What you need to know about the Silicon Valley Bank collapse
- President Joe Biden said this morning that the banking system is "safe" and that no taxpayer dollars would be used to cover losses.
- The U.S. has moved to protect all deposits at SVB in a bid to stem a wider fallout.
- Is SVB getting a government bailout? Not in the 2008 sense.
The feds just stepped in to steady the banking system. Here’s why bank stocks swooned anyway.
Many banks' stocks plummeted on Monday, despite the government’s plan to guarantee all deposits at the two banks it took over and shut down — Silicon Valley Bank in California and New York-based Signature Bank — beyond the Federal Deposit Insurance Corporation’s $250,000 limit.
To further shore up confidence in the U.S. financial system, the Federal Reserve also set up a program to make additional funding available to some other banks facing outsized demand from depositors.
Nevertheless, midsize and regional bank stocks swooned today.
Among the worst off were San Francisco-based First Republic Bank and Phoenix-based Western Alliance Bancorp, whose shares closed 61% and 47% lower, respectively, on Monday. Los Angeles-based PacWest Bancorp’s shares closed down 21%.
What’s going on?
For starters, some depositors are getting nervous and looking to shift their money out of midsize and regional banks into bigger ones, threatening broader instability in the banking system.
Wall Street is watching those moves with trepidation, with investors selling shares in banks they see as vulnerable.
At the same time, traders are betting that the shares in these other banks could meet a fate similar to those of SVB and Signature. While the government said that deposits at both would be safe, it indicated that anyone who owned either banks' shares now owned a stock that was worth $0.
In a statement Sunday night announcing their backstop plan, federal regulators noted that shareholders would “not be protected” by their actions. And when pressed on whether the moves constituted a bailout, a senior Treasury official emphasized that the focus was on taking care of depositors.
Weighing those measures, investors inferred that any other bank that may need to be rescued by regulators would likewise see the value of their shares wiped out.
At the moment, there is no sign that the banks with large share declines are poised to go under like SVB or Signature. But many Wall Street traders are betting that in the event they did, their shares would become worthless.
SVB hit with class-action suit over collapse
SVB CEO Greg Becker and Chief Financial Officer Daniel Beck have been hit with a class-action suit over the bank’s collapse.
The suit, filed today in the Northern District of California, claims that the company misled stockholders about SVB’s ability to deal with potential risks like rising interest rates.
Becker and Beck “knew that the public documents and statements issued or disseminated in the name of the Company were materially false and misleading,” it claims.
Mortgage rates tumble in the wake of bank failures
The average rate on the popular 30-year fixed mortgage dropped to 6.57% Monday, according to Mortgage News Daily. That’s down from a rate of 6.76% Friday and a high of 7.05% last Wednesday.
Mortgage rates loosely follow the yield on the 10-year Treasury, which fell to a one-month low in response to the failures of Silicon Valley Bank and Signature Bank and the ensuing ripple through the nation’s banking sector.
Interest rates on U.S. securities drop sharply
Interest rates on U.S. government securities today saw their largest single-day decline since the 1980s, as investors backpedaled on expectations for an interest rate hike at the Federal Reserve’s meeting next week.
With inflation remaining high, the Fed had been preparing for another interest rate increase next Wednesday. But further lifting already-high interest rates — which in part took air out of SVB — have led investors to price in the odds of a smaller-than-expected interest rate increase, or none at all.
On TikTok, an SVB explainer from a Congress member gains traction
Rep. Jeff Jackson, D-N.C., posted an explainer video to TikTok this morning laying out his perspective on the SVB crisis and the briefing that he and other members of Congress received.
"That's not normal, but neither is the situation," he said of the Zoom call that included "several hundred members of Congress."
The video has drawn more than 4.5 million views, according to TikTok's metrics. Jackson is one of the most active members of Congress on TikTok with more than 667,000 followers.
Why regulators seized Signature Bank, creating the third-biggest bank failure in U.S. history
On Friday, Signature Bank customers spooked by the sudden collapse of Silicon Valley Bank withdrew more than $10 billion in deposits, a board member told CNBC.
While that sent shares of Signature plummeting, the move to shutter the bank entirely took the bank's board members by surprise.
In recent years, the bank had become known for its cryptocurrency services. Notably, the bank created a 24/7 payments network for crypto clients, and had $16.5 billion in deposits from digital-asset-related customers.
“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” said Signature board member and former U.S. Rep. Barney Frank. “We became the poster boy because there was no insolvency based on the fundamentals.”
Here are the officials Biden spoke with this weekend
President Joe Biden was in constant communication with several administration officials in the wake of the SVB collapse over the weekend, a White House official said Monday.
- Friday through Sunday evening: Briefed regularly by chief of staff Jeff Zients and National Economic Council Director Lael Brainard in the days leading up to his public remarks this morning. Biden also stayed in regular contact with other senior staff throughout the weekend.
- Saturday: Spoke with California Gov. Gavin Newsom, a Democrat, about efforts to address SVB's collapse.
- Sunday afternoon: The president received updates through Treasury Secretary Janet Yellen along with Zients and Brainard.
Bitcoin rallies to top $24,000
The price of bitcoin rose more than 8% today amid broader concerns about some U.S. banks. One bitcoin was priced around $24,000 as of midday ET.
The cryptocurrency's price has remained volatile in recent months, dipping below $16,000 in November as the broader crypto market has struggled with the collapse of many of its biggest platforms and financial institutions.
U.S. stocks shrug off bank concerns
U.S. stocks were broadly positive today as the government stepped in to cover all deposits at two fallen banks.
