Sachs Group Inc. declined to comment. The amount set aside by each bank will likely vary according to the size of their contribution.
The provision will have minimal impact on the earnings of the lenders who post billions of dollars in profit every quarter.
The 11 banks pledged the deposits for First Republic after the collapse of two other regional banks sparked panic among customers who rapidly pulled their money.
The move — spearheaded by JPMorgan Chief Executive Officer Jamie Dimon and Treasury Secretary Janet Yellen — was designed to buy more time as First Republic explores strategic options.
Analysts at Wedbush Securities speculated this week that a sale will be unlikely without the company falling into government receivership.
First Republic at the start of the quarter was sitting on almost $27 billion in markdowns on loans and a bevy of unrealized losses on treasuries and other long-dated bonds on the company’s balance sheet.
In an acquisition, those would more than wipe out the company’s tangible common equity.
“The unrealized losses embedded in its balance sheet prevent a voluntary M&A sale of the company,” David Chiaverini, an analyst at Wedbush Securities, said in a note to clients. “The only acquisition scenario that is possible for FRC, in our view, is through receivership, in which a would-be acquirer is able to take advantage of an FDIC-assisted bargain purchase.”
First Republic saw about 90% of its market cap evaporate as the stock collapsed last month. After dropping to a low of $12.18 on March 20, it has remained steady around that level since then, closing at $14.13 on Tuesday.
Updated: 4-18-2023
Seized Assets From Silicon Valley Bank And Signature Bank Are Fetching 85 To 90 Cents On The Dollar
Details emerge on 2nd and 3rd parcels of seized Silicon Valley Bank and Signature assets for sale.
BlackRock Inc. on Tuesday fetched prices of about 85 cents to 90 cents on the dollar for the first batch of assets sold out of $114 billion seized by regulators last month after the failures of Silicon Valley Bank and Signature Bank.
The first list, a roughly $292 million parcel of agency mortgage-backed securities with coupons of about 2.5% to 3%, rolled out before noon Eastern time, according to Empirasign, a platform that tracks trading activity in mortgage bonds and securitized products.
“The reality is that the whole point is for BlackRock to get rid of these assets,” said David Petrosinelli, senior trader at InspereX.
“I wouldn’t be surprised if they were to accelerate the scale of sales, depending on what conditions look like.”
Sales of the additional seized assets were expected to emerge in increments, rather than hitting all at once and potentially causing more volatility in financial markets.
“People are looking for assets, so this should be an opportunity to source bonds,” said Tracy Chen, a portfolio manager at Brandywine Global, speaking to the sharp drop in issuance of new bonds this year as borrowing costs have jumped. “While I believe this will be an orderly sales process, I think spreads will widen.”
Bonds often are sold at a spread, or premium, above the risk-free Treasury rate, and that premium can increase when markets get choppy or on concerns of rising borrower default risks.
Still, Chen said she expects the sales to weigh more broadly on the market, adding that the spread on the “current coupon” 5.5% agency mortgage bond has already been increasing from its prior range of about 160 basis points above Treasurys. She thinks it could gap out by as much as 20 basis points, she said.
Chen also said jitters remain about other banks loaded up with underwater securities. “My fear is there will be other banks that have liquidations.”
The Federal Deposit Insurance Corp. estimated that U.S. banks had some $620 billion of unrealized losses from securities on their books as of the end of 2022, including longer-duration Treasurys and mortgage securities that have become worth less than their face value. Researchers at Stanford University estimated the tally could be $2.2 trillion.
A run on deposits at Silicon Valley Bank snowballed after the bank disclosed a $1.8 billion loss on a sudden sale of $21 billion in high-quality, rate-sensitive mortgage and Treasury securities.
It became the biggest U.S. bank failure since Washington Mutual’s collapse in 2008. Signature Bank in New York failed days later.
In response to the turmoil, the Fed acted to create an emergency lending facility for banks to prevent additional forced sales, with use of the facility easing in recent weeks as calm has been restored to markets.
Sheila Bair, who ran the FDIC from 2006 to 2011, told MarketWatch in April that regulators needed to focus on underwater securities at all banks.
BlackRock’s financial-markets advisory arm was hired in early April by the FDIC to market the securities for sale from the two failed banks. It didn’t respond to a MarketWatch request for comment.
The assets for sale include agency mortgage-backed securities, commercial mortgage-backed securities, Treasurys, corporate bonds and other securities created in an ultralow-rate environment.
A second list of almost $400 million in FDIC assets will be offered on April 24, a mix of prime and subprime mortgage bonds, according to Empirasign. A third list of mostly residential bonds will be offered on April 26.
Stocks were struggling for direction on Tuesday, with the Dow Jones Industrial Average and the S&P 500 index nearly unchanged.
Updated: 4-20-2023
With 4% Savings Accounts, Is It Finally Time to Break Up With Your Bank?
Returns on cash investments—no pain, just guaranteed gains!—is tempting savers to get rich gradually again.
It wasn’t too long ago that many personal finance discussions were dominated by such burning questions as: Can I juice my retirement by betting on the stock of a mall video game store? How about digital pictures of apes? Well, things have changed.
A surge in interest rates has popped the bubbles in especially speculative corners of financial markets. But a major side effect of the new financial regime is a focus on an investment many of us may have forgotten to view as an investment at all: boring old bank savings accounts, some of which now pay yields of more than 4% after years of offering rates that round down to zero.
One of the US Federal Reserve’s most aggressive campaigns ever to fight inflation with higher borrowing costs has created a refreshing opportunity for both businesses and consumers.
At the same time, it’s creating a fresh round of headaches for the banking executives who suddenly find themselves in a heated competition to expand—or at least maintain—their share of the nation’s roughly $18 trillion worth of bank deposits.
Collecting deposits used to be easy. The total increased steadily at an average rate of about 5% each year in the decade through 2019.
And then deposits ballooned 23% in 2020 and an additional 10% in 2021 as stimulus money flowed, Americans were stuck at home with fewer opportunities to spend and companies loaded up on debt to build up cash to ride out uncharted economic waters.
But that set up banks for a whiplash: The amount of money on deposit suddenly shrank 1.5% last year—the first decline since the 1940s, according to data from the Federal Deposit Insurance Corp.
And more shrinkage could be in store in 2023, as those bloated savings accounts get drawn down and some savers move their cash to money-market mutual funds, which can be nimbler than banks in raising rates.
Money-market funds don’t have FDIC insurance but generally invest in very short-term, low-risk securities.
So the buzzword flying around the executive suites of the nation’s banks these days is “stickiness.” In other words, exactly how attached are depositors to their banks, especially the ones that have yet to raise yields on their savings accounts?
In many cases, it may require more than a toaster to keep them on board. (Note to you kids under 50: Yes, back in the days of limits on the interest banks could pay, they used to entice depositors with free appliances.)
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon gave some hints about how he gauges the stickiness of deposits during his company’s earnings call on April 14.
For example, he said, many regional banks deal with smaller companies both as depositors and borrowers, and those customers are less likely to go shopping for a better deposit rate.
“If I lend you $30 million and you have $10 million, you’re probably going to be leaving it at my bank,” he said. “You shouldn’t be looking at deposits like one class. There is a whole bunch of different types. And analytically, you go through each one and try to figure out what the stickiness is.”
