Featured Three US banks collapse in one week? Where's my money?

[AgnosticBoy]

Apparently, 3 US banks have gone under within a weeks time. The banks are Silvergate Capital, Silicon Valley Bank (SVB), and Signature. What caught my eye on this story is the SVB closure which was caused in large part by mass amounts of withdrawals. I thought banks were supposed to be able to cover all withdrawal requests?

Silvergate Capital, a central lender to the crypto industry, said on Wednesday that it would be winding down operations and liquidating its bank. Silicon Valley Bank, a major lender to startups, collapsed on Friday after depositors withdrew more than $42 billion following the bank’s Wednesday statement that it needed to raise $2.25 billion to shore up its balance sheet. Signature, which also had a strong crypto focus but was much larger than Silvergate, was seized on Sunday evening by banking regulators.

Source: CNBC

The cause for SVB's collapse is that many made a run on the bank... withdrew their money all at once:

The failure of Silicon Valley Bank was caused by a run on the bank. The company was not, at least until clients started rushing for the exits, insolvent or even close to insolvent. But banking is an enterprise that relies as much on confidence as on cash — and if that runs out, the game is over.

The collapse may have been an unforced, self-inflicted error: The bank’s management chose to sell $21 billion of bonds at a $1.8 billion loss, in large part, it appears, because many of those bonds were yielding an average of only 1.79 percent at a time when interest rates had risen drastically and the bank was starting to look like an underperformer relative to its peers. Moody’s was considering downgrading its rating. The bank’s management — with the help of Goldman Sachs, its adviser — chose to raise new equity from the venture capital firm General Atlantic and also to sell a convertible bond to the public.

It isn’t clear if the bond sale or the fund-raising, at least initially, had been made under duress. It was meant to reassure investors. But it had the opposite effect: It so surprised the market that it led the bank’s very smart client base of venture capitalists to direct their portfolio clients to withdraw their deposits en masse.

Source: The New York Times
[emphasis added]

And if I hear about all of the big boys withdrawing their funds in large numbers, you can bet that the little guy (like me) should be concerned. Apparently, the Feds have stepped in:

New York CNN — In an extraordinary action to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of the failed Silicon Valley Bank will have access to all their money starting Monday.

In a related action, the government shut down Signature Bank, a regional bank that was teetering on the brink of collapse in recent days. Signature’s customers will receive a similar deal, ensuring that even uninsured deposits will be returned to them Monday.

“The Fed ring fenced the SVB disaster and averted a crisis of epic proportions for the banking sector,” said Wedbush Securities’ Dan Ives.”This was a much needed move to avert contagion on the banking sector and consumer confidence. That said the Street knows there is never just one cockroach and investors will be laser focused on other regional banks that need to possibly shore up capital.”

By guaranteeing the deposits, the US government is trying to avoid two potentially risky scenarios from the bank failure fallout, both of which could have dire consequences: Other banks with similar profiles to SVB and Signature could be next to fail if customers lose faith that they will have ample cash to fund their deposits. And the tech companies that kept their cash with SVB could collapse if they were unable to make payroll or fund their operations with the $250,000 worth of deposits per account that the FDIC insures.

Source: CNN

What I'm wondering now is if more banks will fail?

Also, should I be worried about being able to access my own hard-earned money from my bank? 🤔

 

[AgnosticBoy]

Here's a video reporting of SVB failure (edit: originally had a shorter vid. but I replaced with a longer but better one that goes over more detail)

Reading around today, it seems that some companies that held money in these banks could've also gone under if they couldn't access their funds to pay their bills and employees.

 

[Multicolored Lemur]

Also, should I be worried about being able to access my own hard-earned money from my bank? 🤔

Only if you have more than $250,000 in any one account. And if you do, more power to ya! 😜

Banks use “fractional reserves,” I think it’s called, thinking that a run is mathematically remote. And as one of the reforms of the New Deal, the FDIC provides back up.

 

[AgnosticBoy]

Only if you have more than $250,000 in any one account. And if you do, more power to ya!

$250,000.00? Far from it. Even if I did it sounds like it would be best to divide it among different banks

 

[Multicolored Lemur]

$250,000.00? Far from it. Even if I did it sounds like it would be best to divide it among different banks

just don’t have too many accounts, or your just multiply the paperwork. Or these days, what you need to keep track of online!

 

[Multicolored Lemur]

Did the government just bail out banks again? It’s complicated.

www.vox.com

“They said they would make sure all of SVB’s depositors would have access to their funds by the next day, not just the $250,000 guaranteed by the FDIC.”

