Sudden Collapse of Another US Bank

wizzlesticks on 10/03/2023 - 18:31
Last edited 11/03/2023 - 09:42

Silvergate Capital, which was an up-and-coming US bank, has suddenly collapsed after customers started rapidly withdrawing their funds in a panic (deposit runs). Bloomberg published an article today which discussed this, along with another, Silicon Valley Bank, that was teetering on the edge of collapse, and has done a rushed capital raise to prevent the same type of demise as Silvergate.

Are we seeing the start of the next crisis?

For those not paying attention, it had a ripple effect and banking stocks globally have been pummelled. Today was not a good day for the ASX, but especially the banking sector. Although the major banks are considered very safe, there could be more deposit runs, meaning others start panicking and taking their cash out of the lesser-known banks and parking their money elsewhere.

Interested in the thoughts and opinions of the community, as there are a lot of money hoarders here!

EDIT: Silicon Valley Bank also collapsed overnight in Friday trading.

Financial

Comments

  • Muzeeb on 10/03/2023 - 18:33
    +66

    Did somebody say KFC GFC?

    • Some Human on 10/03/2023 - 18:49
      +15

      I don't care!

      • 2pro4sho on 12/03/2023 - 11:30
        +10

        I love it!

    • avoidfullprice on 10/03/2023 - 18:49
      +14

      I dont care followed by i love it?

      • jazinger23 on 12/03/2023 - 20:46
        +5

        Shud up and take my money .. oh its already gone?

    • Jimothy Wongingtons on 10/03/2023 - 19:02
      +3

      🥹🥹🥹🥹

    • TheRealCher on 10/03/2023 - 19:08
      +17

      Take my mon….whays that? Oh, you did…

    • Godric on 10/03/2023 - 20:00
      +1

      KFC is the Chicken Bank

    • Cheap Gamer on 13/03/2023 - 11:32

      The Big Short 2: Just Don't Dance!

  • Pcosmic on 10/03/2023 - 18:38
    +5

    Meh

    • Kangal on 11/03/2023 - 23:42
      +1

      Very much so meh. It's just how the world works.

      On a pessimist note:
      But if people really understood how the government works and how the finance system functions… well, it is a 100% certainty that a coup would happen to overthrow the privileged, the guillotines will come out, and a "power vacuum" will be created that may be filled by competent moral actors, people even worse, or a much of a muchness.

      We're talking people who have the ability to buy a helicopter, live in a world different to those in the top 10%, and are very different to those in the middle and lowest economical subset. These "representatives" are always* representing themselves usually against your interest.

      • supersabroso on 12/03/2023 - 00:49

        That's exactly what happened in China, too many poor people decided to start a civil war and take all the rich people down to the common level so that everybody had virtually the same thing. Same quota of food, same type of house no matter what your job was. Wonder what our civil war will be like, luckily I don't think that will happen in Australia as we hold the number 1 rank for the wealthiest country in the entire world/person thanks to our low population & super laws.

        • jazinger23 on 12/03/2023 - 20:48
          +1

          The Mao socialists did not allow home ownership .. everything was state owned.

      • Ozykins on 12/03/2023 - 08:24
        +1

        "a coup would happen to overthrow the privileged, the guillotines will come out, and a "power vacuum" will be created that may be filled by competent moral actors, people even worse, or a much of a muchness."

        In other words much like France. Anyone fancy ending up like France today? Come to that, China too.

        • ThisIsAUsername on 13/03/2023 - 00:07
          +4

          Low pension age. Decent retirement package. Flaunting wealth is looked down upon. Intellectualism is viewed highly.

          I don’t see what’s wrong with France?

          • dogboy on 13/03/2023 - 16:41
            +4

            @ThisIsAUsername: They just raised the retirement age but yes, a very socialist country where the employees have a lot of rights and privelage. We could do a lot worse.

            • Jolakot on 15/03/2023 - 08:23

              @dogboy: Why on earth would you call France socialist? They're a mixed-market economy like ours, at best you could call them a social democracy, but they're objectively not a socialist country

      • trapper on 13/03/2023 - 09:51

        it is a 100% certainty that a coup would happen to overthrow the privileged, the guillotines will come out, and a "power vacuum" will be created …

        lol

  • Baysew on 10/03/2023 - 18:49
    +45

    Pretty easy to join the dots.

    Silvergate Bank is a California bank operating from 1988 to 2023.

    In its last decade of operation, the bank moved to begin supporting customers in the blockchain and cryptocurrency industry, grew rapidly, and went public in 2019. In March 2023, the bank announced plans to wind down and liquidate.

