AP Photo/Benjamin Fanjoy
- Silicon Valley Bank's collapse last week has created a great deal of fallout.
- Warren Buffett may be buying the dip in regional bank stocks, Bill Ackman says.
- Lloyd Blankfein, Bill Ackman, and Michael Burry have all weighed in on the fiasco rocking markets.
We're live as Silicon Valley Bank's collapse continues to rattle investors and stoke fears of further bank runs and financial catastrophe.
The US Treasury, Federal Reserve, and the Federal Deposit Insurance Corp. helped assuage those worries on Sunday by announcing deposits at the country's 16th-largest bank would be guaranteed, and the bank's customers would have access to all of their money on Monday. The FDIC took control of SVB on Friday, while the Fed plans to offer loans to banks and other deposit holders in case they face a wave of withdrawals.
Some experts have celebrated the intervention as necessary to prevent a crisis. Others have warned it could encourage banks to be more reckless, and SVB might be the first of several institutions to fail.
President Biden has reassured Americans that their deposits are safe, taxpayers won't foot the bill for bank losses, and he plans to rein in the banking sector to avoid future crises. Meanwhile, Warren Buffett might be buying the dip in regional bank stocks, Bill Ackman has said.
Follow along for the latest developments, analysis of what it all means, and what the likes of Lloyd Blankfein, Bill Ackman, Michael Burry, Mark Cuban, Paul Krugman, and Elon Musk are saying.
The implosions of Silicon Valley Bank, Silvergate Capital, and Signature Bank in recent days might make for scary headlines. But they could actually be bullish developments for stock investors.
That's because the Federal Reserve may be forced to slow the pace of rate hikes it's been enacting since March 2022. It would be welcome news for investors who have felt the pain of tighter financial conditions as stocks have limped to a weak start this year.
It would also help alleviate the very pressure that led to the collapse of these institutions. After all, the rising-interest-rate environment is what put the firms in such a precarious situation to begin with, as risk-free government bonds started yielding more than their debt. Customers pulled money and fled to greener pastures, and the panicked situation eventually snowballed into a series of bank runs.
The dust is still settling following the collapse of Silicon Valley Bank, but there's one thing that's clear: more banks are probably going to fail.
SVB's operations were shuttered on Friday by state regulators, and Signature Bank was closed down shortly after. While market commentators say the failures don't mark a Lehman-style crisis, more bearish prognosticators say the risk of contagion across the banking industry remains high.
In an interview with Politico on Sunday, former Federal Deposit Insurance Corporation chairman William Issac said more banks are bound to collapse, and markets could be on the precipice of another 1980s-style banking crisis.
"There's no doubt in my mind: There's going to be more. How many more? I don't know," Issac said, comparing the situation to the banking crises of the 1980s and 1990s, when the FDIC dealt with the failure of over 1,600 banks.
Bill Ackman has touted regional bank stocks as a great deal for investors right now, and suggested Warren Buffett may be scooping them up as we speak.
"Regional bank stocks are an incredible bargain now as long as the gov't does the right thing, and I am confident it will," the billionaire investor and Pershing Square boss tweeted on Monday. He was referring to the FDIC explicitly guaranteeing all bank deposits to restore faith in the banking system.
"I would be surprised if Warren isn't putting capital to work in his favorite regional banks now," Ackman added.
Buffett's Berkshire Hathaway counted several banks among its holdings at the end of December, including Bank of America, Bank of New York Mellon, Citigroup, US Bancorp, and Ally Financial.
—Bill Ackman (@BillAckman) March 13, 2023
Jim Chanos warned investors in a Monday tweet that there's likely more pain ahead.
The short seller — who helped uncover fraud at Enron and other companies — noted the S&P 500 has only dipped in recent days, speculative assets such as cryptocurrencies are jumping, and the Fed may be about to halt its rate hikes or even start cutting.
—Diogenes (@WallStCynic) March 13, 2023
Lloyd Blankfein doesn't expect many banks to go up in flames like SBV, and sees some positives for investors.
The senior chairman and former CEO of Goldman Sachs noted in a Monday tweet that the FDIC insuring bank deposits limits the need for people to withdraw their cash in a hurry. He also pointed out that the nation's biggest banks are strictly regulated and tested.