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So, that’s a little bit of a bailout for the big boys and fat cats. And yes, “bailout” is a very highly charged term.

 

[AgnosticBoy]

just don’t have too many accounts, or your just multiply the paperwork. Or these days, what you need to keep track of online!

Or maybe I'll convert my cash to gold. Go to an island some where and bury it. Might be safer than the banks nowadays.

 

[AgnosticBoy]

Seems like US and European markets are still in panic mode. Dow market is down 600 points and CNBC reports several European banks have halted trading after steep losses.

European stock markets were sharply lower Wednesday, with banking stocks in deep negative territory amid the global Silicon Valley Bank fallout and more bad news for Credit Suisse.

Source: CNBC

With all these Banks having problems there is probably a financial contagion that's spreading here. Could just be panic.

Financial contagion refers to "the spread of market disturbances – mostly on the downside – from one country to the other, a process observed through co-movements in exchange rates, stock prices, sovereign spreads, and capital flows"

Things just don't happen like this. I bet you these Banks were already in a bad position for a while. Then after the economy got worse with rising costs and interest rates, that made it easier for them to run into even more serious problems and collapse. But I bet you those CEOs got their bonuses in.

 

[Multicolored Lemur]

I bet you these Banks were already in a bad position for a while. Then after the economy got worse with rising costs and interest rates, that made it easier for them to run into even more serious problems and collapse.

Yes, I think something like this. Please don’t panic. I’d even say, Please continue to be optimistic. Compared to 2008, this thing is a Sunday picnic and a walk in the park.

PS I think you’re right about the bonuses. In a better functioning democracy, the legislature would pass laws to “claw back” some of these bonuses! 😀

 

[Multicolored Lemur]

What I took from this book — stocks outcompete bonds in the longterm, don’t try to time the market. Buy and hold in an index fund.

Of course, YMMV, meaning Your Mileage May Vary. 🥴

 

[AgnosticBoy]

Please don’t panic.

I'm a new investor so it's hard not to panic, lol. I'm not really concerned about my bank accounts. I'm more worried about my stock investments.

I'll manage though whatever comes of it.

 

[AgnosticBoy]

Just to vent, I think a lot of these banks failing is caused by them making too many risky investments, giving out risky loans, and greed. When the economy starts getting tough, it comes right back and bites them .
... Enuf venting...


Just finished watching a CBS 60 minute documentary on the FDIC and the 2008 recession. THe most important question was asked around the 7:35 minute mark regarding how many times can the FDIC bail out banks and what if they run out of money having to do so? The response by an FDIC official was very troubling to me. The official basically said that the FDIC "doesn't run out of money".

SO the FDIC has unlimited resources, as in they can just keep printing endless amounts of money. May as well ask, why can't the government just give everyone a million dollars.

I found one easy-to-read article that goes over the issue of what happens when the government prints too much money:

Why can’t we just print more money?​

“The answer, in one word, is inflation,” says Alan Cole, senior economic policy analyst at The Conference Board, a business-focused think tank. “[That’s] the binding constraint on governments, in the end, that keeps them from issuing gobs of currency and buying whatever they want with it.”

It goes back to supply and demand. Increasing the money supply by, say, $32 trillion only introduces $32 trillion more into the economy. It doesn’t magically conjure $32 trillion worth of goods.

More dollars chasing the same amount of goods would cause prices to spike — in a major way.

Sean Snaith, the director of the University of Central Florida's Institute for Economic Forecasting, tells me that we’ve experienced a little of this recently: The government pumped money into the economy when the pandemic hit in 2020, and three years later inflation is still at 6.4%.

Look at increased rent, egg and car prices. Paying a bunch for basics is “not terribly pleasant,” Snaith says, and that’s nothing compared to what would happen with $32 trillion extra floating around.

Forget high inflation — we’d see hyperinflation, where prices could increase by millions of percentage points, Snaith says.

A scenario like this “grinds an economy to a halt. Prices don't really function the way they should, and because money doesn’t hold its value, people don’t want to accept it as payment,” he says.

Source: Money.com

 

[bbyrd009]

supposedly when an economy's borrowing interest reaches 100% of the economy's gdp, the monetary unit goes bust, a la "Full Zimbabwe." i just heard this week that the US is at something like 125%? i guess being the USD gives it a bit more room, but let's face it, Central Banks crash economies, as sure as democratically elected governments dont overthrow themselves

 

[bbyrd009]

btc anyone? lol

 

[AgnosticBoy]

btc anyone? lol

Ha!.. Bitcoin is also on the move ⬆️, 19k to about 27k (up 32%) since this recent banking crisis!