    • freefall101 on 10/03/2023 - 19:09
      +9

      And Silicon Valley Bank backed everything with bonds thinking they were "safe", but when they needed cash and everything was sub 2% bonds they lost money.

      • wizzlesticks on 10/03/2023 - 20:06
        -2

        A lot of banks have been left holding worthless bonds but have the capacity to keep holding them.

        • gromit on 11/03/2023 - 18:05
          +5

          The bonds aren't worthless, they are simply worth slightly less than the purchase price due to higher interest rates. After all if you bought a bond at $1 getting 2%, you have to expect it will lose a few percent as interest rates rise. What has happened here is they needed fast liquidity and had to sell the bonds at a loss even though they were still generating money from them. So their $21B in bonds was worth closer to $19B, hardly worthless, but definitely a big overall loss.

        • freefall101 on 12/03/2023 - 10:45

          Banks usually buy bonds to back home loans at a similar rate or they hedge against interest rate rises.

          These idiots bought $90b of low interest, long term bonds. Basically zero benefit yet tonnes of downside if rates went up. That’s just pure incompetence.

    • Randolph Duke on 11/03/2023 - 14:08
      +5

      Where’s @rektrading to explain this to us?

    • [Deactivated] on 12/03/2023 - 21:28
      +1

      Only when the tide goes out do you discover who's been swimming naked.

      • Warren Buffett
  • Bafranz on 10/03/2023 - 18:50
    +16

    Invest in crypto they said..

    • Stopback on 10/03/2023 - 20:45
      +19

      Buy low sell even lower

      • MrThing on 12/03/2023 - 15:29

        Buy high, sell for $0

      • Ulysses31 on 12/03/2023 - 17:12
        +3

        I do love a discount

  • lostgoat on 10/03/2023 - 18:52
    +25

    . As of September 30, 2022, there were 4,746 commercial banks in the U.S.

    1 failed its the end of the world :(

    • Drakesy on 10/03/2023 - 18:59
      +11

      It could be the canary in a coal mine.
      Could…

      Mind you i think the American interest rate is still going to the moon so anything is possible.

      • Jaxy on 11/03/2023 - 10:36
        +15

        Remember when the Aussie dollar was worth more than the US dollar?

        2011 remembers.

        • Thaal Sinestro on 12/03/2023 - 03:59
          +5

          They were great times for imports (and lets face it, almost everything non-food we buy is an import). Also no 10% GST on items purchased from overseas sites. And international shipping costs were lower.

        • Sinnerator on 12/03/2023 - 08:11

          And everything in Australia was still overpriced compared to the US market. Everday items didn't get cheaper. (Maybe if I wanted to buy a bulk pack of 100,000 tons of iron ore, that may have been cheaper.)
          Hmmmmm, something about economics and and things in Australia costing more because of the value of our dollar doesn't seem to add up.

    • wizzlesticks on 10/03/2023 - 20:07
      +7

      Lehman Brothers was also one bank…

      • PopCounty on 11/03/2023 - 11:31
        +12

        LB were 4th largest bank at that time with market cap of US $60B appx.
        This bank has just $90M appx. Sure would have been $9B at its peak. But this still isn’t fair comparison.

        Moreover, lots of credit risk modelling done since 2008. So collapse plausible but very rare.

        • wizzlesticks on 11/03/2023 - 16:16
          +6

          As mentioned by @scotty, SVB was the 16th largest bank in the US with capital of US$211.8B. They're now completely insolvent.

      • ribze1 on 11/03/2023 - 12:55

        LB was an investment bank

      • SolitaryMan on 13/03/2023 - 21:07

        Of significantly greater size and significantly greater import to the US financial system and markets, during a global credit crunch.

        Zero relevance.

    • CowFrogHorse on 12/03/2023 - 11:59
      +1

      Americans love being the center of attention and love to cry…

      THey are always victims or the greatest - take your pick.

      • No ONE on 13/03/2023 - 14:38

        THey are always victims or the greatest - take your pick.

        Land of opportunities 😂

        • CowFrogHorse on 14/03/2023 - 23:02

          What opportunities ?

          Do you really believe Hollywood, that actors who can barely read or write all drive Ferraris and have dads who are CEOs of Fortune 500s ?

          The truth is the average american lives a far worse life than any Australian.

          Lots work 3 jobs, have basically no holidays, or sick leave… and if they get sick well they are homeless.

          Did i also mention how many homeless there are there ?