A similar dynamic is likely at play with Dimon’s own bank, even for individual depositors. If a customer has, say, checking, savings, credit card and investment accounts all with the same bank, it creates a certain amount of inertia in the relationship.
Just think of what a pain in the neck it is to change all those automated withdrawals that pay the bills.
Despite its barely-there interest rates—Chase, like its competitor Bank of America Corp., pays as little as 0.01% on basic savings deposits—the bank was able to defy expectations of a drop in deposits in the first quarter.
In fact, deposits grew 2%, helped no doubt by a whiff of panic that some smaller, less systemically important banks could face the type of run that broke Silicon Valley Bank in early March, when depositors got scared about that bank’s bond losses.
(It turned out that tech startup executives who constantly talk to one another on group chats were not as sticky as SVB executives had hoped.)
It’s a different situation at a company like Charles Schwab Corp. Although it’s primarily known as a brokerage, ever since Schwab led the race to commission-free trading in 2019, its business model much more closely resembles that of a traditional bank.
Cash that isn’t being invested by clients is swept into Schwab’s bank unit. Customers get paid a 0.45% rate on that money, which Schwab invests in securities or loans yielding more than that.
In an era of low interest rates, customers didn’t complain much about getting paid less than half a percentage point. But when rates rise, they may feel less inertia: Schwab clients have a variety of higher-yielding options—from money-market funds to Treasury securities—that are just a few clicks away, including on Schwab’s own site. Customer deposits in Schwab’s bank slid 11% in the first three months of the year.
While the turmoil unleashed by the collapse of Silicon Valley Bank seems to have calmed down lately, the competition for deposits is likely to continue, particularly from online “high-yield” savings accounts. Bankrate.com lists annual percentage yields as high as 5.02%, with almost two dozen other banks sporting yields above 4%.
This month, Apple Inc. introduced a 4.15% account with Goldman Sachs Group Inc. that would be available via the Wallet app in its phones—potentially knocking another brick out of the wall of inertia protecting traditional banks and adding further pressure to raise rates among institutions paying less generous yields.
The gap between the average deposit rate and the federal funds rate (what banks earn just by lending money to one another overnight) is at a modern high of above 2 percentage points, according to researchers at the Federal Reserve Bank of New York.
“Hence, banks are facing significant competition for savers from other vehicles that offer rates closer to the fed funds rate, such as money market mutual funds,” the researchers wrote on the Liberty Street Economics blog, adding that they expect deposits to continue to move around as a result.
For many consumers and businesses in the US, it may be time to consider breaking up with your bank—either for a money market fund or another bank offering a more attractive rate on savings accounts or certificates of deposit.
Or you may find it makes sense to work with one bank for your regular bill-paying, checking and cash needs, and the occasional visit with a teller, while pushing the excess into a better-paying online account that’s a bit less convenient.
For those with more than $250,000 in savings—the limit on deposits backstopped by the FDIC—it’s a trickier decision that may require spreading the cash across a few different accounts if you want it all to be insured.
Of course, it’s true that even the FDIC’s finances may become strained in a nightmare scenario where more banks follow the path of Silicon Valley Bank. But despite the current mosh-pit nature of US politics, there’s too much to lose on both sides of the aisle if the FDIC fails to meet its obligations.
So those insured deposits still seem like a safe bet—at least a lot safer than meme stocks and ape NFTs.
Updated: 4-24-2023
First Republic Lost $100 Billion In Deposits In Banking Panic
Bank says it will cut head count by as much as 25%, slash executive pay as it restructures balance sheet.
Customers pulled about $100 billion in deposits out of First Republic Bank last month, when a pair of bank failures shook Americans’ faith in regional lenders.
The bank’s first-quarter earnings report Monday detailed its precarious financial situation following the massive withdrawals.
Deposits fell more than 40% to $104.5 billion at the end of the first quarter, from $176.4 billion on Dec. 31. The first-quarter tally includes $30 billion from megabanks including JPMorgan Chase & Co. meant to keep First Republic afloat, suggesting last month’s panic cost the bank around $100 billion in deposits.
First Republic’s profit fell 33% in the first quarter to $269 million from $401 million a year earlier. Revenue dropped 13% to $1.2 billion.
Most of the quarter happened before the deposit run forced the bank to take on expensive loans from the Federal Reserve and Federal Home Loan Bank, which is likely to crimp future earnings.
First Republic shares have lost nearly 90% of their value since early March. They fell 20% in after-hours trading following the earnings report.
First Republic is “working to restructure our balance sheet and reduce our expenses and short-term borrowings,” finance chief Neal Holland said in a statement.
First Republic will reduce head count by 20% to 25% and slash executive pay, the bank said. Executives declined to answer questions on a call with analysts Monday.
Withdrawals have stabilized, First Republic said, and the bank is trying to bring in fresh deposits. Excluding the $30 billion from the megabanks, the run cost First Republic all but $19.8 billion of its uninsured deposits, a low-cost funding source that was once a cornerstone of its business model.
Many regional banks recently reported a decline in deposits in the first quarter, including Comerica Inc. and Zions Bancorp.
But the drop at First Republic stands out for its sheer size. Many of the other regional banks reported higher first-quarter profits.
First Republic was once the envy of the banking business. The lender grew rapidly by catering to wealthy clients who wanted high-touch service that they couldn’t get from bigger banks.
In a low-rate world, those customers were happy to leave large sums of money in accounts earning nothing.
The bank also specialized in making huge mortgages, some at low rates, to rich people such as Mark Zuckerberg.
The bank’s highflying business came back to earth after the Federal Reserve began raising interest rates. Wealthy customers, no longer content to leave giant balances in bank accounts earning paltry interest, began to move their money into higher-yielding alternatives.
The sudden failure of Silicon Valley Bank last month spooked customers with balances exceeding the Federal Deposit Insurance Corp.’s $250,000 insurance limit.
The two banks had a lot in common. They shared a Bay Area clientele and a large percentage of uninsured depositors. And rising rates saddled both banks with large unrealized losses, in First Republic’s case on its portfolio heavily skewed toward low-rate mortgages.
Every type of deposit fell at the bank in the quarter except for “time deposits,” or certificates of deposit, a category that included the $30 billion big-bank infusion. First Republic paid an average rate of 2.93% on CDs.
The bank considered a sale or outside capital injection and hired investment bankers to advise on its options, The Wall Street Journal has reported. On Monday, the bank said it is “pursuing strategic options” but didn’t offer additional details.
After Silicon Valley Bank’s collapse sparked a deposit run, First Republic filled the hole with loans from the Federal Reserve and Federal Home Loan Bank, which lend to stressed banks, and a line of credit from JPMorgan.
Borrowings peaked at $138 billion on March 15. First Republic said that figure had fallen to $104 billion on Friday.
The bank said it paid between 3% and 4.9% on loans from the Fed and FHLB in the quarter, on average.
This means First Republic is facing a grim and unusual situation where it may have to pay more on its liabilities than it is earning on its loans, analysts have said. In the first quarter, the bank’s loan book yielded 3.73%.
