What is going on in the US regional bank sector? The press as usual got the wrong end of the stick. In the case of SVB (Silicon Valley Bank), it seems that it was a run on the bank following poor quarterly results. The FDIC guarantees deposits up to $250,000 so it's not entirely clear why ordinary people were standing in queue to get their money back. More important is the $11 billion of institutional money that walked out of the door in the past 4 months. Apparently, the average deposit at SVB was $ 5 million...
Some say that it's the liquidation of its treasury portfolio that has given rise to the losses, but it's not like the cash usually sits in bank accounts doing nothing. Moreover, if this was the case, then reserves would have already been set aside for these losses.
Something else is afoot here. There was mention of SVB being one of the banks active in the crypto coin sector, which has seen wild price gyrations and some rather massive fraud in the past few months.
Still, it seems that the pain is growing and that other regional banks are feeling the pressure. Janet Yellen said over the weekend that there would not be a government rescue for SVB (although buyers were making offers for the bank Sunday...).
It is strange that in this period when things in the US are relatively calm that suddenly there is a run on the banks -- strange!
Two things have now been confirmed vis-a-vis the SVB failure; (1) this is not asset driven, it's liability-driven, (2) all SVB deposits have now been guaranteed. Now, that a CFO was stupid enough to leave more than 250,000 in a bank account just screams of stupidity. I mean what the hell are money market accounts for otherwise. Plain laziness.
In addition, the management was less than careful, and succeeded in having fewer controls -- thanks to the past administration, that once again relaxed banking rules. Still, the Fed put its finger in the breach and solve the short-term problem.
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