I am going to conform to the stereotype of the always-angry Boomer: It exasperates me that the failure of ONE bank on the West Coast of the U.S. could set off "a full-blown global banking crisis." Reuters:
…Credit Suisse's stock tumbled following the disclosure of "weaknesses" in its financial reporting that renewed investor concerns that a full-blown global banking crisis may be brewing.
The 72-hour scramble to save the United States from a banking crisis
It seemed like a simple question: Did the treasury secretary have any concerns about the economic risks posed by Silicon Valley Bank?
It was Friday morning, and a wave of public panic had started to spread about one of the tech industry’s leading financial institutions. Seated for a roughly three-hour grilling on Capitol Hill, Janet L. Yellen replied with a calm nod and a glance at her notes: “There are recent developments that concern a few banks that I’m monitoring very carefully,” she said.
“When banks experience financial losses,” she added, “it is and should be a matter of concern.”
Yellen’s comments foreshadowed the start of a scramble behind the scenes at the White House. New fears began to surface about a potential run on Silicon Valley Bank, threatening widespread devastation not just for California, its companies and workers, but perhaps the U.S. economy writ large.
In a meeting, Jeff Zients, the chief of staff; Lael Brainard, the national economic director; and Cecilia Rouse, one of Biden’s top economic advisers, alerted the president to a type of danger not seen since the financial crisis nearly 15 years ago: The failure of Silicon Valley Bank, a little-known entity to most Americans, could trigger a broader crisis in the nation’s banking system.
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...the threat of a full-blown financial meltdown. A bank was failing. Billions of dollars — in workers’ paychecks, and tech companies’ balance sheets — were about to be lost. And the government faced fears of an economy in free fall, rekindling nightmares of the Great Recession in 2008.
How is the following an inaccurate takeaway: Isn't the whole financial system rotten when there is one catastrophic meltdown and 13 years later the real threat of another?
...the Biden administration decided to complete a major intervention with extraordinary speed, acting to preserve deposits at Silicon Valley Bank while safeguarding the finances of other firms on the precipice of ruin. ...in a bid to keep the system stable and stave off a worsening crisis.
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It began with a public notice March 8 [ONE WEEK AGO] that [Silicon Valley Bank] had offloaded $21 billion worth of securities and was moving to sell another $1.25 billion in its own stock to shore up its balance sheet. The news came as a surprise to many of SVB’s investors and customers. Moody’s Investor Services, an independent credit rating firm, downgraded SVB after reviewing the bank’s business.
Since it was a "surprise" to SVB's investors, set off a "scramble" in the administration, and was a "surprise" to the American public--all of that means nobody knew what was going on. Why?
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Wall Street halted trading in SVB shares Friday as its stock price plummeted. State and federal regulators moved to close the bank around noon Eastern — 9 a.m. at most of its branches — in a surprising development because it happened during normal business hours.
In the hours to follow, the extent of the problem became clear: Silicon Valley Bank held an unusually high percentage of its assets in Treasury bonds. When the Federal Reserve raised interest rates, the value of existing bonds — a normally safe asset — went down. So the bank could not sell those bonds easily to make good on customers’ deposits as panic set in, and many flooded the bank seeking to withdraw their funds.
"In the hours to follow", not in the hours preceding. Why did the "problem become clear" after the horse--taking its oats with it--left the barn? The Fed had not raised interest rates for the first time on Monday, March 6 or Tuesday, March 7, it had been raising interest rates for a year. Was no one looking at those banks who "held an unusually high percentage of its assets in Treasury bonds" and warning them? Did SVB directors and investors not see the danger? Why not?
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By Saturday, Yellen, Federal Reserve Chair Jerome H. Powell, and Federal Deposit Insurance Corp. Chairman Martin J. Gruenberg convened for the first of several emergency meetings that would lead to extraordinary action. ...Otherwise, they feared a cascading set of consequences would leave many Americans out of work.