Rising rates have battered the value of First Republic’s mortgages and other loans. The bank’s balance sheet showed $166.1 billion of loans as of Dec. 31, at amortized cost.
A footnote said their fair-market value was $143.9 billion. The $22.2 billion difference was greater than First Republic’s $17.4 billion of total equity, or assets minus liabilities.
The bank said on a call Monday that it planned to start selling the mortgages it makes in an effort to reduce the size of its balance sheet. It has generally kept those loans on its books.
Updated: 4-25-2023
First Republic Bank Shares Sink 49% After Earnings Report
Trading is halted several times after the stock tumbles.
First Republic Bank shares lost about half their value Tuesday, a day after the bank reported first-quarter results that showed a deposit hemorrhage in March that was worse than expected.
The stock shed 49% to close at $8.10, a new low. Trading in First Republic shares was halted several times Tuesday afternoon after the stock tumbled.
The bank was the worst performer in the S&P 500, and the most actively traded stock in the index, according to Dow Jones Market Data.
Though regional banks in general have suffered since the collapse of several small or midsize lenders last month, First Republic has been the focus of market anxiety following a surge in deposit outflows.
The firm said Monday it was exploring “strategic options” following its disclosure that it lost around $100 billion in deposits, though analysts and investors question how much room for maneuver the firm actually has at this point.
White House chief of staff Jeff Zients said in an interview Tuesday that he couldn’t talk about specific banks, but, he added, “You can be reassured that the regulators are deeply involved in monitoring the situation and will take the necessary actions.”
“As we’ve seen over the last several weeks, deposits have stabilized and I think we do believe that the system overall is sound and resilient,” Mr. Zients said. At the same time, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell “have said repeatedly they will use the tools they have, if needed, to support the banking system.”
Investors are worried about the grim math behind First Republic’s operations.
The bank is paying more to borrow money. But many of the loans it made to customers carry long-term, fixed interest rates, putting a continued squeeze on the bank.
First Republic said Monday that while its average account sizes decreased, it retained 97% of client relationships from the start of the first quarter. It also announced a number of changes, including job cuts, meant to right the ship.
Still, the results put First Republic, regulators and its big-bank peers at loggerheads. While First Republic’s basic business model is broken, the bank is determined to find some way to salvage what is left.
Those who could aid the bank might be wary of coming to the rescue.
Regulators want bank customers to believe that the recent turmoil was an isolated event and that there is no reason to worry about the stability of the banking system. But any backstop they provide for First Republic could draw criticism as the government bailing out a bank for rich people.
Big banks like JPMorgan Chase & Co., meanwhile, became deeply intertwined with First Republic when they agreed to deposit $30 billion there, a plan meant to keep panic from spreading throughout the industry. But getting any more deeply involved in an attempted rescue may be too risky for these banks.
First Republic stock is now down more than 90% since trading at $115 a share in early March, just before the collapse of several banks sparked concerns about the broader banking industry. That is worse than other regional banks that have faced questions about their business model in recent weeks.
PacWest Bancorp shares have fallen about 60% since early March. The bank lost about 9% in regular trading hours Tuesday, then jumped 15% in after-market trading after reporting first-quarter results.
PacWest said it lost money in the first quarter and that deposits fell from the previous quarter. But the bank reported that deposits had stabilized in recent weeks. It also said it would explore “strategic asset sales” to increase liquidity, transferring its $2.7 billion Lender Finance loan portfolio to held-for-sale.
Shares of other regional banks were broadly lower Tuesday, though by much smaller increments, on a down day for markets broadly. The KBW Nasdaq Regional Banking Index and the SPDR S&P Regional Banking ETF were each down about 4%.
Northern Trust Corp. fell about 9%, making it one of the worst performers in the S&P 500. It reported first-quarter results Tuesday, just missing the expectations of analysts polled by FactSet.
Northern Trust on Tuesday said interest-bearing deposits fell 8% from the previous quarter. Chief Executive Michael O’Grady said on a call with analysts that the bank was “well-positioned to continue to serve our clients and navigate the ongoing economic uncertainty from a position of strength.”
First Republic leaned on the rescue package from JPMorgan and other big banks, as well as loans from the Federal Reserve and the Federal Home Loan Bank.
The cost to borrow from those sources is far higher than the deposits that banks normally use to fund loans.
The bank said it paid between 3% and 4.9% on loans from the Fed and FHLB in the quarter, on average. In that same period, its loan book yielded just 3.73%.
Net interest margin, or the difference between the rate the bank earns on assets and what it pays for funding, fell to 1.77% in the first quarter from 2.45% the prior quarter.
Jared Shaw, an analyst at Wells Fargo & Co., said he expected it to go to near-zero by the end of the year. Mr. Shaw said he now expects earnings losses this year and next.
“There’s still uncertainty over the future,” Mr. Shaw said. “The bank is really totally dependent on these nondeposit funding sources.”
Analysts at Janney Montgomery Scott cut First Republic’s stock to a sell on Tuesday morning, calling the results far worse than they had expected.
The bank “needs to pull off the mother of all pivots to survive,” focusing on profitability rather than growth, Timothy Coffey, a Janney analyst, wrote in a research note.
“I wonder if it’s in their DNA for them to be able to do that,” Mr. Coffey said in an interview. “This is going to be a big change for the organization.”
First Republic announced a number of changes late Monday, including a plan to win deposits from new consumers, small businesses and nonprofit organizations. Currently, the bank is known for its focus on wealthy individuals.
Many of them had deposits exceeding the Federal Deposit Insurance Corp.’s $250,000 cap at the end of December, making them prone to yank their money at the first sign of trouble.
In another shift, First Republic signaled it would move away from the jumbo mortgages that wealthy borrowers often use. The bank said it would look to originate loans that it can sell on the secondary market.
On a call with analysts, Chief Executive Michael Roffler said key aspects of the business wouldn’t change. Executives didn’t take questions from analysts.
“Our commitment to delivering exceptional client service has not wavered,” Mr. Roffler said.
But that could be difficult with fewer employees to power the high-touch, relationship-based approach to customers it has become known for. First Republic plans to reduce head count by between 20% and 25% in the second quarter.
The bank had about 7,200 employees at the end of December.
“It’s hard to scale that. You need more people to increase that business model,” said David Smith, an analyst at Autonomous Research. “They’re doing the opposite.”
Updated: 4-28-2023
Signature Bank Failed Because of Mismanagement, Contagion, FDIC Report Says
The Federal Deposit Insurance Corp. said Signature’s exposure to crypto industry deposits was also a contributing factor.
Signature Bank, a crypto-friendly institution, fell apart because of mismanagement by its officers and “contagion effects” after the collapse of Silicon Valley Bank and wind-down of Silvergate Bank, a federal bank regulator said in a report Friday.
The Federal Deposit Insurance Corp. said Signature Bank relied heavily on uninsured deposits, didn’t have strong liquidity risk-management practices and maintained poor risk management in general.
All of that was exacerbated by a bank run spurred by the collapse of the other banks, the report said. That the bank was serving the crypto industry was also cited as a major risk.
“Additionally, SBNY failed to understand the risk of its association with and reliance on crypto industry deposits or its vulnerability to contagion from crypto industry turmoil that occurred in late 2022 and into 2023,” the FDIC said.