      • meowsers on 13/03/2023 - 17:16
        +1

        You gotta risk it to get the biscuit.

        Australians love standing on soap boxes and have tall poppy syndrome. We can't stand to see others succeed.

        • CowFrogHorse on 14/03/2023 - 23:03

          Can you count ?

          Most americans live a far worse life than you or me….

          Guns, no healthcare, homelessness no workers rights…

          but hey Hollywood tells me everyone in America has a ferrari and mansion so it must be true right ?

          • meowsers on 15/03/2023 - 07:51

            @CowFrogHorse: Not sure how any of that at all is related to my comment about our love of cutting successful people down…

            • CowFrogHorse on 15/03/2023 - 07:53

              @meowsers: So the definition of success is not important in this discussion ?

              Australia is a significantly better place to live in than America for many reasons, i just highlighted them.

              I wasnt knocking America because im jealous simply because i already live in a better place, why would i be jealous of an inferior shittier place for the above reasons and more ?

              • meowsers on 15/03/2023 - 07:57

                @CowFrogHorse: I'm not saying Australia isn't a better place.

                That being said this country has turned into a woke, jealous and bitter place to live (in the CBDs of most states). Entitlement, whinging and fairness have given way to a lack of moral fortitude, getting things done for yourself and just taking risks. Offending people is something to be avoided at all costs.

                We've lost our way somewhat. Why do you think successful companies, people and ideas emigrate to the US? Larger market, looser regulation, and more opportunities.

                Here if you are successful you are taxed into submission and the jealous masses come after you.

                As a side note, the homeless rate per capita in Australia is higher than it is in the US. But don't let facts get in the way of a good argument.

                • CowFrogHorse on 15/03/2023 - 08:01

                  @meowsers: meow: Why do you think successful companies, people and ideas emigrate to the US? Larger market, looser regulation, and more opportunities.

                  cow: So what if they do ?

                  Russia has even more billionaires than America, but so what. Most ofthem are thieves, murders and a hell of a lot more.

                  If you worship people like that then by all means worship them, but if you want a peaceful life Australia is the best place on earth. If you want to make heroes out of ares holes, well thats your choice, but most rich people are hardly nice, eg Elon Musk.

                  Australian cities constantly rate in the top 10, while America cant even get on city in the top 50…

    • jowu15 on 14/03/2023 - 00:36

      SVB was 16th out of 4746, so its a quite big one

  • mbck on 10/03/2023 - 19:00

    Yes op, go sell everything you have

    • wizzlesticks on 10/03/2023 - 20:05
      +1

      Not a deposit runner. I just like hearing different views on a topic.

      • DangerNoodle on 12/03/2023 - 17:27

        Other term is a bank run.

        It's sort of expected since during COVID most banks were allowed to essentially print money with less than the 5% reserve that was previously required, so most money is essentially money on a screen. Most banks do not have enough cash in liquidity to stay afloat during a bank run. They do have protocols in place to reduce the risk of a bank run though.

        Happens in crypto from time to time, definitely doesn't take as much as people would think for a bank run to cause problems, just a bit of fud.

        If things had gone worse with the 20k super cashout it could have led to some super companies freezing withdrawals or worse as most of their assets would need to be sold to pay out the early withdrawals.

    • [Deactivated] on 12/03/2023 - 21:29
      +1

      Spread fear and buy quality assets at a bargain price.

  • TheRealCher on 10/03/2023 - 19:10
    +4

    For sale: 17 pairs of headphones, 86 eneloops, 17 packs of quilton and unused codes for jb perks…right now i really wish id bought those fugly wutang boots…

    • spackbace on 10/03/2023 - 19:17
      +3

      It's all really gone downhill for Cher

      • TheRealCher on 10/03/2023 - 19:17
        +17

        If i could turn back time….

        • ntt on 11/03/2023 - 14:17
          +3

          Do you believe in life after lovebank?

  • dcep on 10/03/2023 - 19:19
    +8

    1 is bank for cryptos , another 1 is bank for VC 100% on Tech startups. What could go wrong.

    They are not your CBA / ANZ / NAB / WP.

    • Ulysses31 on 12/03/2023 - 17:14
      -1

      Whirlpool?

  • djones145 on 10/03/2023 - 19:46
    +16

    Whaddya mean, the bank is out of money?"! "Insolvent?"! "You only have enough cash for the next three customers?"!

    Bank Manager : [ala Jimmy Stewart] N-now-now, just wait just a second here! No, no… I don't have your money here! It's at Bill's house, and-and-and Fred's house!

    Moe Szyslak : Hey, what the hell you doing with my money in your house, Fred?

