It was almost exactly one year ago when Silvergate Bank — a small bank located in La Jolla, California, known for working with various cryptocurrency companies, including FTX — let regulators, investors, and customers know that after a run on deposits over the course of several months, it would be throwing in the towel and shutting down.

The closure represented a drastic downturn in fortunes for Silvergate, which had become the preeminent bank for crypto companies and had grown significantly since its founding in 1988. Briefly, the bank’s shares valued the company at about $7 billion — today, pink sheet shares value Silvergate at $10 million.

But Silvergate was only the beginning of the regional banking crisis and it actually turned out to be the easiest and simplest to clean up. As is becoming more and more clear by the day, the regional banking crisis of 2023 didn’t end when the calendar year turned over.

Read more: Crypto banking giant Silvergate is no more following NYSE delisting

The real crisis begins

On the same day that Silvergate announced its voluntary closure, another California bank, Silicon Valley Bank, made some dire announcements about selling off distressed assets, taking out loans, and the emergency sale of stock. This, inevitably, led to a bank run, and days later, a collapse.

But this collapse came with threats and warnings from venture capitalists and tech companies that had kept far more than the insurable $250,000 in their accounts. They suggested that if these deposits weren’t essentially insured by the Federal Depositors Insurance Corporation (FDIC), there would be a knock-on effect for regional banks across the country.

While the FDIC did decide to insure all depositors’ accounts up to any number at Silicon Valley Bank, it didn’t stop the VCs and companies from fleeing the bank in droves — and, in fact, despite the FDIC agreeing to bailout all the depositors, many other regional banks began to instantly feel the pinch.

Only days after the rescue of Silicon Valley Bank, Signature Bank in New York — another crypto-friendly bank — faced any bank’s worst nightmare, namely, a run on customer deposits in the wake of the turmoil. Similar to the promises made with depositors from Silicon Valley Bank, the FDIC promised that everyone would be made whole, regardless of the $250,000 limits on insurance.

California remained the epicenter for the crisis, with First Republic and PacWest Bancorp failing and being acquired, respectively, by mid-2023.

And then everything… just went on.

Read more: The show goes on: How Signature Bank’s bailout saved Broadway

Trauma without wisdom

So a year on from the crisis, the question remains: “What has been learned and how has the system changed?” The not-too-shocking answer is that, collectively, the American public, investors, and businesses have learned nothing and the system has refused to change.

A moment that could’ve been seized by banking critics and optimists alike was instead squandered. It was used as an opportunity to whinge about poor banking business practices and Federal Reserve rate hikes, instead of addressing depositor insurance policies and poorly thought-out hedging decisions.

A very real, very troubling crisis wasn’t truly averted — it was left to linger and fester, like a wrapped wound without antibiotics — and today we’re paying the price.

Only yesterday, New York Community Bancorp, one of the banks to purchase assets from the now-defunct Signature, was given a billion dollars to keep operations going. This private bailout comes after the stock plummeted 75% from recent highs.

In essence, what’s been learned yet again by the public, banks, and politicians is that fixing a leaky roof is unnecessary until a roof completely falls in on itself — that worthwhile practices and obvious changes don’t need to be instituted, even after times of crisis. It is unfortunate that regulators and politicians couldn’t see the forest for the trees and that even as another regional bank reached the teetering edge of failure the issues continue to go unaddressed.

Perhaps, when the pain is a little worse, when more depositors are hurt, and the FDIC can’t continue useless policies like $250,000 caps for insured accounts, action will be taken to stop wasteful and stupid banking and finance policies. But until then it’s business as usual.

See you at the next bank run.

Got a tip? Send us an email or ProtonMail. For more informed news, follow us on X, Instagram, Bluesky, and Google News, or subscribe to our YouTube channel.

The post A year on from the US regional banking crisis, what’s changed? appeared first on Protos.

“Where is Powell? Where is Yellen? Stop this Crisis NOW,” cried a perturbed and angry David Sacks before market close on Friday March 10.

Sacks, the VC famous for co-founding PayPal, his tech investments, and for buying and dumping $1 billion worth of Solana, was raising the alarm that Silicon Valley Bank (SVB) had financial troubles and could risk a bank run.

In his panicky tweets, Sacks argued that if SVB wasn’t saved, regional and small banks would also experience bank runs, causing financial chaos.

SVB was one of the most important banks on the Silicon Valley venture capital (VC) circuit and conducted business with various companies that Sacks had previously invested in. A particularly notable cohort of SVB clients was the so-called PayPal Mafia, a group of investors who founded PayPal and are often associated with hard right-wing views.

Yet, it seems that a number of the PayPal Mafia’s members pulled money out of the bank before asking the authorities to step in. Indeed, Bloomberg reported that by March 9, Peter Thiel had removed his funds from SVB and was warning other investors and depositors to do the same.