The FDIC has been reviewing its oversight of Signature Bank since shortly after the New York Department of Financial Services seized the bank in March.
Despite industry claims that Signature was shut down specifically for serving crypto customers, NYDFS Superintendent Adrienne Harris has repeatedly said the bank had other issues.
The FDIC’s report comes on the same day that the Federal Reserve and Government Accountability Office published the results from their own reviews of Silicon Valley Bank and Signature.
Like the FDIC, the Federal Reserve attributed SVB’s collapse to serial mismanagement made worse by unaccounted-for risks – in SVB’s case, the risks came from interest-rate hikes and liquidity issues.
The GAO noted that Signature had “reduced its exposure to deposits” from the crypto industry over the 12 months prior to its collapse.
“Silicon Valley Bank was affected by rising interest rates and Signature Bank had exposure to the digital assets industry. The banks failed to adequately manage the risks from their deposits,” the GAO report said.
All three reports pointed to a lack of action from federal regulators as a contributing factor, saying the banks’ supervisors could have acted sooner to request more information or otherwise manage the banks and their risks.
Fed Says It Failed To Act On Problems That Led To Silicon Valley Bank Collapse
Top bank regulator calls for revamping a range of rules for midsize banks.
The Federal Reserve’s banking supervisors failed to take forceful action to address growing problems at Silicon Valley Bank before it collapsed last month, the central bank’s top regulator said, signaling a broad push to toughen rules on the industry.
Michael Barr, the Fed’s vice chair for supervision, said supervisors didn’t fully appreciate the extent of the vulnerabilities as SVB grew in size and complexity.
When supervisors did find risks, they didn’t take sufficient steps to ensure the firm fixed those problems quickly enough, he said in a report Friday.
Regulators took control of Santa Clara, Calif.-based SVB on March 10. The collapse sparked a panic that led to the failure of New York-based Signature Bank and an intervention by financial regulators to protect uninsured depositors at both banks. The Fed supervised SVB and the Federal Deposit Insurance Corp. supervised Signature.
The chaos has since quieted, but some banks still face concerns. San Francisco-based First Republic Bank faces significant challenges, and there are no easy options for stemming the crisis at the bank.
The FDIC issued a separate report Friday analyzing its oversight of Signature, which failed two days after SVB. The FDIC said that it was slow to escalate issues that it had identified with the bank’s management.
It put much of the blame on Signature, which it said grew too fast and wasn’t responsive enough when the FDIC raised concerns.
Yet another report on Friday from the Government Accountability Office, a congressional watchdog, said regulators identified problems at both banks in recent years but didn’t escalate supervisory actions in time to prevent their failures.
Mr. Barr on Friday called for revamping a range of rules that apply to banks with more than $100 billion in assets, and he called for re-evaluating how regulators treat deposits above a $250,000 federal insurance limit.
Both banks had a large amount of such deposits, which fled quickly as trouble mounted.
In a statement accompanying the Fed’s report, Fed Chair Jerome Powell said he would back steps outlined by Mr. Barr to toughen industry oversight over the coming years.
That would essentially reverse some moves made earlier in Mr. Powell’s tenure to ease the rules for midsize banks. The Fed chair said such changes would lead to “a stronger and more resilient banking system.”
Some congressional Republicans criticized the report’s calls for more regulation. Rep. Patrick McHenry (R., N.C.), chairman of the House Financial Services Committee, characterized it as a “self-serving…justification of Democrats’ long-held priorities.”
Of Mr. Barr’s four top takeaways about the events leading to SVB’s collapse, three are tied to perceived shortcomings with the Fed’s banking oversight. The report focuses on errors by the agency but not on individuals’ responsibility.
Mr. Barr said mistakes by Fed regulators were driven in part by the Trump-era changes that generally eased rules on midsize banks. He also said a shift in the agency’s culture appears to have resulted in a lighter-touch form of supervision.
Those changes “impeded effective supervision by reducing standards, increasing complexity, and promoting a less assertive supervisory approach,” he said.
Mr. Barr’s predecessor as vice chair for supervision, Randal Quarles, disputed that finding. He said the report “provides no evidence at all for what it describes as one of its main conclusions—that a ‘shift in the stance of supervisory policy’ impeded effective supervision of the bank.”
The Fed also pinned some blame on its own bureaucratic structure. Authority for overseeing banks is parceled out to the Fed’s regional bank branches, but in practice, the central hub in Washington provides extensive input and must approve some enforcement actions.
The Fed said that while supervisors had identified issues around interest-rate risk that contributed to SVB’s failure, the process was “too deliberative” and focused on building evidence before it took action.
The firm failed before the Fed completed a planned downgrade of one of its key regulatory ratings of the bank.
Two staffers briefed the Fed’s Board of Governors on Feb. 14 about the risks of unrealized losses banks faced from falling securities prices, according to the Fed.
The 11-slide presentation, delivered by a Fed staffer from the D.C.-based board and an employee of the Kansas City Fed, drew attention to one institution: SVB.
SVB had 31 open supervisory findings, or warnings from regulators, when it failed, which was three times the number at peer firms, the Fed said. They spanned everything from liquidity to technology.
In August, the San Francisco Fed gave the bank a failing rating for its governance and control practices. As the firm grew rapidly in 2021, it “did not maintain a risk management function commensurate with the growing size and complexity of the firm,” examiners said in a letter to the bank.
The firm’s risk management wasn’t effective, the San Francisco Fed warned.
That month, regulators said “interest rate hedges implemented in 2021 have effectively mitigated the bank’s exposure to rising interest rates.”
A few months earlier, SVB had removed some of its hedges against rising rates. It was effectively preparing its balance sheet for rates to fall, rather than to continue rising, which is what ultimately happened.
The Fed overlooked broader problems in recent years as the bank grew. For a long time, it used metrics for liquidity that suggested SVB had a stable deposit base and rated the bank’s interest-rate risk as satisfactory despite the firm breaching internal risk limits over a number of years.
The report also pinned blame on the bank’s poor oversight of itself, saying “the board put short-run profits above effective risk management and often treated resolution of supervisory issues as a compliance exercise rather than a critical risk-management issue.”
Through last year, the bank paid management based on earnings and stock returns, and didn’t focus on risk management.
The Fed’s report describes risk-management failures that built up over a period of years, but they showed up acutely in the bank’s final days.
For example, SVB had not tested its capacity to borrow at the Fed’s emergency lending facility last year, making a last-minute scramble for funding impossible.
Having those safeguards in place might have made the bank’s resolution more orderly, the Fed said.
Problems at Signature Bank had been flagged by the FDIC, but the regulator said in its own report that it could have gone farther.
It downgraded its rating of the bank’s liquidity risk management in 2019, signaling that it needed to improve, but said it should have also downgraded its rating of management because its faulty oversight persisted.
The bank had high concentrations of uninsured deposits, with some 60 clients holding balances of more than $250 million, making up about 40 percent of total deposits, the agency said.
Signature’s deposits more than doubled between the end of 2019 and the end of 2021, tracking the growth of the cryptocurrency industry, which made up a chunk of its customer base.
