Silvergate Bank Announced its bankruptcy on 8 March 2023
Silicon Valley Bank Taken over by the FDIC on 10 March 2023
Signature Bank Taken over by the FDIC on 12 March 2023
First Republic Bank US$30 billion liquidity rescue by 11 banks on
16 March 2023
Credit Suisse Swiss Government shotgun wedding with UBS on 19 March
2023
Thats five bank failures or rescues in 11 days, including Credit
Suisse, one of the largest banks in the world and the second
largest in Switzerland.
Combined losses of stockholders and creditors of these
institutions exceed US$200 billion. Market losses in the banking
sector are much greater.
Walter Wriston, the greatest banker of the 20th
century after Pierpont Morgan, personally tutored me on this topic
40 years ago.
In a bank run, you can pull your money out of banks and invest
in gold, silver, land, or anything else. But you give the money to
the seller, and she puts it back in the bank.
The point is the money always ends up in the bank. The
system is a closed circuit.
Of course, it could go to a different bank, but all banks can
borrow from each other through the fed funds market and the
Eurodollar market. Again, the money always ends up in the
bank.
Putting cash in a coffee can (or mattress) is one exception, but
if you try to withdraw more than US$10,000, your bank will
file a Currency Transaction Report (CTR) with the Financial Crimes
Enforcement Network (FinCEN), and youll end up in a file next to
Osama bin Laden. And the IRS gets a heads-up.
So, thats not a practical solution.
These failures and rescues were accompanied by extraordinary
regulatory actions.
These actions have thrown the US banking system and bank
depositors into utter confusion. Are all bank deposits now insured
or just the ones Janet Yellen decides are systemically important?
Whats the basis for that decision?
The most important question is: Is the crisis over? Has the Fed
done enough to reassure depositors that the system is sound? Has
the panic subsided?
The answer is no.
The panic is just getting
started
We base that answer on the history of the two acute financial
crises in recent decades 1998 and 2008.
The 1998 crisis reached the acute stage on 28 September 1998,
just before the rescue of LTCM. We were hours away from the
sequential shutdown of every stock and bond exchange in the
world.
But that crisis began in June 1997 with the devaluation of the
Thai baht and massive capital flight from Asia and then Russia. It
took 15 months to go from a serious crisis to an existential
threat.
Likewise, the 2008 crisis reached the acute stage on 15
September 2008 with the bankruptcy filing of Lehman Brothers.
But that crisis began in the spring of 2007 when HSBC surprised
markets with an announcement that mortgage losses h...