Moreover, Blankfein said downward pressure on rates, and the likelihood the Fed holds off on hiking interest rates any higher after a string of bank collapses, could boost asset prices.
—Lloyd Blankfein (@lloydblankfein) March 13, 2023
Larry McDonald has castigated SVB for buying long-dated bonds despite holding large amounts of uninsured deposits, leaving it vulnerable to running short of cash if withdrawals spiked.
—Lawrence McDonald (@Convertbond) March 13, 2023
—Lawrence McDonald (@Convertbond) March 13, 2023
The founder of "The Bear Trap Report" also blasted Wall Street for overlooking the risk of regional banks collapsing, and called out the Fed for likely holding off on another 50-basis-pint hike to interest rates this month.
"The lesson here is a) the entire Street missed this regional bank credit risk fiasco, near disaster. And b) when the Fed looked under the hood, they saw something that freighted them into another embarrassing pivot," McDonald tweeted.
The former Lehman Brothers trader — and author of a book about the bank's collapse at the start of the financial crisis — noted the Fed is saving bank deposits at a period when the economy is in running hot, with around 3% unemployment and nearly 7% inflation.
"Well, the Fed couldn't kill inflation but they were successful at putting three banks in the grave so far," he said.
Financial stocks could tumble as investors pull their cash out of funds after losing money in the SVB and Signature fiascos, Mark Cuban suggested on Monday.
The funds may have to sell shares to cover those withdrawals, driving down stock prices, the tech billionaire and "Shark Tank" investor said. He was replying to a tweet by Mohamed El-Erian noting that US and European bank stocks were in the red.
—Mark Cuban (@mcuban) March 13, 2023
US financial stocks slumped in early trading on Monday. As of 10:12 a.m. ET, First Republic was down 67%, Comerica was down 45%, KeyCorp was down 26%, Truist America was down 18%, Charles Schwab was down 14%, and Bank of America was down 5%.
The major US stock indices were mixed. The S&P 500 was down 0.2%, while the Nasdaq and Dow Jones Industrial Average were flat.
Key European stock markets were trading in the red. Germany's DAX was down 2.8%, Britain's FTSE 100 was down 2.0%, and the Euro Stoxx 50 was down 3.0%.
—Brandon Van Zee (@BrandonVanZee) March 13, 2023
Mohamed El-Erian has flagged a worrying spike then plunge in the yield on 2-year Treasuries over the past week.
The leading economist warned that kind of volatility can put strain on the financial system.
—Mohamed A. El-Erian (@elerianm) March 13, 2023
Americans' money is secure in US banks, and taxpayers won't pay for SVB's mistakes, President Biden said in a Monday speech.
"You can have confidence that the banking system is safe," he said. "Your deposits will be there when you need them."
"No losses will be borne by the taxpayers," Biden added.
He also said those responsible for SVB and Signature Bank's failures would be held responsible, and his administration would take steps to avoid similar fiascos in the future.
Moreover, Biden emphasized that investors wouldn't be made whole, as they took the risk of losing their money when they bought into SVB and Signature.
"Investors in the banks will not be protected — they knowingly took a risk, and when the risk didn't pay off, investors lose their money," he said. "That's how capitalism works."
SVB's collapse is a product of wider greed in Silicon Valley, and a broken system that lets banks take too many risks with limited oversight, Keith Fitz-Gerald told CNBC on Monday.
"With regard to who's to blame here, I think that the greed and avarice that has long been present in Silicon Valley has come home to roost," the trader and principal of the Fitz-Gerald Group told the business-news channel.
Fitz-Gerald questioned whether banks like SVB should be allowed to invest their deposits, instead of simply lending money and collecting interest.
"My contention is banking should be boring, a lot like watching paint dry — and any time it's not, you've got a problem," he said.
"It's the system that's broken, or at least needs to be seriously reviewed here," Fitz-Gerald continued. "Where were the regulators? Where were the auditors?"
Cathie Wood said in a Monday tweet that many banks joined SBV in parking their excess cash in long-duration bonds, as they didn't expect the Fed to hike rates by more than 4 percentage points over the past year.
The technology investor and Ark Invest chief warned that if the Fed doesn't begin cutting interest rates, more regional banks will collapse and the US banking system will become more consolidated and publicly controlled.
