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There’s an elegant solution to the Silicon Valley banking crisis

A Brinks armored truck parks in front of the closed Silicon Valley Bank (SVB) headquarters in Santa Clara, California, March 10, 2023.

Justin Sullivan | Getty Images

“CNBC Special: America’s Banking Crisis,” airing Sunday at 7 p.m. ET, features Jim and other experts discussing the impact of the demise of Silicon Valley banks on the economy and stock markets.

Fears of contagion to banks with a similar profile to Silicon Valley banks have brought several government agencies together to find buyers for the troubled banks. On Friday, it became the second-biggest bank collapse in U.S. history. At a minimum, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Treasury Department, and President Joe Biden want some kind of safety net that extends deposit insurance to all individuals and businesses with funds in Silicon Valley banks. .

Summarize this content to 100 words “CNBC Special: America’s Banking Crisis,” airing Sunday at 7 p.m. ET, features Jim and other experts discussing the impact of the demise of Silicon Valley banks on the economy and stock markets. Fears of contagion to banks with a similar profile to Silicon Valley banks have brought several government agencies together to find buyers for the troubled banks. On Friday, it became the second-biggest bank collapse in U.S. history. At a minimum, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Treasury Department, and President Joe Biden want some sort of safety net that extends deposit insurance to all individuals and businesses with funds in Silicon Valley banks. . This safety net is very important as he has $173 billion in bank deposits, of which only $4.8 billion is fully insured. We’ve had plenty of time to explain why his parent company, SVB Financial (SIVB), Silicon Valley Bank, has fallen into such a nightmare, but here’s a quick look at some of it. But the point is that if the government doesn’t come out with a plan, it’s going to be a very rough time for the stock market on Monday. The government understands that this crisis will end on Monday and it will be a great time to buy if the full guarantee of deposits is provided through a memo provided by the Federal Reserve (Fed). . Similarly, if the government could find a buyer for his SVB, as in the Washington Mutual bankruptcy in 2008, the crisis would also be averted. This is because the actual loan books and deposits on hand obviously cover the depositor’s losses. In WAMU’s case, the government foreclosed on the bank and placed it in receivership before selling its assets and liabilities to another large bank, her JPMorgan (JPM). A similar auction is currently taking place. The outcome may not be known until Sunday evening, but the government hopes the auction will be resolved on Sunday so it won’t spill over on Monday. did not. But like California Governor Gavin Newsom and President Biden, policymakers have since come to recognize and understand the gravity of the situation. If anyone in these constituencies says they’re not going to bail out any more banks because they need to keep the hard line. We can’t rule that out, but with some banks already infected, it makes Monday very difficult to understand. . Because it’s taxing and inspires unhelpful levels of fear. Earlier I mentioned First Republic Bank (FRC). But since we first published this article, sources say First Republic will soon pledge his 100% deposit insurance through the Home Loan Banking Commission/FDIC to help contain the contagion. . Bankers claim to have spent about $60 billion on the effort. They’ve been working on liquidating their balance sheets over the weekend and they say they did. On Monday mornings, the branch windows had big signs that said they were open (much better than the queues around the block), and offered a small payroll loan to anyone at Silicon Valley Bank. Let’s take a look at the who, what, where, how and why of this moment. Silicon Valley Bank. Unlike most banks. It is a top 20 merchant bank by size and boasts a stellar 40-year career as banker of his capital in start-ups and ventures. It is considered symbolic and powerful. It survived multiple matches with troubles in the US, especially technology, and came out perfectly. What are the chances that the deposit will be withdrawn in many banks? Certainly, anything over $250,000 is problematic because it fears it will not be protected by the FDIC. Most of the leaked deposits will likely go to one of the largest banks, creating a concentration greater than the country already has. JP Morgan, with the best balance sheet among the big banks, will be the biggest winner. Politicians are just as concerned about that concentration as they are afraid of appearing to bail out smaller banks. This bank was unique because it is mostly concentrated in Silicon Valley. It supported thousands of startups, but users of this support seemed to require all their money to be deposited in the bank. Remember, only a fraction of our $173 billion deposits are guaranteed. As you can imagine, SVB-backed start-ups endanger all assets using SVB. These deposits far exceed the $250,000 protection per account. Silicon Valley Bank wouldn’t support your company if it didn’t get all your deposits. Simple: SVB deposits skyrocketed in 2020 when the Fed pushed massive amounts of liquidity into the system to stave off a Covid-related crash. Unlike most other banks that bought short-term, low-yielding government bonds, this bank chose to invest in long-maturity government bonds. Banks wanted to get extra yield. Why the regulator allowed it is a mystery. That was unwise and in hindsight the regulators should have made sure that portfolio was more balanced. But as a result, there weren’t enough short-term securities left in bank vaults to redeem when depositors wanted their money. It didn’t help that some venture capitalists rushed to crack down on the banks, as the FDIC actually had plans to save them. But the execution happened too quickly and none of the plans worked. So the solvent bank became insolvent overnight. And why should a portfolio of really high-quality bonds have to suffer severe losses because the Fed went bankrupt every time it hiked rates? Ironically, the Fed has generated a lot of liquidity and SVB deposits have increased by about 250%, investing in longer term assets. We didn’t buy government bonds because we had credit problems. The rest of the bank bonds were left unsold before they were seized. How do we get out of this quagmire? There is an easy way. The US government creates banknotes that back its entire deposit base. After that, no execution takes place and the crisis is averted. It’s incredibly clean and very bullish. do they do that? This goes against the current doctrine that banks should not be bailed out. But this makes the most sense, as not all common and preferred shareholders will be bailed out. If the Federal Reserve implements this plan, taxpayers will not be at risk (in theory) and dogma will be violated. We will move on soon and the Fed will probably stop raising rates. A less simple method is to find a buyer who agrees to assume the assets and liabilities of the insolvent entity, and withdrawals of more depositors than the newco (the new bank) can handle are handled by the Fed or Federal Mortgage Bank. Guaranteed by the Commission. The problem here is that buyers don’t pay full price, which creates real moral hazard. The book of assets and loans will most likely exceed the deposits, so the winning entity does the killing, which is ugly. In that case, it will be very difficult to avoid a serious drop in the stock market due to other runs above the SVB. Perhaps more importantly, many businesses will be unable to pay salaries, potentially causing the collapse of a significant number of start-ups and even venture capital firms. will be What do you think will happen? As you will soon see, it would be insane to let the so-called free market handle this, given what we have learned since 2008. There are sophisticated solutions available. A note from the Fed. The note must guarantee 100% of the deposit to ensure there is no execution. Anything less means crackdowns at other banks. why not? Simply journalize your deposit to JP Morgan. It turns out that the discount window is wide open for banks under pressure. But at the same time, unless SVB’s depositor has his 100% guarantee, withdrawals will occur at all smaller banks. Again, some very good news here. When you add up the bonds held by banks and loans to often very qualified institutions, they more than cover all deposits, so they are technically not a bailout. I don’t understand why not. Otherwise it looks like you want to punish rich venture capitalists. But it will punish everyone. Remember, there’s always someone in the room saying, “No, it’s time to punish.” In that case we will all be punished. I’ll do my best Sunday night to say it’s the next best solution. But I think he is but one voice among many voices. Stay tuned for more details.…
https://www.cnbc.com/2023/03/12/cramer-to-fed-you-have-an-elegant-fix-for-the-silicon-valley-bank-crisis.html There’s an elegant solution to the Silicon Valley banking crisis

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