Are Your Bank Deposits Safe? Silvergate and Silicon Valley Bank Collapses Expose the Fragility of the Financial System. An Overview of Current Bank News.

Connecting Bank News Across The Marco Landscape.

There has been a lot of news surrounding our banks, here is where we are at so far:

1. Non-Traditional Banks are Facing a Full-Blown Bank Run.

2. Banks Struggle to Attract Depositors As Cost Of Funding Increases.

3. Why the Collapse of Silicon Valley Bank is Not the Next Lehman Shock.

4. The Lingering Threat of Too-Big-to-Fail: Why the Financial System Remains Susceptible to Dysfunction.

5. US Virgin Islands Files Lawsuit Against JP Morgan Chase Over Epstein Accounts.

6. Crypto Bank Silvergate Collapses Amid Regulatory Investigations.

Let's Dive In!

Website: Wall Street On Parade

Title: Bank Stocks Plummet as Bank Runs in the U.S. Gain Momentum at Federally-Insured, Non-Traditional Banks
Link: https://wallstreetonparade.com/2023/03/bank-stocks-plummet-as-bank-runs-in-the-u-s-gain-momentum-at-federally-insured-non-traditional-banks/

Here are the key highlights:

• On March 9, 2023, a full-blown bank run began at non-traditional banks in the U.S., beginning with federally-insured Silvergate Bank announcing its closure and liquidation, after making the fatal decision several years ago to become a go-to bank for crypto companies, including scandalized Sam Bankman-Fried's collapsed house of frauds, FTX and Alameda Research.

• Depositors are now panicking over the fate of another federally-insured bank, Silicon Valley Bank, which, like Silvergate Bank, had become a go-to bank for a special niche customer, venture capital outfits and private equity firms. However, unlike Silvergate, their deposits were not related to crypto. Silicon Valley Bank held $161.4 billion in domestic deposits and $13.9 billion in foreign deposits at the end of December 31, 2022.

• On Wednesday, Silicon Valley Bank issued $2.25 billion more in stock, diluting other stockholders, and had taken a $1.8 billion loss on substantially all of its available-for-sale bonds. The stock price reacted by plummeting by 60.41% in one trading session. In premarket trading the following morning, the shares were down another 40%.

• Garry Tan, president of startup incubator Y-Combinator, posted an internal message to founders in the program, stating that they have no specific knowledge of what's happening at SVB. As always, your startup dies when you run out of money for whatever reason.

• The bank panic spread quickly on Wednesday to other banks, both large and small. PacWest Bancorp lost 25.45% of its market value by the closing bell yesterday while First Republic Bank fell by 16.51%. Mega banks on Wall Street were also not immune to the fallout, with Bank of America losing 6.20% while the largest bank in the U.S., JPMorgan Chase, fell by 5.41%.

• Unfortunately, according to the Federal Deposit Insurance Corporation (FDIC), which has to make good on deposits at insured U.S. banks in the event of a bank failure, unrealized losses at U.S. banks for bond holdings totaled $620 billion at the end of the fourth quarter of last year. When interest rates rise, the current market value of bonds issued at lower locked-in interest rates, falls. That is typically not a problem for banks, unless there is a stampede by depositors to get their money out of the bank, and the bank is forced to sell the bonds at a loss to raise liquidity.

Website: Wolf Street

Title: Bank Stocks Got Wacked: Between a Rock and a Hard Place as Banks Run Out Free Money
Link: https://wolfstreet.com/2023/03/09/bank-stocks-got-wacked-between-a-rock-and-a-hard-place-as-banks-run-out-the-free-money/

Here are the key highlights:

• The only free money left for banks is from depositors, and depositors are fleeing due to banks not offering competitive interest rates. Banks need to decide on how to fund deposit outflows without squeezing their profit margins or taking a loss each time they sell bonds to raise liquidity. Banks are currently facing a difficult situation due to the high funding costs they are experiencing. If they try to raise cash by selling securities to avoid these costs, they may have to face significant one-time losses.