—Cathie Wood (@CathieDWood) March 13, 2023
Wood also seized the chance to tout cryptocurrencies and the wider blockchain ecosystem as safer and less opaque than conventional banks. Bitcoin and ether, the two most-popular cryptos, were up by more than 8% on Monday.
—Cathie Wood (@CathieDWood) March 13, 2023
Paul Krugman has dismissed concerns that guaranteeing SVB's deposits will encourage people to invest in high-risk banks in the belief they'll get their money back even if the bank collapses.
"I don't think expectations of a bailout created this mess," the Nobel Prize-winning economist said in a Monday tweet. "The depositors weren't that smart."
Krugman, a vocal skeptic of cryptocurrencies, also took aim at the crypto companies such as Circle that kept their money at SVB.
"I mean, if you're totally into crypto, how likely that you're carefully thinking through the logic of deposit insurance? You haven't even figured out what money is!" he tweeted.
—Paul Krugman (@paulkrugman) March 13, 2023
It's worth reflecting on how we ended up with the 16th-largest US bank collapsing, marking the biggest bank failure since 2008.
Numerous investors and economists have blamed the US response to the COVID-19 pandemic. The strategy centered on keeping interest rates at virtually zero, buying up corporate bonds, mailing out stimulus checks to households, and offering loans and grants to companies in a bid to shore up the economy.
The unprecedented amount of fiscal and monetary stimulus — combined with the pandemic disrupting domestic production and snarling global supply chains, and Russia invading Ukraine and throwing world energy markets into disarray — sparked inflation.
The pace of price increases hit a 40-year high of 9.1% last June, spurring the Fed to hike interest rates from virtually zero to upwards of 4.5% over the past year. Higher rates increase the cost of car loans, mortgages, credit cards, and other types of borrowing. Combined with surging prices, that has put pressure on US households and rapidly eroded the money they saved during the pandemic.
Higher rates also encourage saving over spending, hiring, and investing. As a result, they weigh on asset prices and sap demand, increasing the risk of a recession.
That darkening backdrop likely played a role in SVB's collapse, especially given many of the bank's customers were cash-hungry, venture-capital backed companies that might be less able to weather an economic downturn than more established, profitable businesses.
SVB bought long-dated bonds that plunged in price as the Fed hiked rates (higher rates translate into larger bond yields, and bond prices move inversely to yields). Meanwhile, its customers may have been feeling especially jittery given the current pressure on valuations and prospect of a recession, making them more likely to panic and withdraw their cash.
The "asset-liability mismatch" of long-duration bonds and instantly withdrawable, uninsured deposits, combined with broader concerns about economic growth, likely helps explain why SVB ran into trouble.
Credit Suisse, Commerzbank, and other European banks fell sharply in morning trading on Monday.
"Getting all tingly with nostalgia," Neil Wilson, the chief market analyst for Finalto and Markets.com, tweeted.
In a morning note, Wilson questioned whether US authorities' decision to get involved in the SVB situation signals they're worried about the wider industry.
"Does such coordinated intervention signal that regulators are really worried about the US banking system?" he asked. "Would they step in if all were really well elsewhere?"
London-listed financial stocks also slumped, with Barclays down 6% and Lloyds down 5% at the time of writing.
—Neil Wilson (@marketsneil) March 13, 2023
The federal intervention to protect SVB and Signature Bank's depositors from losing any money could make people too relaxed about where they bank, Cliff Asness has warned.
The billionaire investor and AQR Capital Management cofounder argued that depositors may now feel confident putting any sum of money in a particular bank regardless of the risks attached, as they'll assume the cash will be returned to them if the bank fails.
—Clifford Asness (@CliffordAsness) March 13, 2023
It's worth highlighting a Twitter thread, penned on Sunday by Justin Wolfers, that argues authorities guaranteeing of SVB's deposits should be considered a bailout. The Fed, FDIC, and Treasury said the intervention came at no cost to the taxpayer.
"Once again it's privatize the gains and nationalize the losses," Wolfers tweeted, meaning that SVB's bosses and investors were able to pocket the profits from running the bank, but once it failed, the government picked up the bill.
