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Partners in Building Wealth

March 2023

The Banking Crisis

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The failure of Silicon Valley Bank (hereafter SVB) lit a fuse and so began the banking “crisis” that to this day unfolds. First Republic Bank caught fire and the banking sector, both in Europe and the United States, feels the heat. Regulators stepped in to control the damage and guaranteed all SVB deposits, including those above the $250,000 FDIC insured limit. No telling how severe the crisis would have been had they not acted quickly. Over 90% of SVB’s deposits are rumored to have been over the $250,000 limit. SVB shareholders were wiped out, save for a possible settlement down the road. It remains to be seen what the future holds for the various parts of SVB but it is likely it will be sold in pieces. SVB declared bankruptcy. It took forty years to build Silicon Valley Bank and less than a week for it to implode.

News & Notes — March 2023

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On Friday, March 10, 2023, Silicon Valley Bank failed which shocked investors and sent shares of most regional banks lower. It is not exactly clear what caused the collapse, but bank executives made what in hindsight appears to be a series of mistakes. First, SVB invested excess deposit reserves in prior years when interest rates were very low. The New York times reports they averaged 1.79% on $21 billion dollars of bonds that were sold for a loss of $1.8 billion. Banks are permitted to price bonds that are intended to be held to maturity at cost, but once sold they report the capital gain or loss. It may have been an innocent, yet naïve sale, in order to invest in higher yielding investments and improve profitability. But this sizeable sale was perceived by some to be a red flag, indicating SVB needed to raise funds to shore up deposits[more…]