• Silicon Valley Bank (SVB) recently informed investors of this issue, explaining that banks are stuck between a rock and a hard place. Banks must choose between two unfavorable options. On one hand, they could continue to borrow money at high rates, which would result in increased funding costs. On the other hand, they could sell securities to raise cash, but that would come with a one-time loss that banks may not be able to afford.

• This dilemma is a result of the Federal Reserve's decision to raise interest rates in an effort to combat inflation. While this move has had some positive effects on the economy, it has also created challenges for banks that depend on low-cost funding to offer loans to their customers. As a result, banks are now trying to find ways to navigate this difficult situation.

Newsletter: Noahpinion

Title: Why was there a run on Silicon Valley Bank?
Link: https://noahpinion.substack.com/p/why-was-there-a-run-on-silicon-valley

Here are the key highlights:

• The recent collapse of Silicon Valley Bank due to a bank run has highlighted the importance of FDIC insurance for depositors. The lack of FDIC insurance for 93% of SVB's deposits left many vulnerable to losing their money. Start-ups need to diversify their banking relationships and carefully consider where they deposit their cash to avoid similar situations in the future.

• The collapse of SVB may have a negative impact on the tech sector, but it is important to stay calm and not panic. The government has learned from its mistakes in 2008 and is prioritizing the need to prevent panic and contagion over punishing startups for their risky investments. Deposit advance dividends are promised, and startups can get by for a few weeks on $250,000.

• The recent collapse of SVB has led to speculation about its potential impact on the larger financial system. However, there are reasons to believe that this situation is not like the 2008 Lehman shock. The big banks are not as interdependent as they were in 2008, and SVB is not as connected to the rest of the financial system.

Newsletter: The Last Bear Standing

Title: Too Big To Fail .
Link: https://thelastbearstanding.substack.com/p/too-big-to-fail

Here are the key highlights:

• The 2008 financial crisis revealed the problem of banks being too big to fail. However, the Emergency Economic Stabilization Act of 2008 only temporarily solved the issue and shifted the problem to non-banking institutions and market-traded securities. The too-big-to-fail problem still exists, and the financial system remains susceptible to dysfunction.

• Bonds and banks share similarities and are both subject to runs if trading liquidity is unavailable. To ensure the stability of the financial system, it is crucial to comprehensively address the problem of too-big-to-fail. Governments should implement regulations to control bank leverage, ensure sufficient liquidity, and prevent another banking crisis.

• To build a sustainable financial system, governments must accept the economic costs of not rescuing large, complex firms. Continued bailouts and Federal Reserve intervention in response to financial crises, particularly in the bond market, are not always recommended. Rather than relying on central bank support, building a resilient financial system requires allowing for disruptions and facing the consequences of market volatility. Policymakers need to shift their thinking about the role of the Federal Reserve and adopt a more sustainable approach.

• The potential consequences of interest-rate-induced credit losses and quantitative tightening (QT) on the banking industry cannot be underestimated. While it is possible that they could cause the failure of major banks, until there is more evidence, the focus remains on external factors. However, the failure of banks, regardless of size, can have a domino effect on the wider financial system. Banks and policymakers must pay close attention to these risks and take appropriate action to mitigate them.

• One way to mitigate these risks is to ensure that banks have suitable risk management frameworks in place. This includes stress-testing their balance sheets to assess their ability to withstand potential shocks. Policymakers must also monitor funding markets closely and take prompt action if they observe signs of an impending freeze. Although the immediate risks to commercial banks may be limited, we must remain vigilant and take proactive measures to ensure the stability of the broader financial system.

Website: Wall Street On Parade

Title: Jamie Dimon Is Fighting a Deposition in a Devastating Lawsuit Charging JPMorgan With Being the Cash Conduit for Jeffrey Epsteins Sex Crimes
Link: https://wallstreetonparade.com/2023/03/jamie-dimon-is-fighting-a-deposition-in-a-devastating-lawsuit-charging-jpmorgan-with-being-the-cash-conduit-for-jeffrey-epsteins-sex-crimes/

Here are the key highlights:

• The US Virgin Islands' Attorney General's office has filed a First Amended Complaint against JP Morgan Chase, alleging that the bank continued to do business with Jeffrey Epstein despite knowing about his involvement in a child sex trafficking ring. The lawsuit includes charges such as large cash withdrawals and payments to known recruiters linked to sex trafficking in Epstein's properties. The bank had serviced roughly fifty-five Epstein-related accounts collectively worth hundreds of millions of dollars. The complaint also alleges that the banking relationship with Epstein was known at the highest levels of the bank.