"They're not using taxpayer funds," Wolfers said. "Just taxing banks, then using the proceeds of a tax — which are definitely not to be thought of as taxpayer funds that could be used for other purposes — to pay for the bailout."
In other words, the economics professor's view is that the premiums paid to the FDIC by banks are essentially tax revenues that could be used for other purposes, but they're being used in this case to make up for SVB's mistakes.
—Justin Wolfers (@JustinWolfers) March 12, 2023
HSBC, one of the world's largest banks, revealed on Monday that it acquired SVB's UK unit for a single British pound, worth about $1.21.
The UK government and the Bank of England facilitated the private sale, Chancellor Jeremy Hunt tweeted.
"Deposits will be protected, with no taxpayer support," Hunt said.
—Jeremy Hunt (@Jeremy_Hunt) March 13, 2023
A former top banking regulator believes SVB will be the first of several banks to fold in the weeks ahead.
"There's no doubt in my mind: There's going to be more. How many more? I don't know," William Isaac, the former chairman of the FDIC, told Politico on Sunday.
"Seems to me to be a lot like the 1980s," Isaac added. More than 1,600 FDIC-insured banks were closed or received financial assistance between 1980 and 1994, the largest number in the agency's history.
Markets Insider
First Republic Bank shares plunged by over 60% in premarket trading on Monday, as SVB's collapse fanned fears that the San Franscisco-based lender would also implode.
First Repuplic has rushed to calm nervous investors, noting on Sunday that it has secured access to additional cash from the Fed and JPMorgan, boosting its available liquidity to over $70 billion.
In a Monday tweet, billionaire investor Bill Ackman dismissed claims that authorities protecting SVB's deposits constituted a bailout.
Ackman argued that if the Fed, FDIC, and Treasury hadn't swooped in, the US would have faced a "1930s bank run continuing first thing Monday causing enormous economic damage and hardship to millions."
The Pershing Square boss cautioned that more banks will probably collapse despite the intervention, but suggested it's reassuring to know how the government might contain the fallout.
—Bill Ackman (@BillAckman) March 13, 2023
Mohamed El-Erian, Allianz's chief economic adviser and a former Pimco CEO, flagged immense volatility in US bond yields in a Monday tweet.
Investors are reacting to SVB's collapse and the risk that other banks could follow, and it could take a while for things to calm down, he said.
—Mohamed A. El-Erian (@elerianm) March 13, 2023
Jim Chanos poured cold water on relieved investors late on Sunday, warning that guaranteeing SVB's deposits doesn't address the issue of banks having too many long-term assets relative to their short-term liabilities in the form of uninsured deposits.
The short seller, who helped expose accounting fraud at Enron in the early 2000s, also cautioned that the failure to find a buyer for SVB's assets could mean appetite for stocks and other risk assets if fading.
—Diogenes (@WallStCynic) March 13, 2023
In an earlier tweet, Chanos underscored the risk that politicians frame any aid to SVB as a bailout of wealthy elites.
—Diogenes (@WallStCynic) March 12, 2023
"Bond King" Jeffrey Gundlach, the head of DoubleLine Capital, warned in a Monday tweet that the sudden shift in bond yields on the back of the SVB fiasco indicates the US economy is barreling towards a downturn.
—Jeffrey Gundlach (@TruthGundlach) March 13, 2023
Silicon Valley Bank was especially vulnerable to collapse, JPMorgan's chairman of market and investment strategy said in a weekend note, according to CNBC.
"SVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of total deposits," Michael Cembalest said.
The lender took more risks than its peers, leaving it exposed to running short of funds if interest rates rose, withdrawals surged, and it was forced to sell assets, he continued.
SVB "carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in case of rising interest rates, deposit outflows and forced asset sales," he said.
David Friedberg, an agriculture-technology entrepreneur and co-host of the "All In" podcast, suggested on Sunday that the banking fiasco could pave the way for lower interest rates and higher inflation for a prolonged period.
—david friedberg (@friedberg) March 12, 2023
Indeed, Goldman Sachs analysts predicted in a Sunday note that the Fed wouldn't hike interest rates this month.
The Wall Street Journal reported on Sunday that SVB could be the first of several banks to be exposed, and other smaller US banks could see an exodus of cash.