A buildup of cash on its balance sheet masked continued problems with liquidity risk management. Then, a downdraft in crypto in 2022 depleted the cash, the FDIC said.
The FDIC also said that staffing shortages hampered its ability to communicate issues to Signature in a timely manner.
Since the pandemic started, the supervisory group overseeing large financial institutions in its New York office has had average vacancies of 40 percent, the agency said. For the last six years, it couldn’t adequately staff the team dedicated to Signature.
Another round of congressional hearings with top bank regulators is planned for mid-May. The House Oversight Committee has said that it plans to investigate the San Francisco Fed, which shared jurisdiction of SVB with the Fed board in Washington. The Fed’s Office of Inspector General has launched its own review.
Another report expected Monday will assess deposit insurance and may outline options to overhaul the existing system.
Updated: 4-30-2023
FDIC Pins Signature Bank’s Failure On Poor Governance And Illiquidity
The FDIC blamed Signature’s board of directors and management for pursuing “unrestrained growth” using uninsured deposits without implementing liquidity risk management strategies.
The United States Federal Deposit Insurance Corporation’s (FDIC) post-mortem assessment of Signature Bank (SBNY) revealed poor management and inadequate risk management practices as the root cause for its collapse.
Federal regulators shut down Signature Bank on March 12 to protect the U.S. economy and strengthen public confidence in the banking system. The FDIC was appointed to handle the insurance process.
@federalreserve @USTreasury @FDICgov issue statement on actions to protect the U.S. economy by strengthening public confidence in our banking system, ensuring depositors’ savings remain safe: https://t.co/YISeTdFPrO
— Federal Reserve (@federalreserve) March 12, 2023
On April 29, the FDIC’s report highlighted that the collapse of major U.S. banks, like Silvergate Bank and Silicon Valley Bank, caused illiquidity due to deposit runs. The regulator further stated:
“However, the root cause of SBNY’s failure was poor management. SBNY management did not prioritize good corporate governance practices, did not always heed FDIC examiner concerns, and was not always responsive or timely in addressing FDIC supervisory recommendations (SRs).”
The FDIC blamed Signature’s board of directors and management for pursuing “unrestrained growth” using uninsured deposits without implementing liquidity risk management strategies.
The final nail in the coffin for Signature came when it could not manage liquidity, which was required to fulfill large withdrawal requests.
The report also revealed that Signature often denied addressing the FDIC’s concerns or implementing the regulator’s supervisory recommendations. Since 2017, the FDIC has sent numerous supervisory letters to SBNY citing regulatory, audit or risk management criticisms, as shown below.
Due to noncompliance with the recommendations, the FDIC downgraded SBNY’s liquidity component rating to “3” starting in 2019, further highlighting the need to improve its fund management practices.
Two government bodies were reportedly investigating Signature Bank for money laundering before its collapse. A report from March 15 highlighted that the U.S. Department of Justice was investigating the bank for potential money laundering.
In addition, a parallel probe by the U.S. Securities and Exchange Commission was reportedly underway. However, it remains unclear how the investigations aided the bank’s closure.
Updated: 4-30-2023
First Republic’s Crisis Is Not An Isolated Incident — JPMorgan Exec
The chief investment officer of J.P. Morgan Asset Management said it would be “naive to say that this is just limited to First Republic.”
An executive at J.P. Morgan Asset Management is unsure how United States regional banks are “going to operate” when the Federal Deposit Insurance Corporation (FDIC) and Federal Home Loan Banks (FHLB) emergency lending programs expire, warning that the possible collapse of First Republic Bank may cause a domino effect.
In an April 27 Bloomberg television interview, Bob Michele, the chief investment officer of J.P. Morgan Asset Management, said that the impact of First Republic’s liquidity issues caused by significant deposit outflows isn’t “just limited” to the bank itself but could potentially affect the entire banking industry.
Michele emphasized that this is not an isolated incident when asked if he sees this as a “First Republic problem or a banking problem.” He stated:
“Well, I think we have both, I think it’s somewhat naïve to say that this is just limited to First Republic.”
He added that the liquidity issues faced by First Republic “should never have happened,” as banking is the “most heavily regulated capitalized industry on the planet.”
Michele believes there needs to be “continuous progress to some sort of resolution” for the impact of First Republic’s downfall to be contained or “ringfenced” and prevented from spreading throughout the broader financial system.
Michele blamed the “high price of everything” as a significant factor leading to the recent banking crisis: The “bottom quartile of earners” in the United States have been “most punished” and forced to deplete their deposit balances “just to live,” he said.
He added that “most people’s” deposit balances are now even lower than before the beginning of the COVID-19 pandemic.
Michele believes a resolution is urgently needed as regional banks are “heavily dependent” on the FDIC and FHLB.
“I think the regional banks are heavily dependent on the FDIC, they are heavily dependent on the federal home loan bank to get additional cash; we don’t know how they are going to operate when those two programs expire.”
During the last quarter of 2022, both Signature Bank and Silvergate Bank reportedly received substantial loans from the FHLB — a consortium of 11 regional banks across the United States that provides funds to other banks and lenders — totaling nearly $10 billion and $3.6 billion, respectively.
However, despite the financial assistance, both banks eventually collapsed due to significant deposit outflows.
Ryan Selkis, the CEO of blockchain research firm Messari, suggested in a tweet to his 322,000 followers on April 29 that unless the government recognizes that the Federal Reserve’s policies “are to blame and not crypto,” more banks may face collapse in the future.
Did crypto kill First Republic too?
Or is DC going to recognize that their and the Fed’s policies are to blame and not crypto.
Maybe by bank #10, things will change.
— Ryan Selkis (@twobitidiot) April 28, 2023
This comes after “people with knowledge” told Bloomberg on March 21 that U.S. Department of the Treasury staff members are reportedly studying ways to expand the current deposit insurance beyond the maximum cap of $250,000 to cover all deposits in the United States.
According to the FDIC, domestic U.S. bank deposits totaled $17.7 trillion as of December 31, 2022.
JPMorgan, PNC Submit Bids To Buy First Republic in Government-Led Sale
FDIC is expected to name a winner before First Republic opens Monday morning.
The Federal Deposit Insurance Corp. is reviewing bids for First Republic Bank FRC -43.30%decrease; red down pointing triangle
and preparing to seize the lender, according to people familiar with the matter, weeks after a $100 billion deposit run shattered its business model.
Big banks including JPMorgan Chase & Co. and PNC Financial Services Group Inc. submitted offers for the troubled lender earlier Sunday, the people said, and the FDIC went back to the bidders with questions in the evening.
The agency is expected to name a winner before First Republic opens Monday morning, the people said.
The March 10 failure of Silicon Valley Bank sent First Republic’s stock down sharply, spooking well-heeled customers with balances exceeding the FDIC’s $250,000 insurance limit.
The stock has lost more than 90% of its value since early March.
The First Republic fire sale is an astonishing comedown for a lender that was long the envy of finance.
With some $233 billion in assets at the end of the first quarter, it would be the second-largest bank to fail in U.S. history, behind Washington Mutual Inc. in 2008.
Rounding out the top four are Silicon Valley Bank and Signature Bank, a New York-based lender that also failed in March.
