Why SVB's meltdown shouldn't make you panic

American Thinker ^ | 04/28/2023 | Jay Davidson

[SeekAndFind]

Perfect storms occur in batches. It's never a single event, a single wave. Bank execs, like ship captains, earn their keep during times of upheaval, in the storm. The good ones have insights that shine by anticipating events, examining cause and effect, assessing risk, and charting the best course through rough seas.

Silicon Valley Bank grew deposits by $100 billion in a year and a half. That is the first wave in a perfect storm. The problem or opportunity originated from easy money with which the Federal Reserve flooded the economy (printing $9 trillion via Quantitative Easing). SVB depositors were high-tech recipients of government spending on ESG and DIE projects. Those deposits are considered hot, subject to withdrawal at a moment's notice.

SVB's next mistake was to mismatch volatile deposits by investing in long-term bonds. They invested those deposits in ten-year Treasuries yielding 1.6%. Then SVB execs and bank examiners were distracted by meaningless woke activity; they spent more time on social justice than on bank fundamentals.

The next wave was, once again, Fed Reserve action. This time, it was interest rates and Fed tightening. The Fed raised rates in 2022 by 4.50% in a year. That is way too rapid. It caused an inverted yield curve, squeezing net margins, and caused a massive decline in bond face value. The decline in bond value matters only if the bank has to sell that bond for liquidity purposes. Go back to the mismatch between hot deposits and ten-year bonds investments.

When you operate a bank so close to the edge, as did SVB, it doesn't take much to push you over. In this case, it may have been a tweet, much like the butterfly in Africa causing a hurricane in the Caribbean.

[SeekAndFind]

ACCORDING TO THE AUTHOR ( A FOUNDER AND CHAIRMAN OF A COMMERCIAL BANK HE STARTED ALMOST 30 YEARS AGO ):

“The vast majority of banks and bankers appreciate the dangers of perfect storms and manage their banks in a moderate, balanced, and conservative manner. Don’t be confused by fear into thinking a lot of banks make the same mistakes as did SVB. Understand the clear (in hindsight) path SVB took to destruction and realize that bank owners don’t want to suffer the same, and inevitable, consequences for poor management.”

[CFW]

What about First Republic Bank and others that are possibly in similar situations? When they go under will it be time to panic?

[zeestephen]

Why did the Federal Reserve not take possession of the SVB 10 Year Treasuries and promise to print money for the full face value of the T-Bonds?

To my eye, this still looks like an old fashioned run on the bank.

As far as I know, no one has even suggested that there is any problem with the SVB loan portfolio - just with cash reserves.

Bottom Line - when half your depositors withdraw their money in a couple days, every bank in the world is going to default.

[Organic Panic]

I wasn’t panicking about SVB.

I am panicking about the government regulations of every bank and Biden’s quest to destroy the economy.

[catnipman]

article is complete bullshit ... it’s estimated that the paper owned by midsize and small banks is 2 trillion dollars underwater, a result of bidenomic’s inflation/interest rate trap and the incredibly stupid bankers who needlessly fell into that trap ...