"I think this could be the first cockroach in the cellar," Fredric Russell, the boss of an investment manager, told WSJ. "Banks get thrown into the dark pool of complacency, and then they lower their quality standards."
"If the resolution of SVB Financial isn't handled well, there's a systemic risk that uninsured depositors will flee small banks," Bob Elliott, the cofounder and chief investor of asset manager Unlimited, told the newspaper.
Gary Cohn, the director of the National Economic Council under President Trump and a former president and operating chief of Goldman Sachs, warned there could be painful fallout if depositors aren't made whole.
—Gary Cohn (@Gary_D_Cohn) March 12, 2023
Bill Ackman, a billionaire investor and the boss of Pershing Square, urged the FDIC on Saturday to intervene or risk a flurry of bank runs.
—Bill Ackman (@BillAckman) March 11, 2023
He warned the government only had 48 hours to take action to protect deposits, or it might destroy confidence in all but the largest banks.
—Bill Ackman (@BillAckman) March 11, 2023
Tech billionaire Mark Cuban emphasized on Saturday that if SVB's deposits aren't protected, it would be the consumers and businesses holding their money there who would be hurt.
—Mark Cuban (@mcuban) March 11, 2023
Nouriel Roubini, nicknamed "Dr. Doom" for his pessimistic predictions, suggested on Sunday that the Fed will only hike interest rates by 25 basis points or not at all, as it waits to see how the banking fiasco plays out.
The economics professor at NYU Stern also flagged the risk that the fallout from SVB's implosion spreads internationally.
—Nouriel Roubini (@Nouriel) March 12, 2023
Roubini, a vocal critic of cryptocurrencies, warned that the crypto ecosystem was even more fragile than the traditional banking sector.
—Nouriel Roubini (@Nouriel) March 11, 2023
Venture capitalist David Sacks dismissed the idea on Sunday that SVB's depositors should lose their money simply because they chose the wrong bank.
—David Sacks (@DavidSacks) March 12, 2023
Sacks later emphasized that he wants investors and executives to be wiped out by SVB's collapse, but he believes it's harsh for people who simply opened a bank account there to lose money.
—kanekoa.substack.com (@KanekoaTheGreat) March 12, 2023
Michael Burry, the investor of "The Big Short" fame, appeared to compare SVB to Enron in a now-deleted Thursday tweet.
The Scion Asset Management chief, best known for predicting and profiting from the collapse of the mid-2000s US housing bubble, also warned another major company will implode in time.
Bethany McLean, the author of "The Smartest Guys in the Room," told Insider that she didn't see too many similarities between SVB and Enron, given the latter was found to be fraudulent and its collapse didn't bring down the system.
"Maybe the lesson is, don't be Enron!" she said. "If you're going to collapse under the weight of your bad decisions, make sure you take enough others down with you - particularly innocent others like employees who may not get their paychecks - so that the government has to step in."
Burry later bemoaned the greed and recklessness that led to SVB going under, and hinted that printing money would likely cause problems such as asset bubbles and inflation.
Paul Krugman brushed away fears that SVB's implosion could echo the collapse of Lehman Brothers in 2008, which helped spark the financial crisis.
—Paul Krugman (@paulkrugman) March 11, 2023
The Nobel Prize-winning economist noted SVB's large volume of deposits made it vulnerable to a bank run, but its focus on Treasuries is nowhere near as dangerous as the subprime mortgages that helped inflate the housing bubble.
—Paul Krugman (@paulkrugman) March 11, 2023
Larry Summers urged authorities in a Sunday tweet to step in and guarantee the deposits of SVB's customers, or risk undercutting faith in the US financial system.
The former US Treasury chief noted that taking swift action would be cheaper for taxpayers and better for the economy, than delaying and risking a moment to rival the collapse of Lehman Brothers in 2008, which helped spark the financial crisis.
—Lawrence H. Summers (@LHSummers) March 12, 2023
Elon Musk said in a Friday tweet that he wouldn't be opposed to buying SVB following its collapse.
"I think Twitter should buy SVB and become a digital bank," Razer cofounder and CEO Min-Liang Tan tweeted.
"I'm open to the idea," the CEO of Tesla, Twitter, and SpaceX replied.