Analysts said exactly how regulators resolve First Republic will be important in shoring up confidence in the broader banking system. Some said they don’t expect a First Republic failure to kick off a new round of turmoil in the industry.
First Republic lost so many deposits so quickly that its business model no longer had much value, making it harder for the bank to raise capital, said Steven Kelly, a senior researcher at the Yale Program on Financial Stability.
“This is the last stages of that initial panic. First Republic’s problems started as a result of SVB and Signature. It was a run on the business model,” Mr. Kelly said. “This isn’t the story of 2008, where one bank went down and investors focused on the next biggest bank, which would wobble.”
First Republic’s business model was built around gathering big deposits from rich customers and paying little or no interest on them. The bank, in turn, offered low-interest mortgages to those very same customers.
The strategy began to fray after the Federal Reserve started raising rates to quell inflation. Last month’s customer panic doomed it.
A group of the nation’s biggest banks, including JPMorgan and PNC, came to the rescue with a $30 billion deposit.
First Republic hired outside advisers to craft a plan to shore up its finances, but buyers and investors were unwilling to pump money into the bank absent government support.
The deposit run cost First Republic dearly. In its first-quarter earnings report last week, the bank said it filled the $100 billion hole left by fleeing depositors with expensive loans from the Federal Reserve and Federal Home Loan Bank.
The bank, in short, was facing a grim future where it would earn less on its loans than it was paying to borrow.
The earnings report sent the bank’s stock down nearly 50% in one day. It continued to tumble as the week went on and closed at $3.51 a share on Friday, down from $115 in early March.
Regulators and bankers hoped the panic had eased after the government stepped in to make uninsured depositors at SVB and Signature Bank whole. But First Republic’s badly damaged balance sheet left it with few good options.
Only a handful of banks could easily absorb First Republic’s assets and deposits. Some of those, such as Wells Fargo & Co., face regulatory hurdles to expansion.
Others are still digesting recent deals for other banks. Some banks that took a look at First Republic opted not to bid, including U.S. Bancorp and Bank of America Corp., according to people familiar with the matter.
Any sale that leads large banks to grow bigger could vex Democrats who have pushed for limits on industry concentration, including banking.
But Rep. Ro Khanna (D., Calif.) said he disagreed with other progressive Democrats who have said the nation’s largest banks shouldn’t be allowed to get bigger by swallowing First Republic.
“I think that the FDIC needs to look at the lowest-cost alternative. That’s their mandate,” he said on CBS’s “Face the Nation” on Sunday. “Right now, they may need to work with banks and private capital to save First Republic. That is the state we’re in.”
Updated: 5-1-2023
Jamie “Pedophile” Dimon Wins Again In First Republic Bank Deal
America’s biggest bank just got even bigger.
JPMorgan Chase & Co.’s purchase of failed First Republic Bank boosts the New York bank’s massive loan book and dominant deposit franchise.
It gives the megabank a new crop of rich customers at a time when it is trying to expand its wealth-management operation. And it allows Chief Executive Jamie Dimon to once again play the role of industry savior.
JPMorgan used its huge balance sheet to beat out smaller banks for First Republic, which was seized early Monday by the Federal Deposit Insurance Corp. First Republic collapsed after losing $100 billion in deposits in a March run that followed the implosion of fellow Bay Area lender Silicon Valley Bank.
PNC Financial Services Group Inc., Citizens Financial Group Inc. and Fifth Third Bancorp also submitted bids to the FDIC Sunday, people familiar with the matter said.
The FDIC said there was “a highly competitive bidding process.” Its choice, the agency said, was consistent with its requirement to go with the offer that is projected to cost the deposit-insurance fund the least.
JPMorgan will assume all of First Republic’s $92 billion in deposits. It is also buying most of the bank’s assets, including about $173 billion in loans and $30 billion in securities. At the end of the first quarter, JPMorgan had $3.7 trillion in assets and $2.4 trillion in deposits.
“You’re basically getting a very clean bank in the most clean way you can get it,” Mr. Dimon said on a call with analysts Monday morning.
JPMorgan shares rose 3% in midday trading, a sign that investors like the math behind the deal.
The deal had echoes of JPMorgan’s 2008 purchase of Washington Mutual Inc., which still ranks as the largest-ever bank failure.
That purchase helped JPMorgan expand in California and Florida; it also brought years of regulatory and legal headaches tied to issues with the failed bank’s mortgages.
Mr. Dimon played a key role in earlier efforts to rescue First Republic. His bank was one of the largest contributors to a $30 billion deposit from 11 banks meant to shore up the lender, and he tried to rally the other banks to take additional steps to help. His bankers were also hired to advise First Republic on its various options.
First Republic’s strategy serving the wealthy propelled the lender to become one of the 20 largest U.S. banks. It ran into problems once the Federal Reserve started raising interest rates last year.
Still, the business of banking rich people remains a lucrative one. Getting access to First Republic’s high-end clientele motivated JPMorgan to do the deal, executives said.
In late 2019, JPMorgan began a push to add more wealth advisers for people who aren’t as rich as the clients of its private bank.
Mr. Dimon grew up in the business; his father was a longtime broker, and the younger Mr. Dimon had run advisory businesses in the past. But JPMorgan never had an army of advisers to challenge Bank of America Corp.’s Merrill Lynch Wealth Management or Morgan Stanley.
Some First Republic clients and advisers had already started jumping to JPMorgan in recent weeks, executives said.
JPMorgan will merge First Republic’s wealth business into its own and turn some of the bank’s branches into wealth centers. The First Republic brand will disappear.
Buying San Francisco-based First Republic also gives JPMorgan a boost in Silicon Valley, where it has for years tried to build better relationships with tech executives and startup founders.
The goal is to both manage their wealth and get their investment-banking business, an offering First Republic lacked.
Still, Mr. Dimon said JPMorgan likely won’t be as quick to dole out the kind of low-rate jumbo mortgages First Republic offered. And, unlike First Republic, it will sell many of the mortgages it makes, he said. Rising interest rates badly dented the value of First Republic’s mortgage book.
JPMorgan executives stayed up into the wee hours of Monday morning waiting to hear if they had won the auction. The FDIC’s announcement came a little before 4 a.m.
“There were a lot of people up all night,” Mr. Dimon said on a call with reporters Monday.
A team of executives immediately flew to the West Coast to meet with their new colleagues. The co-heads of JPMorgan’s consumer bank, Jennifer Piepszak and Marianne Lake, are overseeing the deal’s integration. The two women are considered front runners in the race to eventually succeed Mr. Dimon as CEO.
Updated: 6-8-2023
It Is Time to Admit It: Bank Regulation Doesn’t Quite Work
Though stricter capital rules are touted as the solution to U.S. banks’ vulnerabilities, Credit Suisse has shown that big buffers don’t guarantee stability.
For U.S. officials, what happened to Silicon Valley Bank seems to have an easy solution: Merge regional lenders together and regulate them as strictly as megabanks. The kink in the plan is that Credit Suisse CS also failed spectacularly.
The Swiss government this month backed a parliamentary inquiry—the fifth in the country’s history—to examine the bank’s sale to its main rival UBS, scheduled to close as soon as next Monday. The merger was hurriedly brokered by officials during the third weekend of March, on the premise that a massive deposit flight could otherwise have toppled Credit Suisse the following week.