• The lawsuit reveals shocking information about the depths of relationship Epstein shared with the then head of JP Morgan's Private Bank, Jes Staley, including emails exchanged between them. The bank chose to ignore the "red flags" while maintaining Epstein's accounts, and the transactions were characterized as "reasonable, normal, and expected."

• Despite knowledge of Epstein's crimes, including his sexual assaults on young girls, the Justice Department failed to take action, allowing him to continue his heinous acts. Since the Epstein scandal became public, several high-ranking officials were fired, and many believe that more investigation is warranted given the disturbing details of the case.

• The lawsuit raises questions as to why the US Virgin Islands is bringing new charges against JP Morgan Chase instead of the US. We pause to ask readers to consider how plausible it is that JPMorgan Chase, with its sophisticated sleuths, did not know what Epstein was all about by 2011.

• The complaint also alleges that in January 2011, JP Morgan's Anti Money Laundering (AML) compliance director requested re-approval for the banks relationship with Epstein from the bank's then-General Counsel in light of the new allegations of human trafficking. The coverage team all met to discuss the situation and agreed to enhance monitoring and document a discussion with the client.

Website: Wall Street On Parade

Title: FDIC Investigators Are on the Premises of Collapsing Federally-Insured, Crypto Related Bank, Silvergate: Its Not a Friendly Visit
Link: https://wallstreetonparade.com/2023/03/fdic-investigators-are-on-the-premises-of-collapsing-federally-insured-crypto-depositor-bank-silvergate-its-not-a-friendly-visit/

Here are the key highlights:

• Silvergate Bank, a federally-insured bank that provided services to crypto exchanges has collapsed due to investigations by multiple regulators and Congress, including the U.S. Department of Justice. Its record-keeping is also under scrutiny, and the bank has been unable to file its annual report for 2022 on time. FDIC bank examiners are on-site to determine the bank's ability to repay depositors, its cash reserves, and the value of its liquidated assets.

• There have been reports suggesting that the FDIC is attempting to save the bank by securing investments from the crypto industry. The bank's ability to attract such investors may have been damaged by a letter from three U.S. Senators, Elizabeth Warren, John Kennedy, and Roger Marshall, who queried the bank's dealings with Sam Bankman-Fried's collapsed crypto exchange, FTX.

• The collapse of Silvergate Bank highlights the risks associated with investing in the crypto industry and the importance of effective regulation and oversight to ensure the stability of the financial system. The situation also emphasizes the need for transparency and accountability in the banking sector to maintain public trust and confidence.

• The U.S. banking system has complex deposit insurance that involves the federal government being responsible for unrecouped losses. The Deposit Insurance Fund (DIF) is funded through quarterly assessments on insured banks, based on the assessment rate and assessment base of each bank. As of December 31st, 2022, the DIF held $128.2 billion, while the total of domestic deposits amounted to $17.7 trillion. However, some deposits exceed insurance limits, and the DIF balance represents only 1.27% of the insured deposits held at the nation's banks. The low reserve at the Deposit Insurance Fund has not been a problem so far, but if risky banks are able to obtain federally-insured banking in the U.S., it could morph into a very big problem.

Thanks For Reading!

If you find value in this newsletter and want to make sure you don't miss any important updates, you should definitely consider subscribing. By subscribing, you'll be the first to know about new articles and special offers.

We also offer a paid service which will give a breakdown of every source we cover that will be sent out almost daily.

Our Wednesday newsletter will always be free, but to make sure YOU are not missing anything be sure to sign up for our paid subscription.

So DON'T WAIT - hit the subscribe button now and join our community of informed readers.

If you have any newsletters you wish to see in our lineup, please reach out and let us know. We will continually look to incorporate more sources to our weekly wrap-up