Probably you heard that Silicon Valley Bank failed yesterday, Friday March 10, 2023. Perhaps it might surprise you that bank failures are not uncommon over the past twenty five years.
The FDIC publishes a list:
https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/
The list has 564 banks, going back to the year 2000.
Perhaps the size of the bank failing is what's critical? Silicon Valley Bank is the second biggest bank failure in USA history. This wasn’t just some local bank going out of business.
This was an unusual shut down in that the federal regulators didn’t wait for the weekend (when the stock market would be closed). The government wants you to see the headlines that the FDIC insurance keeps everyone’s money safe (up to $250,000 per depositor – just having multiple accounts doesn’t protect you with this limit). But Silicon Valley Bank was a huge bank (in the top 20) with a lot of business in tech and health care companies. Clearly someone knew there was trouble coming as depositors were in a rush to try and get their money (a classic “bank run”) before they lost the money they had over $250,000.
Dennis Kelleher (Better Markets CEO) wrote: “SVB’s condition deteriorated so quickly that it couldn’t last just five more hours. That’s because its depositors were withdrawing their money so fast that the bank was insolvent, and an intraday closure was unavoidable due to a classic bank run.”
The TD Cowen investment group wrote, “We believe the regulators wanted to prevent further withdrawals by those with amounts exceeding the FDIC insurance cap of $250,000.”
Note: just two weeks ago Forbes named SVB as one of the “best” banks. Also note that “Silvergate”, the biggest cryptocurrency bank in the USA went into liquidation.
In good news, the government is working hard to calm people down and maintain business as usual. FDIC: “All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023.” People with accounts in excess of $250,000 are instructed to call the FDIC at (866) 799-0959.
What caused the failure of the bank? Well, it appears the Central Bank (aka Federal Reserve) attempts to fight inflation by raising interest rates triggered this collapse.
What else can we observe? The stock market fell. Gold prices rose $33 per ounce in a matter of two and a half hours (and have remained even higher for the weekend).
Will we see a “flurry” of bank failures like we did in 2008? Or will the economy stabilize faster this time?
My prediction: Inflation will rise further as the government and central banks attempt to keep the system from collapsing.