Source: CoinDesk

 

[Multicolored Lemur]

supposedly when an economy's borrowing interest reaches 100% of the economy's gdp, the monetary unit goes bust, a la "Full Zimbabwe."

I really think this claim is mostly urban legend.

Okay, in mid-September 2008, the “investment” company Lehman Brothers went bankrupt. And two days later AIG tettered and almost went bankrupt. In fact, the Bush administration bailing out AIG was the key linchpin which prevented the whole thing from becoming much worse. And this is what people mean by phrases such as “near-collapse of major financial institutions,” because if AIG, meaning American Investment Group, had gone bankrupt, there would have been a domino effect.

We were already in a recession, which is what caused various speculative investments such as “Credit Default Swaps” to go bad. And the recession continued till June 2009 when we again started experiencing positive GDP growth.

But jobs recovery was slow.

And sometimes around (?) 2012 2010, two economists published a paper with data showing that when govt debt was above 90% of GDP, economic growth is slower than you want it to be. It later came out that even this conclusion is not as set in stone as first thought.

But “slower growth” is quite a bit different than going bust, and that’s why I’m saying urban legend.

These two economists are Carmen Reinhart and Ken Rogoff. I’m by no means an expert, just a little bit used to discussing the 2008 - 2009 Great Recession in forums such as this one.

* I have only two college courses in economics. Please keep that in mind.

 

[Multicolored Lemur]

The Reinhart and Rogoff magical 90 percent threshold loses its magic?

One of the most influential findings in the never-ending debate over American fiscal policy came from a 2010 paper by economists Carmen Reinhart and Kenneth Rogoff—“Growth in a Time of Debt.” They claimed to have identified a clear debt ratio (total public debt divided by gross domestic...

www.epi.org

Please note that Economic Policy Institute is a liberal organization.

Carmen Reinhart: “please point out to me what episodes from 1800 to the present have we had advanced economies who carried high levels of debt growing as rapidly or more rapidly than the norm.”

And she says, It’s Belgium after World War I and that’s about it.

To me, this is a good point.

I’d question the direction of the causation arrow. Because if an economy starts getting into trouble and its growth slowing down, well, a lot of govt expenditures will continue and some even increase. So, the slowdown can come first and then the bad ratio.

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PS The evolving dynamic of U.S. politics seems to be that Republican administrations run up deficits, and Democratic administrations pay them down! 😜 with some exceptions of course.

 

[bbyrd009]

I really think this claim is mostly urban legend.

Okay, in mid-September 2008, the “investment” company Lehman Brothers went bankrupt. And two days later AIG tettered and almost went bankrupt. In fact, the Bush administration bailing out AIG was the key linchpin which prevented the whole thing from becoming much worse. And this is what people mean by phrases such as “near-collapse of major financial institutions,” because if AIG, meaning American Investment Group, had gone bankrupt, there would have been a domino effect.

We were already in a recession, which is what caused various speculative investments such as “Credit Default Swaps” to go bad. And the recession continued till June 2009 when we again started experiencing positive GDP growth.

But jobs recovery was slow.

And sometimes around (?) 2012 2010, two economists published a paper with data showing that when govt debt was above 90% of GDP, economic growth is slower than you want it to be. It later came out that even this conclusion is not as set in stone as first thought.

But “slower growth” is quite a bit different than going bust, and that’s why I’m saying urban legend.

These two economists are Carmen Reinhart and Ken Rogoff. I’m by no means an expert, just a little bit used to discussing the 2008 - 2009 Great Recession in forums such as this one.

* I have only two college courses in economics. Please keep that in mind.

interesting
know of any other economies where their debt finance is over 100% of their gdp?
i mean, how does debt finance even work in that case?

 

[AgnosticBoy]

* I have only two college courses in economics. Please keep that in mind.

That's better than most. I only have one from high school. I'm also a self-taught investor if that counts for anything.

 

[Multicolored Lemur]

interesting
know of any other economies where their debt finance is over 100% of their gdp?
i mean, how does debt finance even work in that case?

I don’t know.

I am interested in the “Asian Tiger” economies as examples of successful govt intervention which has actually built up their countries.

Plus, I generally support the mixed economy approach, somewhere in the neighborhood of 70% capitalism and 30% socialism. This strikes me as about the sweet spot.