Record Bank Run Drained A Quarter, Or $42BN, Of SVB's Deposits In Hours, Leaving It With Negative $1BN In Cash; Is the Silicon Valley Bank's Failure Another "Canary in the Coal Mine"
US may have more bank failures ahead; Yearning for Beauty in the Truth of Economic Thinking
Record Bank Run Drained A Quarter, Or $42BN, Of SVB's Deposits In Hours, Leaving It With Negative $1BN In Cash
“The biggest winner? Jamie Dimon.”
“For much of the day, anyone doing analysis on the now-liquidated Silicon Valley Bank was confined to using stale financial data as of Dec. 31... we certainly were when analyzing the impact of SVB's contagion (see here) as excerpted below:”
For those who slept through yesterday, here is what you missed and why the US banking system is suffering its worst crisis since 2020. Silicon Valley Bank, aka SIVB, the 18th largest bank in the US with $212 billion in assets of which $120 billion are securities (of which most or $57.7BN are Held to Maturity (HTM) Mortgage Backed Securities and another $10.5BN are CMO, while $26BN are Available for Sale, more on that later )...
... funded by over $173 billion in deposits (of which $151.5 billion are uninsured), has long been viewed as the bank at the heart of the US startup industry due to its singular focus on venture-capital firms. In many ways it echoes the issues we saw at Silvergate, which banked crypto firms almost exclusively.
The big question, of course, is what happened in the past 24 hours to not only snuff the bank's proposed equity offering, but to push the bank into insolvency.
We got the answer just a few moments after that tweet, when the California Department of Financial Protection and Innovation reported that shortly after the Bank announced a loss of approximately $1.8 billion from a sale of investments and was conducting a capital raise (which we now know failed), and despite the bank being in sound financial condition prior to March 9, 2023, "investors and depositors reacted by initiating withdrawals of $42 billion in deposits from the Bank on March 9, 2023, causing a run on the Bank."
As a result of this furious drain, as of the close of business on Thursday, March 9, "the bank had a negative cash balance of approximately $958 million."
At this point, despite attempts from the Bank, with the assistance of regulators, ‘to transfer collateral from various sources, the Bank did not meet its cash letter with the Federal Reserve. The precipitous deposit withdrawal has caused the Bank to be incapable of paying its obligations as they come due, and the bank is now insolvent.’
Some context: as a reminder, SIVB had $173 billion in deposits as of Dec 31., which means that in just a few hours a historic bank run drained a quarter of the bank's funding!
But not everyone got out in time obviously, there is a long line of depositors who are over the $250,000 FDIC insured limit (in fact only somewhere between 3 and 7% of total deposits are insured). The following list, while incomplete, is approximately sorted by size of exposure:”
Open link for complete article
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Is the Silicon Valley Bank's Failure Another "Canary in the Coal Mine"
The FDIC's takeover of Silicon Valley Bank should make us take a hard look at the damage the Federal Reserve has done. Will other banks face the same fate?”
“If you watched the Fed Chair Jerome Powell testify before the senate and the House, you heard over and over that banks are well capitalized. The non-sequitur should inspire the Shakespearean quote ‘Methinks you protest too much.’ The very next day after the hearings, shares of SVB Financial Group, parent of Silicon Valley Bank, fell 60 percent (and another 30 percent in afterhours trading at this writing) after a Wall Street Journal article revealed, the bank ‘had sold large portions of its securities portfolio and would raise fresh capital, highlighting a broader problem for U.S. lenders who have seen rising interest rates hammer the values of their bond holdings.’
In What Has Government Done to Our Money? Murray Rothbard reminded us:
The bank creates new money out of thin air, and does not, like everyone else, have to acquire money by producing and selling its services. In short, the bank is already and at all times bankrupt; but its bankruptcy is only revealed when customers get suspicious and precipitate ‘bank runs.’
Silicon Valley Bank depositors ran for the exits along with shareholders the same day the WSJ article appeared and the FDIC promptly closed the bank Friday morning saying: (open link)
“While the bank was a lender to the venture capital industry and tech sector, the investments that did the bank in were bonds backed by the full faith and credit of the U.S. government. However, the value of those bonds has plunged as interest rates have increased dramatically.”
Open link for complete article
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[Please pay attention to Austrian economics because Keynesian economics and monetarist economics are filled with lies and deceits. Remember that Jesus used a whip against bankers. And remember, that banks create credit out of thin air and make loans, such as for real estate, and take back mortgages. As Austrians have said over and over: all banks are bankrupt. Fiat currency and fiat credit are illusions of unreality. - SEE NEXT ARTICLE. JRD]
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Yearning for Beauty in the Truth of Economic Thinking
“Those adhering to Austrian Economic thinking see the beauty in concepts coming together and providing a way to truthfully assess human action.”
“We as a human race have a natural desire for beauty, and we as academics have a tendency to get lost in the weeds and forget this. Mises Institute president Jeff Deist has articulated this better than perhaps anyone before him in a speech (‘We Need Truth and Beauty’) where he stated:
We know Austrian economics is fundamentally true; in fact, truth is its most important and fundamental responsibility. Yet we cannot afford to ignore the corollary to truth, namely, beauty. Without beauty, divorced of any higher human longings, economics devolves from a beautiful theoretical edifice into a bastard cousin of accounting and finance, a business discipline. Or even worse, it becomes nothing more than an intellectual veneer for so-called public policy, which is really just a sanitized euphemism for politics.”