The inquiry may have far-reaching consequences. After the 2008 crash, global regulators embraced the so-called Basel III framework to curb lenders’ risk. In the U.S., rules were softened for regional banks under the Trump administration, but loopholes are now set to be closed.
Also, regulators could raise capital requirements on big U.S. banks by about 20%.
But if Credit Suisse was on the brink of collapse despite exceeding all regulatory targets, what is the point of them?
Basel III was supposed to turn highflying banks into “boring” investments. A higher cost of capital meant lower profitability, but a negligible risk of failure also meant lower risk. The idea was for bank shares to become steady income payers, almost like those of public utilities.
Yet, though the return on equity of developed-world banks has fallen to a utility-like 10%, from around 15% in the mid-2000s, the bank sector almost matches technology for volatility. That suggests investors are taking on quite a lot of risk.
Credit Suisse makes the point. A few days before officials intervened, executives claimed it had a liquidity coverage ratio—high-quality assets that can be sold to cover 30 days of outflows—of 150%, far above the regulatory minimum of 100%.
Documents disclosed to investors have shown that the Swiss National Bank provided it with two rounds of emergency liquidity totaling 70 billion Swiss francs, or about $77 billion.
Even if fleeing depositors had eaten up this entire buffer in less than a week, Credit Suisse could theoretically have sold assets and absorbed losses. Its key capital ratio was 14.1% at the end of last year, one of the highest among top banks, after it sold about $4.3 billion of stock in November.
Spain’s Banco Popular also complied with liquidity and capital ratios right before officials invoked resolution powers and sold it to Banco Santander for 1 euro in 2017.
In both cases, Additional Tier 1 or AT1 bonds were wiped out, though Credit Suisse stands out because equity holders didn’t also lose everything. AT1s were set up by European authorities after 2008 to automatically “bail in” lenders whenever capital fell below regulatory levels, allowing them to carry on.
Instead, they have become a way to clean up the books of compliant banks after officials have already decided to pawn them off, even if their problems had to do with liquidity and not capital.
This is now the central argument of a big lawsuit, coordinated by law firm Quinn Emanuel Urquhart & Sullivan, that bondholders are launching against Swiss regulators.
It is time to say that Basel III just doesn’t work as intended.
Perhaps even big financial cushions can’t stop a destructive panic once a bank has tarnished its own reputation beyond repair. Worse, every time regulatory ratios are raised, they become the new threshold under which fear is warranted.
Banks have voluntarily stayed far above their required individual targets, in turn set higher than the Basel III ratios.
The other possibility is that Credit Suisse and Banco Popular could have kept limping along, but officials considered that option too great a threat to financial stability. If so, they may never allow Basel III safeguards to fully play out. While the banks were unprofitable after years of bad decisions, they weren’t yet insolvent.
The global banking system is much safer than it was a decade and a half ago, but the arbitrariness of regulatory interventions gives investors another reason to stay away, despite low valuations.
European bank stocks are still trading below book value, but the problem is clearest in the $250 billion AT1 market. The net value of the assets in the Invesco AT1 Capital Bond ETF is down 10% versus three months ago.
Bank-regulation experts in Switzerland and abroad are now studying whether Basel III needs amending. It could be argued that regulatory ratios should be increased, or conversely that they should be lowered and governments given even wider legal discretion to act.
Liquidity coverage ratios need fine-tuning to better reflect the dangers of a flighty deposit base. Maybe all deposits should be insured.
What is clear is that, as things stand now, investors can’t trust the metrics designed to show banks’ financial health. And that is a systemic problem.
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What Are The Biggest Alleged Crypto Heists And How Much Was Stolen? (#GotBitcoin?)
IRS To Cryptocurrency Owners: Come Clean, Or Else!
Coinbase Accidentally Saves Unencrypted Passwords Of 3,420 Customers (#GotBitcoin?)
Bitcoin Is A ‘Chaos Hedge, Or Schmuck Insurance‘ (#GotBitcoin?)
Bakkt Announces September 23 Launch Of Futures And Custody
Coinbase CEO: Institutions Depositing $200-400M Into Crypto Per Week (#GotBitcoin?)
Researchers Find Monero Mining Malware That Hides From Task Manager (#GotBitcoin?)
Crypto Dusting Attack Affects Nearly 300,000 Addresses (#GotBitcoin?)
A Case For Bitcoin As Recession Hedge In A Diversified Investment Portfolio (#GotBitcoin?)
SEC Guidance Gives Ammo To Lawsuit Claiming XRP Is Unregistered Security (#GotBitcoin?)
15 Countries To Develop Crypto Transaction Tracking System: Report (#GotBitcoin?)
US Department Of Commerce Offering 6-Figure Salary To Crypto Expert (#GotBitcoin?)
Mastercard Is Building A Team To Develop Crypto, Wallet Projects (#GotBitcoin?)
Canadian Bitcoin Educator Scams The Scammer And Donates Proceeds (#GotBitcoin?)
Amazon Wants To Build A Blockchain For Ads, New Job Listing Shows (#GotBitcoin?)
Shield Bitcoin Wallets From Theft Via Time Delay (#GotBitcoin?)
Blockstream Launches Bitcoin Mining Farm With Fidelity As Early Customer (#GotBitcoin?)
Commerzbank Tests Blockchain Machine To Machine Payments With Daimler (#GotBitcoin?)
Man Takes Bitcoin Miner Seller To Tribunal Over Electricity Bill And Wins (#GotBitcoin?)
Bitcoin’s Computing Power Sets Record As Over 100K New Miners Go Online (#GotBitcoin?)
Walmart Coin And Libra Perform Major Public Relations For Bitcoin (#GotBitcoin?)
Judge Says Buying Bitcoin Via Credit Card Not Necessarily A Cash Advance (#GotBitcoin?)
Poll: If You’re A Stockowner Or Crypto-Currency Holder. What Will You Do When The Recession Comes?
1 In 5 Crypto Holders Are Women, New Report Reveals (#GotBitcoin?)
Beating Bakkt, Ledgerx Is First To Launch ‘Physical’ Bitcoin Futures In Us (#GotBitcoin?)
Facebook Warns Investors That Libra Stablecoin May Never Launch (#GotBitcoin?)
Government Money Printing Is ‘Rocket Fuel’ For Bitcoin (#GotBitcoin?)
Bitcoin-Friendly Square Cash App Stock Price Up 56% In 2019 (#GotBitcoin?)
Safeway Shoppers Can Now Get Bitcoin Back As Change At 894 US Stores (#GotBitcoin?)
TD Ameritrade CEO: There’s ‘Heightened Interest Again’ With Bitcoin (#GotBitcoin?)
Venezuela Sets New Bitcoin Volume Record Thanks To 10,000,000% Inflation (#GotBitcoin?)
Newegg Adds Bitcoin Payment Option To 73 More Countries (#GotBitcoin?)
China’s Schizophrenic Relationship With Bitcoin (#GotBitcoin?)
More Companies Build Products Around Crypto Hardware Wallets (#GotBitcoin?)
Bakkt Is Scheduled To Start Testing Its Bitcoin Futures Contracts Today (#GotBitcoin?)