Strangely, Sacks claimed after he started warning about a potential bank run that his VC firm Craft Ventures had no money in SVB.

Blame the Fed

Sacks is blaming the Federal Reserve for the collapse of the bank and is pinning the blame on a rapid rise in interest rates. He says that rate hikes were made after inflation caused by government “money printing” but makes no mention of Russia’s invasion of Ukraine and the subsequent energy crisis.

He also says that the low rates enticed banks to buy mortgage-backed securities and treasuries that have now dropped in value due to the rise in rates. He also associated the crisis at SVB with those at bankrupt crypto-banks Signature and Silvergate Bank. It’s important to note, however, that their problems have little if anything in common with SVB.

Read more: The show goes on: How Signature Bank’s bailout saved Broadway

Silicon Valley degenerate

Sacks implies that banks risked buying negative-yielding bonds and mortgage-backed securities because the government told them it was safe to do so.

The reality is a bit more complex, however. Banks are allowed to take repository loans against their bonds, treasuries, and mortgage-backed securities. They can then use these loans to trade other financial instruments and/or hedge against their collateral.

Hedging against interest rate hikes with swaps is also a common feature for banks which have significant fixed-income portfolios. However, SVB appeared to go all-in without any consideration of the potential risks. Indeed, its filings show that by the end of last year, the bank’s $120 billion securities portfolio was mostly composed of bonds and MBS totalling around $90 billion.

The bank had deposits of around $189 billion and a total of $74 billion of loans to its clients. But there was one problem: its fixed-income portfolio was completely unhedged, and the bank is now being accused of hiding its losses with creative accounting.

Despite the fact that SVB was struggling with an oversized balanced sheet of securities which were on the wrong side of the trade, it kept giving generous loans and credit facilities to its clients until its very last days.

Everyone gets saved

After SVB chief exec Gregory Becker sold his stock and jetted off to Hawaii, HSBC announced it bought the bank for a symbolic £1.

Prior to HSBC’s buyout, SVB’s depositors were secured with a guarantee by the FDIC, effectively making the $250,000 insurance limit redundant. It was ‘mission accomplished’ for the PayPal Mafia.

Read more: How crypto market chaos affected US bank stocks

Not so libertarian

For years, the PayPal Mafia projected an uncompromising libertarian stance against big government and government spending. Occasionally, it released highly controversial and contrarian positions on social issues and principles embraced by the majority.

For example, Sacks and Thiel once co-wrote an article against positive discrimination that focused mainly on the bias in favor of black students designed to close the racial gap in education.

Today, Sacks prides himself on being an outspoken critic of the US and its helping of Ukraine. He demands the US negotiate peace terms with Russia.

However, his desire to let the world function as it would without any government or state regulation is totally at odds with his demands for the federal authorities to save his favorite bank.

For more informed news, follow us on Twitter, Instagram, and Google News or subscribe to our YouTube channel.

The post Blame the Fed: David Sacks and the VC who cried bank-run  appeared first on Protos.

Hedge fund boss Ken Griffin says the US government should have allowed Silicon Valley Bank to go under as a “lesson in moral hazard,” rather than stepping in with a rescue package, reports the Financial Times (FT).

The California-based bank was shuttered late last week when customers withdraw more than $40 billion — over a quarter of its total deposits — in a single day.

But instead of allowing the lender to collapse, regulators came through with a bumper package that they claimed would cover all depositors in full.

However, while this sounds like good news — at least for the bank’s customers — billionaire Citadel founder Griffin believes it to be a sign that US capitalism is failing.

“The US is supposed to be a capitalist economy, and that’s breaking down before our eyes,” he told FT.

“There’s been a loss of financial discipline with the government bailing out depositors in full.”

According to Griffin, the bank’s demise was caused by the lax approach from regulators who critics have claimed missed numerous warning signs that it was in trouble.

As such, he says, there’s a chance that stepping in to save it could set a bad precedent.

“The regulator was the definition of being asleep at the wheel,” said Griffin (via FT).

“It would have been a great lesson in moral hazard. Losses to depositors would have been immaterial, and it would have driven home the point that risk management is essential.”

The FDIC needs to guarantee deposits “now”

As reported by FT, not everybody in Griffin’s position feels the same.

Pershing Square Capital Management CEO Bill Ackman called for the Federal Deposit Insurance Corporation to “explicitly guarantee all deposits now.”

Read more: How crypto market chaos affected US bank stocks

Ackman also said via Twitter that “our economy will not function effectively without our community and regional banking system.”

Quotes in bold are our emphasis. For more informed news, follow us on Twitter, Instagram, and Google News or subscribe to our YouTube channel.

The post Hedge fund billionaire Ken Griffin says US should have let SVB die appeared first on Protos.