Silicon Valley Bank collapse and other key moments in the week that rocked banks : NPR

The Fed’s BTFP stopped the panic by allowing US banks to borrow from the central bank using their bonds as collateral. One casualty of the panic caused by SVB’s collapse was Signature Bank, a midsize New York-based institution that had about $110 billion in assets. State regulators seized the lender after customers withdrew more than $10 billion worth of deposits, according to CNBC. Fear spread among startups and other small businesses that used SVB — had their money vanished? But most of the bank’s customers had more than that in their accounts, and many wondered if they would even be able to make payroll in coming day.

Janet Yellen says the federal government won’t bail out Silicon Valley Bank

Banks are covered by the FDIC, which insures your money for up to $250,000 per depositor, per account ownership category. “This is happening, in part, because of the Federal Reserve’s sharp rise in interest rates,” Francis said. The short answer is “possibly,” according to Stacy Francis, a certified financial planner and president and CEO of Francis Financial in New York. He said that no losses from the extraordinary backstop measure would be borne by taxpayers. Mohamed El-Erian, an influential economist and businessman, said this morning that bank stock struggles are not surprising.

“Social media saw a surge in talk about a run, and uninsured depositors acted quickly to flee,” said Barr. The Fed official points out that SVB’s belated effort to fix its balance sheet only made matters worse. “SVB’s failure is a textbook case of mismanagement,” Barr says in testimony How to buy ether to be delivered before the Senate Banking Committee. Investors are also awaiting the latest consumer confidence survey from the Conference Board for a fresh read on the health of the US economy. Goldman Sachs economists think a soft-landing is still possible, even in the wake of the recent banking meltdown.

1. Democratic Senator Elizabeth Warren of Massachusetts grilled federal regulators on their commitment to tightening banking rules before the Senate Banking Committee on Tuesday.
2. The Biden administration announced later that day that it would take extraordinary measures to ensure that SVB and Signature depositors got all their money back, even the parts that weren’t insured.
3. Based in Santa Clara, Calif., SVB’s clients included venture capital firms, startups and wealthy tech workers.
4. “Another alternative is to move some to a brokerage account and use mutual funds that are invested in government-backed securities,” she added.
5. It also indicated it had seen an increase in startup clients pulling out their deposits.
6. “Social media saw a surge in talk about a run, and uninsured depositors acted quickly to flee,” said Barr.

Banking chaos could break the strong job market

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.” Notably, the bank created a 24/7 payments network for crypto clients, and had $16.5 billion in deposits from digital-asset-related customers. 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.

Goldman Sachs said Wednesday that growing stress in the banking sector has boosted the odds of a US recession within the next 12 months. The bank now believes that the American economy has a 35% chance of entering a recession within a year, up from 25% before the banking sector meltdown started. Christine Lagarde, president of the European Central Bank, told reporters Thursday that “persistently elevated market tensions” could further constrict credit conditions that were already tightening in response to rising interest rates. Customers of failed banks in the European Union are promised €100,000 ($105,431) of their deposits back. Joint account holders can receive a combined €200,000 ($210,956) in compensation.

Biden says no taxpayer money will be used to cover losses

The Federal Reserve Board has made funding available to other institutions to help shore up their cash reserves, a move that should help to stave off a catastrophic run at another bank. Long-term, analysts say the broader banking sector is still likely to be healthy. On Thursday alone, clients raced to collectively withdraw an attempted $42 billion in deposits, and SVB’s share value dropped by more than 60%. Among its clients were tech and tech-adjacent companies like Roku, Roblox and Vox Media. (It turns out that this concentration in the tech sector was key to its demise.) But it remained little known outside of tech circles — until this past week. Treasury Secretary Janet Yellen met last week with financial regulators as part of the Financial Stability Oversight Council, which was founded in 2010 as part of the Dodd-Frank law as a watchdog for the financial system.

The yield, which moves in the opposite direction to the price, on short-term treasuries fell 50 basis points Stock Market Crashes in trading today— the biggest drop since 1987. In other words, demand for treasuries increased, causing their prices to rise. 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. The average rate on the popular 30-year fixed mortgage dropped to 6.57% Monday, according to Mortgage News Daily. SVB CEO Greg Becker and Chief Financial Officer Daniel Beck have been hit with a class-action suit over the bank’s collapse.

This is why SVB imploded, says top Fed official

Even with those big job cuts, the labor market in the United States remains white hot. The recent spate of layoffs, particularly in tech, have largely been shrugged off as companies’ adjusting their headcount after overhiring during the pandemic-era boom. The speed at which Silicon Valley Bank collapsed took Bank of England Governor Andrew Bailey by surprise, he told a hearing in UK Parliament on Tuesday.

Only when the reverse repo balance reaches very low levels will the system feel the full effect of QT. At this stage, the Fed has indicated it will slow and then end that programme. Ru Xie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

However, banks could suffer higher losses, if a significant economic downturn were to hit now versus a year ago. LPL Research said SVB appears to have held significantly more short-term marketable securities — or investments that can be sold quickly to raise cash — relative to its total assets or deposits than other banks its size. That suggests the bank was more vulnerable to berkshire hathaway letters to shareholders sudden swings in the market and to pressure on bond prices, said the market research firm, which blamed SVB’s downfall in part on what it called “balance sheet mismanagement.” By industry standards, a disproportionate share of the company’s capital was held in longer-duration investments, including mortgage securities and bonds, according to Bloomberg. As interest rates rose, the value of of SVB’s investments fell, raising concerns about its solvency and leading the bank’s customers to yank their funds. The Fed and Treasury also launched a program that would advance capital for up to one year to any federally insured bank eligible to borrow from the central bank.

He emphasized that customers of both SVB and Signature could “rest assured” that they would have access to their money that day. The Fed’s rapid interest rate increases over the past year have helped to slow inflation. But the increases have also devalued bond holdings, like the kind SVB invested in by the billions and helped cause its collapse last week.

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