Bitcoin Network Now 8 Times More Powerful Than It Was At $20K Price (#GotBitcoin?)
Crypto Exchange BitMEX Under Investigation By CFTC: Bloomberg (#GotBitcoin?)
“Bitcoin An ‘Unstoppable Force,” Says US Congressman At Crypto Hearing (#GotBitcoin?)
Bitcoin Network Is Moving $3 Billion Daily, Up 210% Since April (#GotBitcoin?)
Cryptocurrency Startups Get Partial Green Light From Washington
Fundstrat’s Tom Lee: Bitcoin Pullback Is Healthy, Fewer Searches Аre Good (#GotBitcoin?)
Bitcoin Lightning Nodes Are Snatching Funds From Bad Actors (#GotBitcoin?)
The Provident Bank Now Offers Deposit Services For Crypto-Related Entities (#GotBitcoin?)
Bitcoin Could Help Stop News Censorship From Space (#GotBitcoin?)
US Sanctions On Iran Crypto Mining — Inevitable Or Impossible? (#GotBitcoin?)
US Lawmaker Reintroduces ‘Safe Harbor’ Crypto Tax Bill In Congress (#GotBitcoin?)
EU Central Bank Won’t Add Bitcoin To Reserves — Says It’s Not A Currency (#GotBitcoin?)
The Miami Dolphins Now Accept Bitcoin And Litecoin Crypt-Currency Payments (#GotBitcoin?)
Trump Bashes Bitcoin And Alt-Right Is Mad As Hell (#GotBitcoin?)
Goldman Sachs Ramps Up Development Of New Secret Crypto Project (#GotBitcoin?)
Blockchain And AI Bond, Explained (#GotBitcoin?)
Grayscale Bitcoin Trust Outperformed Indexes In First Half Of 2019 (#GotBitcoin?)
XRP Is The Worst Performing Major Crypto Of 2019 (GotBitcoin?)
Bitcoin Back Near $12K As BTC Shorters Lose $44 Million In One Morning (#GotBitcoin?)
As Deutsche Bank Axes 18K Jobs, Bitcoin Offers A ‘Plan ฿”: VanEck Exec (#GotBitcoin?)
Argentina Drives Global LocalBitcoins Volume To Highest Since November (#GotBitcoin?)
‘I Would Buy’ Bitcoin If Growth Continues — Investment Legend Mobius (#GotBitcoin?)
Lawmakers Push For New Bitcoin Rules (#GotBitcoin?)
Facebook’s Libra Is Bad For African Americans (#GotBitcoin?)
Crypto Firm Charity Announces Alliance To Support Feminine Health (#GotBitcoin?)
Canadian Startup Wants To Upgrade Millions Of ATMs To Sell Bitcoin (#GotBitcoin?)
Trump Says US ‘Should Match’ China’s Money Printing Game (#GotBitcoin?)
Casa Launches Lightning Node Mobile App For Bitcoin Newbies (#GotBitcoin?)
Bitcoin Rally Fuels Market In Crypto Derivatives (#GotBitcoin?)
World’s First Zero-Fiat ‘Bitcoin Bond’ Now Available On Bloomberg Terminal (#GotBitcoin?)
Buying Bitcoin Has Been Profitable 98.2% Of The Days Since Creation (#GotBitcoin?)
Another Crypto Exchange Receives License For Crypto Futures
From ‘Ponzi’ To ‘We’re Working On It’ — BIS Chief Reverses Stance On Crypto (#GotBitcoin?)
These Are The Cities Googling ‘Bitcoin’ As Interest Hits 17-Month High (#GotBitcoin?)
Venezuelan Explains How Bitcoin Saves His Family (#GotBitcoin?)
Quantum Computing Vs. Blockchain: Impact On Cryptography
This Fund Is Riding Bitcoin To Top (#GotBitcoin?)
Bitcoin’s Surge Leaves Smaller Digital Currencies In The Dust (#GotBitcoin?)
Bitcoin Exchange Hits $1 Trillion In Trading Volume (#GotBitcoin?)
Bitcoin Breaks $200 Billion Market Cap For The First Time In 17 Months (#GotBitcoin?)
You Can Now Make State Tax Payments In Bitcoin (#GotBitcoin?)
Religious Organizations Make Ideal Places To Mine Bitcoin (#GotBitcoin?)
Goldman Sacs And JP Morgan Chase Finally Concede To Crypto-Currencies (#GotBitcoin?)
Bitcoin Heading For Fifth Month Of Gains Despite Price Correction (#GotBitcoin?)
Breez Reveals Lightning-Powered Bitcoin Payments App For IPhone (#GotBitcoin?)
Big Four Auditing Firm PwC Releases Cryptocurrency Auditing Software (#GotBitcoin?)
Amazon-Owned Twitch Quietly Brings Back Bitcoin Payments (#GotBitcoin?)
JPMorgan Will Pilot ‘JPM Coin’ Stablecoin By End Of 2019: Report (#GotBitcoin?)
Is There A Big Short In Bitcoin? (#GotBitcoin?)
Coinbase Hit With Outage As Bitcoin Price Drops $1.8K In 15 Minutes
Samourai Wallet Releases Privacy-Enhancing CoinJoin Feature (#GotBitcoin?)
There Are Now More Than 5,000 Bitcoin ATMs Around The World (#GotBitcoin?)
You Can Now Get Bitcoin Rewards When Booking At Hotels.Com (#GotBitcoin?)
North America’s Largest Solar Bitcoin Mining Farm Coming To California (#GotBitcoin?)
Bitcoin On Track For Best Second Quarter Price Gain On Record (#GotBitcoin?)
Bitcoin Hash Rate Climbs To New Record High Boosting Network Security (#GotBitcoin?)
Bitcoin Exceeds 1Million Active Addresses While Coinbase Custodies $1.3B In Assets
Why Bitcoin’s Price Suddenly Surged Back $5K (#GotBitcoin?)
Zebpay Becomes First Exchange To Add Lightning Payments For All Users (#GotBitcoin?)
Coinbase’s New Customer Incentive: Interest Payments, With A Crypto Twist (#GotBitcoin?)
The Best Bitcoin Debit (Cashback) Cards Of 2019 (#GotBitcoin?)
Real Estate Brokerages Now Accepting Bitcoin (#GotBitcoin?)
Ernst & Young Introduces Tax Tool For Reporting Cryptocurrencies (#GotBitcoin?)
Recession Is Looming, or Not. Here’s How To Know (#GotBitcoin?)
How Will Bitcoin Behave During A Recession? (#GotBitcoin?)
Many U.S. Financial Officers Think a Recession Will Hit Next Year (#GotBitcoin?)
Definite Signs of An Imminent Recession (#GotBitcoin?)
What A Recession Could Mean for Women’s Unemployment (#GotBitcoin?)
Investors Run Out of Options As Bitcoin, Stocks, Bonds, Oil Cave To Recession Fears (#GotBitcoin?)
Goldman Is Looking To Reduce “Marcus” Lending Goal On Credit (Recession) Caution (#GotBitcoin?)
Your Questions And Comments Are Greatly Appreciated.
Monty H. & Carolyn A.
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