  • 7ekn00 on 10/03/2023 - 20:19
    +3

    Yep, it has already started - but guess how we are being distracted from the actual financial collapse (HINT: ask ChatGPT "what is a woman?")

  • Ocker on 10/03/2023 - 20:39
    +3

    Australian banks were caught up in the global sell off of all banks by funds that concentrate on the global banking sector.
    Absolutely nothing has changed as to the credit worthiness of Australian banks.
    This sell -off presents a buying opportunity for the long term investor.

  • Stopback on 10/03/2023 - 20:46
    +1

    Michael bury.

    We have found enron

  • garetz on 10/03/2023 - 21:31
    +19

    Any bank that has a run on them will go bankrupt, no bank in the world has enough cash on hand to cover deposits.

    • Worf on 11/03/2023 - 15:30
      +5

      Yep, fractional reserve banking.

    • SgtBatten on 12/03/2023 - 07:48

      Why do they go bankrupt as opposed to not being able to facilitate cash withdrawals? Is it because to enable even electronic withdrawals they would need to real in all the money they have lent out to balance the books?

      • mattkenny on 12/03/2023 - 13:14

        How do you stop the withdrawals? They simply run out of money well before customers can withdraw it all, so they are now insolvent - they have no money left to cover operating expenses. Like all businesses they aren't allowed to keep operating as normal in this situation. And if you were a customer and couldn't withdraw possibly hundreds of millions (like many businesses trying to cover payroll and accounts payable), you'd certainly not deposit any more into that bank. Basically the bank simply isn't able to function without any cash reserves.

        • trapper on 13/03/2023 - 09:55

          How does it make them insolvent though? I mean they still have the the loan assets, can't they sell them off to get money to pay depositors

          Or is it because they have made bad loans that aren't being paid back, and so are essentially worthless.

  • SF3 on 10/03/2023 - 21:32
    +6

    Silvergate

    Anything that ends with the word gate, doesn't end well… Dieselgate, Watergate…

    Silicon Valley Bank

    Silicon Valley is where companies constantly come and go.

    Think those names are a give away to their eventual fate…

    • scotty on 11/03/2023 - 16:00
      +4

      According to Wikipedia, Silicon Valley Bank has actually been around since 1983, and last year it has reported total asset of US$211.8B, which would make it the 16th largest bank in the US so definitely not a small fry. It's the largest bank collapse since Lehman Brothers in 2008.

    • ssfps on 11/03/2023 - 19:42
      +1

      Anything that ends with the word gate, doesn't end well… Dieselgate, Watergate…

      Not sure if this is a joke or not, but the "-gate" suffix came to mean "scandal" because of watergate, which is generally far more scandalous than the other scandals that now get its namesake. It seems like people now have generally forgotten or never read into the watergate inquiries/hearings. What became known was bad enough (being serious corruption at the highest levels of government) but we know that's not the entire extent of it, too.

      Anyway, its amusing to see lists like "gamergate, dieselgate, watergate,… todaytonightgate"

      • trapper on 13/03/2023 - 09:58
        +2

        By todays standards I reckon Watergate would barely make the news in the US.

        Fake news would totally bury it if was their guy who was responsible.

        • ssfps on 13/03/2023 - 23:21

          I agree - plenty of things worse than watergate have gone on before and since, but we generally only get publicized storm-in-a-teacup scandals.

  • thirtysixd on 10/03/2023 - 21:32
    +7

    crypto has always been a bubble/ponzi

    real banks get bailed out by the fed firing up the money printers

    • mitchalbrown on 11/03/2023 - 11:06
      +4

      I think you’re confusing or conflating these banks with exchanges… these were legitimate banks who just offered banking services to crypto exchanges aka on ramp and off ramp into fiat. They had no exposure to underlying crypto assets.
      Some are arguing that their friendliness to crypto made them a target to anti crypto senators like Elizabeth Warren who cheered on a bank run on these banks.
      These banks are fully regulated and fall under the same acts which allow their depositors to be insured. This will be a very organised and structured “collapse” compared to a crypto exchange.

      • thirtysixd on 11/03/2023 - 20:20
        +1

        No exposure? lol

        They specifically targeted the crypto market
        Deposit base was basically all crypto companies….

        • mitchalbrown on 13/03/2023 - 08:14

          Nice try… they were a traditional finance bank which held cash for tech startups and provided traditional banking services so theat when i wanted to buy a bitcoin using money from my bank account to Binance, Silvergate was Binance's bank for my bank to interact with…

          If anything… Silvergate and SVB were holding their reserves in some shitcoing called US treasury bonds? I donno… i've never heard of it but on the surface it looks like a massive ponzi scheme… the underlying token it uses can just be printed out of thin air whenever the founder wants.

