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Silicon Valley Bank (SVB), the main venture capital community and the USA’s 16th largest bank experienced a sudden fall, and many are asking where the Federal Agency and California Banking Authorities was, as they had to notice the riskiness of this fall. On March 17, 2023 Santa Clara, California-based SVB Financial filed for Chapter 11 bankruptcy protection. CEO Greg Becker and his wife Marilyn Bautista have left California and are currently residing in Maui, Hawaii, according to the New York Post The couple has a $3.1 million townhouse in the island city according to the report. Photos of the couple were shared by the Daily Mail showing their arrival and several stops in Hawaii, with a limo ride to the airport in San Francisco, first-class plane tickets and lush island living.
As SVB grew to be the 16th largest in America, SVB invested their funds in long-term bonds when rates were near zero, and when interest rates rose, those long-term bond prices fell, cratering their investments, that it suffered a $1.8 billion after-tax loss and urgently needed to raise more capital to address depositor concerns, as heavy withdrawals were being experienced. SVB failed because the bank did not protect itself from the risk of a reversal in market conditions linked to the upward move in interest rates. SVB had acquired Treasury bonds when interest rates were low. The problem is that the bank had not anticipated that interest rates would rise. When the Fed began boosting rates to fight inflation, the bank’s bond portfolio lost value. Bond prices and interest rates move inversely to each other.
Actress Sharon Stone broke down in tears at a Four Seasons Beverly Wilshire hotel charity fundraiser admitting she lost “half my money to this banking thing”. Venture capitalist Peter Thiel left $50 million of his own cash in doomed Silicon Valley Bank, even though his company had raised the loudest alarm leading to its panicked shutdown a week ago. Thiel, 55, admitted to the Financial Times that he failed to follow his own Founders Fund firm in pulling out money from the bank, which experts say caused the crisis-sparking federal intervention last Friday.
When Peter Thiel and Y-Combinator, the startup hub, said “to get your money out, when that happens, the run will be fast and complete.” The market reacted sharply and SVB lost over $160 billion dollars in value in 24 hours. As the stock fell, depositors moved quickly to withdraw money from the SVB bank. SVB did not have the cash they needed to fulfill their obligations to their customers. As panicked withdrawal continued, a bank run was well-underway.
SOCIAL MEDIA was a MAJOR factor which triggered the massive withdrawals, and news flashes caused panic which is the heart of SVB collapse. Scary social messages should be prosecuted but consideration for public interest in freedom of speech, to be respected. Banks should be trustworthy and its executives and managers to keep calm, continue, and avoid the collapse. However, it is now clear that the CEO was not up to the garantantuan task of doing, acting and leading with transparency, integrity and truthfulness. Most customers at SVB failed to watch, monitor, and check on their monies and bank financials, operations, and news alerts.
Bloomberg reports that SVB CEO Greg Becker sold $3.6 million of company stock less than two weeks before the firm disclosed the extensive losses that led to its demise. SVB had $209 billion in assets and $175.4 billion in deposits at the time of failure, the FDIC said in a statement. Many of SVB’s depositors were technology workers and venture-capital backed companies, but it ended up being the government, not investors, who came to depositors’ rescue.
Before the FDIC stepped in, depositors could only access up to $250,000, the insurance limit for their accounts, but several companies had well over that amount in the bank, including popular companies like Roblox and Etsy. The Federal Reserve policy of raising interest rates at a fast unprecedent pace did trigger huge losses in the bond portfolios of companies. The Fed policy did hurt but was not the main reason for SVB collapse.
When a member FDIC bank fails, the FDIC steps in to protect deposits. The agency first attempts to complete the acquisition of the failed bank by another financial institution. If you have an account at a failed bank, the FDIC will cut you a check for the value of your insured deposits. The USA Government via Federal Deposit Insurance Corporation (FDIC) agreed to cover deposits at the federally insured limit of $250,000, and 99 % of SVB customers have multi million more than the $250,000 FDIC limit. Several lawmakers have since discussed raising the $250,000 limit or abolishing it altogether.
The mission of the Federal Deposit Insurance Corporation (FDIC) is to maintain stability and public confidence in the nation’s financial system. In support of this goal, the FDIC. An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. The FDIC receives no Congressional appropriations – it is funded by premiums that banks and savings associations pay for deposit insurance coverage. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts – deposits in every bank and savings association in the country.
Goldman Sachs bought Silicon Valley Bank’s bond portfolio whose $1.8 billion loss set off its shocking meltdown. The assets were worth $23.97 billion but sold at a negotiated price of $21.45 billion, SVB said, per Reuters. SVB made a bad bet by staying invested in the long-date bonds it bought before the Federal Reserve began raising interest rates.
Tough annual Federal Reserve tests on lenders as Wells Fargo or Citigroup, but in 2018, the Trump administration successfully championed a regulatory relief bill that greatly reduced the frequency and severity of the stress exams for regionals. It is critical for banks to win and hold customers’ trust and confidence to avoid customers’ massive withdrawals, as occurred with SVB. Banks lend to people and businesses, and some are risky and some safe, and they receive deposits for savings, checking and certificates of deposits and know that these depositors will not ALL need their monies on the SAME DATE.