The Dow Jones Industrial Average and the S&P 500, two of the most-watched stock indexes, were up about 0.5% as of midday ET. The tech-heavy Nasdaq index was up 1.1%, though the Russell 2000 Index of smaller U.S. companies did dip slightly, down 0.6%.
How Democrats helped Trump deregulate banks
In the wake of two bank collapses in the past week, a 2018 law rolling back Dodd-Frank banking regulations has come under scrutiny. Then-President Donald Trump signed the bill into law, but he had the support of 17 Democrats in the Senate.
Some conservative Democrats who were up for re-election went around Sen. Sherrod Brown, D-Ohio, then the ranking member on the Banking Committee, to work with Republicans on the deal. That bill triggered an acrimonious split in the Democratic Party, with Sen. Elizabeth Warren, D-Mass., publicly calling out her colleagues who "helped roll back the rules on the biggest banks."
"She didn’t need to create all these enemies to reinforce her brand as a warrior against Wall Street," one Senate Democratic aide said at the time.
But Warren seems to be feeling vindicated now, writing in a New York Times op-ed today: "These bank failures were entirely avoidable if Congress and the Fed had done their jobs and kept strong banking regulations in place since 2018."
Traders no longer think the Federal Reserve is going to raise interest rates again
Traders on Wall Street are betting that the fallout from the collapse of SVB will be such that it makes businesses less inclined to take on more risk.
As a result, these traders began heavily buying U.S. treasuries today. Treasuries are seen as safer investments than other assets.
The yield, which moves in the opposite direction to the price, on short-term treasuries fell 50 basis points in trading today— the biggest drop since 1987. In other words, demand for treasuries increased, causing their prices to rise.
In a note to clients late last night, Goldman Sachs said it now predicts the Federal Reserve will completely pause its interest rate hiking program, after most traders had bet it would have to hike 50 basis points as it continues to battle inflation.
Bank stock struggles 'should not come as a big surprise'
Mohamed El-Erian, an influential economist and businessman, said this morning that bank stock struggles are not surprising.
He noted that while people and businesses depositing money in banks are safe thanks to government interventions, investments in the banks themselves remain at risk.
Relief at SXSW
AUSTIN — Much of SXSW is waking up today to good news.
The Treasury Department's decision to assure depositors that their money is safe has alleviated much of the concern about what would happen to the many startups, entrepreneurs and investors who worked with the bank.
Trading in bank stocks — including First Republic — halted
Trading was halted in multiple bank stocks today, renewing fears that the fallout from the SVB collapse has yet to be fully contained.
Shares in the San Francisco-based First Republic Bank, whose wealthy clientele has included Facebook founder Mark Zuckerberg, plunged more than 60% before being suspended.
Also halted were other financial firms based in the West Coast, including Western Alliance Bancorp., which fell more than 70%; and PacWest Bancorp, which fell more than 40%.
Traders fear these banks' stocks could be wiped out if regulators are forced to take control of their uninsured bank deposits, or those larger than the $250,000 Federal Deposit Insurance Corp. limit.
Sen. Elizabeth Warren's 'told you so' moment
Here’s what could happen next for SVB customers
The Federal Deposit Insurance Corp. said Friday that SVB would reopen Monday morning, under the control of the newly created Deposit Insurance National Bank of Santa Clara. Once that happens, insured depositors with up to $250,000 in their accounts will be able to access their money.
SVB's management will be fired, Biden says
Biden said his administration will hold the bankers who mismanaged the operation that led to the collapse accountable.
“Second, the management of these banks will be fired. If the bank is taken over by FDIC, the people running the bank should not work there anymore," he said.
Biden added that the banks’ investors would not receive protection.
"They knowingly took a risk. And when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”
Biden criticizes banking deregulation under Trump, urges Congress to act
Biden criticized the Trump administration for weakening regulatory safeguards
In remarks at the White House today, he said that banking requirements implemented during the Obama administration were "rolled back" by "the last administration."
Biden was referring to the Economic Growth, Regulatory Relief, and Consumer Protection Act that then-President Donald Trump signed in 2018, which exempted midsize firms like SVB from the Dodd-Frank-era banking rules such as stress tests and resolution plans.
He said he would ask Congress and banking regulators to "strengthen the rules for banks" to make it less likely a bank failure like SVB's would happen again.
When did SVB fail?
The company’s downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet.
Regulators shuttered SVB on Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever.
Read more from CNBC about how the collapse happened in just 48 hours here.
Biden says no taxpayer money will be used to cover losses
President Joe Biden said today that people can have confidence that the U.S. banking system is safe, and that their deposits "would be there when they need them" in the wake of the SVB collapse.
He said small businesses "can breathe easier knowing they can pay their workers and pay bills."
Last week, Biden said, his administration learned of problems at SVB and the impact those problems could have, and that he instructed his administration "to quickly protect" U.S. banking interests.
He said that no losses from the extraordinary backstop measure would be borne by taxpayers.
Instead, Biden said, money will come from fees banks pay into the Federal Deposit Insurance Corp.'s insurance fund.
He declined to take questions about whether there was continued risks.
Panic and partying at SXSW over SVB
Less than 24 hours before its collapse, Silicon Valley Bank, known throughout the tech industry as SVB, hosted a private dinner for a couple dozen people at Perry’s Steakhouse & Grille in downtown Austin, a short walk from the convention center that hosts South by Southwest. Jake Chapman, a partner at the defense investment firm Marque Ventures, said he ordered the house specialty pork chop.
“I was expecting that the SVB folks would address the elephant in the room,” Chapman said. “But nobody said a thing about it.”
Read more here.