          • ssfps on 13/03/2023 - 23:24
            +1

            @mitchalbrown:

            it looks like a massive ponzi scheme… the underlying token it uses can just be printed out of thin air whenever the founder wants.

            Yeah, but USD is backed by strong tech fundamentals, and by that i mean ICBMs, naval air platforms, and other force projection and social engineering tools of the hegemony. Doge just can't compete.

  • brendanm on 10/03/2023 - 21:44
    +1

    My cryptos are unhappy about this news.

  • kiwiyonip on 10/03/2023 - 23:17

    Taking money out and put where?
    Crypto is dangerous.
    Home can be broken in.
    Properties are overpriced.
    Stock Exchange?

    • JIMB0 on 11/03/2023 - 07:54
      +2

      Stock market, but not bank stocks.

  • T-man on 10/03/2023 - 23:58
    +2

    They are linked to FTX, and doing some shady business behind the scenes, like toxic lending and naked short selling. There are many proofs on Twitter.

    • SolitaryMan on 13/03/2023 - 21:14

      You mean baseless rumourmongering.

      They weren’t an IB and the whole situation has nothing to do with short selling, nor with their lending, the problem was with their treasury management of their assets.

  • Jared17 on 11/03/2023 - 09:21
    +1

    US banks failing, Iran and Saudi Arabia making peace. It’s a good day

  • gyrex on 11/03/2023 - 09:39
    +2

    Don't you mean a 'bank run', not a "deposit run"? A deposit run would be the opposite of a bank run where customers are rushing to deposit money into the bank, thereby increasing liquidity. A bank run implies that a large proportion of customers are rushing to withdraw money from their accounts creating a liquidity crisis.

    • wizzlesticks on 11/03/2023 - 10:00

      Yeah you're right that's the more accepted term. Bloomberg was terming it a little differently.

  • iLikeSales on 11/03/2023 - 11:32
    +1

    I still don't get it. Lets say you still have your money in the bank and it collapses. You just lose your money and not be able to get it back?

    • wizzlesticks on 11/03/2023 - 16:38
      +1

      That's right, you lose it because the bank has run out of cash. So the bank gets liquidated and all the creditors line up to see if there's anything left. As a depositor, you'd be considered an unsecured creditor because you have technically 'loaned money to the bank'.

      This is how Bloomberg describes the contagion fear:

      "For one thing, SVB’s problems coincided with the abrupt shutdown of Silvergate Capital Corp., though the two cases are mostly unrelated. At Silvergate, the issue was a run on deposits that began last year, when clients — cryptocurrency ventures, primarily — withdrew cash to weather the collapse of the FTX digital-asset exchange. But the withdrawals forced asset sales that locked in losses, as happened with SVB, leading Silvergate to announce plans to wind down operations and liquidate. Even before SVB’s woes became public, US bank stocks had come under pressure after KeyCorp warned about mounting pressure to reward savers: As interest rates rise, depositors can switch to banks offering higher rates. Analysts say that pressure hits regional banks hardest. They can either raise their own rates, cutting into profits, or face the prospect of a scramble to shore up their funding base if depositors leave."

      • cute as duck on 11/03/2023 - 16:51
        +2

        That's right, you lose it because the bank has run out of cash.

        Isn't it FDIC insured up to US$250K? All you would need to do is spread your risk between banks for anything in excess of $250K.

        • mattkenny on 12/03/2023 - 13:19

          Difficult for business customers. Many of SVB's customers were business with large balances - many were startups, some having hundreds of millions in that bank from investors etc. Can't exactly split that up into thousands of accounts capped at 250k…

  • Ryk on 11/03/2023 - 11:37

    "typically a bank’s deposits will be assumed by another, healthy bank, or the FDIC will pay depositors up to the $250,000 insured limit." https://www.latimes.com/business/story/2023-03-10/silicon-va…
    "The Federal Deposit Insurance Corporation took control of $175 billion in customer deposits, creating a new bank that it said would be operating by Monday." https://www.nytimes.com/2023/03/10/technology/silicon-valley…

  • xtremehell on 11/03/2023 - 12:06
    +1

    Im going to get rich by shorting the banks… a lot of people are saying that another GFC is coming.

  • MarsTitan on 11/03/2023 - 12:33
    +1

    GFC 2.0 incoming.

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