The Federal Deposit Insurance Corporation set up a new bridge bank entity, after the CEO and CFO have been fired, and as the Securities and Exchange Commission and Department of Justice are reportedly investigating the collapse. Tim Mayopoulos newly appointed Silicon Valley Bridge Bank CEO, is asking of venture capitalists and customers to Come back.
The NEW CEO of failed Silicon Valley Bridge Bank is a familiar name to many in Charlotte, North Carolina banking community — Tim Mayopoulos was fired as general counsel of Bank of America in 2008 in the midst of the financial crisis and escorted out of the office by an HR representative The CEO of Silicon Valley Bridge Bank (SVBB is now the NEW BANK via FDIC from SVB) asked customers to move their money back to the bank. US depositors have been moving billions of dollars from smaller to larger banks, and Banking giants seeing demand for deposit services include Bank of America, Citigroup, and JPMorgan Chase. Rumors are that Prince Harry and Meghan Markle, may be exposed to the SVB collapse also.
Eleven banks have deposited $30 billion in First Republic Bank, according to a joint statement from the heads of the Treasury, Federal Reserve, Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency. The biggest banks in the U.S. earlier Thursday discussed a joint rescue totaling more than $25 billion to shore up the beleaguered lender. JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp., and Wells Fargo & Co. were in talks to deposit $5 billion of their own money each into First Republic, the people said. Morgan Stanley and Goldman Sachs Group Inc., as well as regional banks U.S. Bancorp, PNC Financial Services Group Inc., and Truist Financial Corp. were to kick in smaller amounts.
There were plenty of regulations and processes in place to prevent the catastrophe that occurred at SVB. Critics have assailed the San Francisco Fed, the supervisory authority, and its chief Mary Daly, for negligence. Some have rightly said that having SVB CEO Greg Becker on the overseer Fed board posed an obvious and dangerous conflict of interest.
Representative David Trone (D-Md.) sold between $450,007 and $1 million in bonds from major U.S. banks last month, shortly before the second- and third-largest bank failures in U.S. history stirred up turmoil in the nation’s banking sector, according to a new filing that marked his first financial transaction disclosure in nearly three years. Trone sold fixed income securities from Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo on February 16. That was roughly three weeks before confidence in the banking industry crashed as Silicon Valley Bank and Signature Bank failed.
Silicon Valley Bank Customers waiting anxiously to enter bank for withdrawals. An incredible $48 Billion in deposits were withdrawn in 24 hours, BY VERY NERVOUS CUSTOMERS, which was the fastest bank run in history and customers in the Silicon Valley community all talk to one another. Nervous Bankers will cause a slowdown in loans approvals which will result in an overall slowdown in economic activities. Customers will choose to invest in gold whenever risks are present. In the Stock market, the cardinal rule is to buy low and sell high, and not to invest more than you can afford to lose.
Dr. Ann Pettifor, a British economist and frequent economic adviser who predicted the 2008 global financial crash, said Silicon Valley Bank has taken its fair share of criticism for its collapse earlier this month, with many slamming its management, but the Fed also had a role to play in its downfall. “The fact is I found it hard to face up to what central bankers are doing, not just by raising rates, suppressing demand, and lowering wages,” Pettifor wrote. “Through lack of analysis, regulation, oversight and foresight—central bankers have shown this last week they were prepared to use high rates to risk and even precipitate bank failures and global financial instability.” Ann Pettifor – Wikipedia
Cathie Wood revealed that her flagship fund lost over $2 billion. The massive losses suffered by Cathie Wood’s Ark Invest show that the Federal Reserve’s aggressive interest-rate hikes have burst the bubble in stocks, according to the CEO of JPMorgan Asset Management.
Paul Krugman has warned the banking chaos has increased the risk of a US recession. The Nobel Prize-winning economist advised the Fed to hold off on hiking interest rates again. Krugman cautioned that cutting rates could signal to investors that regulators are panicking.
Bill Ackman warns the banking crisis may engulf the economy, and says Jamie Dimon is his pick for US President and the billionaire investor cautioned the Fed against hiking interest rates before order is restored. The emergency measures regulators have announced have so far failed to restore calm. SVB’s collapse sent a ripple of existential dread through the tight knit tech community in Atlanta, for example, which relied on the bank for everything from credit cards to business intelligence to key relationships.
Wells Fargo analyst Christopher Harvey updated the firm’s Signature Picks portfolio on Wednesday, adding PNC Financial (NYSE:PNC) and U.S. Bancorp (NYSE:USB) while dropping Bank of America (NYSE:BAC) as it rebalances bank holdings following the failures of three regional banks in the past two weeks.
Silicon Valley Bank and Signature Bank in New York — two banks closed by regulators — were the institutions that had the most uninsured deposits. That means customers holding more than the FDIC insurance limit of $250,000 in their accounts. First Republic is the No. 3 bank most dependent on wealthy customers. Next come Comerica and U.S. Bancorp; more than 60% their depositors are uninsured,
March 22, 2023, Federal Reserve raised interest rates by 0.25% to 5%. Most were expecting NO increase, due to fears of a downturn and recession which are very worrying to all Americans. Fed Vote of 11 was unanimous. This increase is the 9th. consecutive increase.