Just In: Regulators close New York’s Signature Bank, citing systemic risk

It is a NY based crypto friendly bank, about half the size of Silicone Valley Bank.

Futures market is up slightly on the news, but these days sometimes
bad news for the economy = good news for the market.

Anyway

U.S. regulators said Sunday it shut down New York-based Signature Bank
, a second financial institution they shuttered after Silicon Valley Bank’s collapse.

“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” Treasury, Federal Reserve, and FDIC said in a joined statement Sunday evening.

The banking regulators said depositors at Signature Bank will have full access to their deposits.

a little more at the link

A basic problem appears to be that banks have invested in long-term government bonds. The market value of the bonds have gone down as interest rates have gone up.

The problem that Silicon Valley Bank experienced may be common to a lot of banks.

More than 40% were long-dated Treasuries and mortgage-backed securities (MBS). The rest were seemingly world-conquering new tech and venture capital investments.

Most of those “low risk” bonds and securities were held to maturity. They were following the mainstream rulebook: Low-risk assets to balance the risk in venture capital investments . . .

The entire asset base of SVB was one single bet: Low rates and quantitative easing for longer.
Silicon Valley Bank Followed Exactly What Regulation Recommended | ZeroHedge

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In that regard — it is exactly precisely what happened.almost-happened with the UK pension fund crisis tht led to a prime minister being ousted more quickly than lettuce wilts.

When interest rates go up the resale value of bonds goes down.
(Although nothing happens to a bond held to maturity. If you hold a bond to maturity it is unaffected by fluctuating rates in teh rest-of-the-world, hence "bonds are safe.)

Hmmm

https://investor.signatureny.com/governance/management/person-details/default.aspx?ItemId=582f632a-8fad-4d82-a932-c65735da6443

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Oh my.

How inconvenient.

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Gee that’s no surprise that a bank with Barney Frank associated with it is in trouble.

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Eerily starting to feel like 2007. Except this time we don’t have the Fed to bail us out as they are struggling with inflation and the debt is out of control.

Yes, it is a very similar feeling.
Three of the banks that are gone are crypto banks.
Silicon Valley Bank at best (optimistically) was a bank for start-ups.
More realistically it was a cut-out Venture capitalists exploited a missing regulation.
VC lending is a high-risk high-reward enterprise. The VC set up a relationship with their wholly owned bank so that

  • the bank took most of the risk
  • the VCs took most of the reward.

It’s shrewd and it should be illegal. This is me speaking. I almost never call for more government regulation, but yeah VC banks are a new category and at least one new law is needed.

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It looks like the Fed and the Treasury are stepping in before bank runs become rampant. That is a good thing.

Here is a video of lines at a Republic Bank in LA on Saturday.

Agreed

I think the Fed is doing to much to soon,
but I’m a conservative. I often feel that way.

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Well, at least Biden assures us that the banking industry is as sound as his mind and body.

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The banking system is inherently a house of cards without government intervention.

For every dollar that banks get as deposits, they can lend out 10. The money they lend out then gets deposited into banks.

For the system to operate, large numbers of depositors cannot simultaneously withdrawal their money. If that happens large numbers of banks would fail since the failure of one bank means deposits are lost in other banks. That is what happened at the beginning of the Great Depression, when the Federal Reserve did nothing to prevent cascading bank failures.

The only viable solution is for the government to step in to cover the deposits and create more money.

They need to go back to printing the thousand dollar bill so that they can manufacture cash quicker.

They just flip bits in computers. No printing press is required.

Trading in a number of banks has been halted.

We;ll; that is kind of the high school version, but yes.
Every dollar of M1 can become 10 dollars of M2.

Funny thing is the free market likes it that way.
With or without central banks, free markets do that every single time.

But the free market is constantly under assault by people who think
“I don’t understand it” means “There is an evil conspiracy by my poltical enemies.”

Yes LOL

I am shorting the banks and they keep HALTING all my good trades.

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