Economic and jobs news thread

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Time_Traveller
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Elon Musk says he is ‘open to the idea’ of Twitter buying SVB to become a digital bank
Mar. 12, 2023 at 2:12 pm UTC

On Friday, March 10, Elon Musk expressed his openness to buying Silicon Valley Bank following its collapse. Min-Liang Tan, CEO of Razer, suggested on Twitter that Twitter should purchase SVB and transform it into a digital bank. Musk responded briefly, stating, “I’m open to the idea,” without providing additional information.

On March 11, SVB Financial Group, a lender that catered to startups, suffered a sudden collapse, causing turmoil in global markets and leaving potentially billions of dollars worth of capital owned by companies and investors trapped.

Just before the weekend, California banking regulators shut down the bank by assigning it to a receivership under the Federal Deposit Insurance Corporation (FDIC).

In a video message to employees, SVB’s chief Greg Becker stated that he is collaborating with banking regulators to search for a partner for the bank. However, he emphasized that there is no assurance that a deal will be finalized. Currently, the lender is under the control of the Federal Deposit Insurance Corporation (FDIC).
https://cryptoslate.com/elon-musk-says- ... ital-bank/
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caltrek
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Nine Questions About Silicon Valley Bank’s Collapse Answered
by Emily Stewart
March 10 , 2023

Introduction:
(Vox) If you work in tech, you had probably heard of Silicon Valley Bank before now. If you’re not familiar with this seemingly regional bank, nobody’s blaming you. It had billions of dollars in deposits, but fewer than two dozen branches, and generally catered to a very specific crowd of startups, venture capitalists, and tech firms. Anyway, you’re here now — Silicon Valley Bank isn’t.


Further Extract:
Beyond tech, this has caused some shakiness across the banking industry amid concerns that other banks could be in trouble or that contagion could set in. (It’s important to note for consumers here that, really, the money you have in the bank right now is almost definitely fine.) SVB’s blowup is a big deal and a symptom of bigger forces in motion in tech, finance, and the economy.

Still confused about what’s going on? Here are the answers to nine questions you might just have.

1) What is SVB, and how big is it?

Silicon Valley Bank was founded in 1983 in Santa Clara, California, and quickly became the bank for the burgeoning tech sector there and the people who financed it (as was its intention). The bank itself claimed to bank for nearly half of all US venture-backed startups as of 2021. It’s also a banking partner for a lot of the venture capital firms that fund those startups. SVB calls itself the “financial partner of the innovation economy.” All that basically means it’s tightly woven into the financial infrastructure of the tech industry, especially startups.
Read more here: https://www.vox.com/technology/2363443 ... blic-fdic

caltrek’s comment: The article also strikes an optimistic note about the damage being confined to the “tech industry.” We will see.
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What to Know About Silicon Valley Bank and Bank Runs
by Bryan McBournie
March 10, 2023

Introduction:
(Axios) President Biden is in danger of a catastrophic banking crisis, unless the U.S. government can orchestrate a deal to rescue Silicon Valley Bank depositors before branches open tomorrow.

Why it matters: Bank runs (see also hyperlink provided in article) kill banks, no matter how good or bad their risk management. (For a quick primer, see the famous financial-crisis documentary Mary Poppins [see post below].)

How it works: Banks don't keep deposits in a vault — they lend them out to businesses and individuals. So if depositors ask for all their money back at once, as they did at SVB, the bank is likely to fail.

• Corporate America just got a stark reminder that none of their deposits are insured above $250,000 by the Federal Deposit Insurance Corporation (FDIC).

• If SVB's depositors aren't made whole by Monday morning, hundreds of billions of dollars of corporate deposits are likely to flow out of regional banks. Most would flow into a handful of so-called systemically important banks — if they're too big to fail, they won't fail. Some might go into other ultra-safe havens like Treasury bills.
Read more here: https://www.axios.com/2023/03/12/silic ... g-crisis
Last edited by caltrek on Sun Mar 12, 2023 4:56 pm, edited 1 time in total.
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Re: Economic and jobs news thread

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Don't mourn, organize.

-Joe Hill
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Why Did Silicon Valley Bank Collapse So Suddenly?
by William Chittenden
March 10, 2023

Introduction:
(The Conversation) The short answer is that SVB did not have enough cash to pay depositors so the regulators closed the bank.
The longer answer begins during in the pandemic, when SVB and many other banks were raking in more deposits than they could lend out to borrowers. In 2021, deposits at SVB doubled.

But they had to do something with all that money. So, what they could not lend out, they invested in ultra-safe U.S. Treasury securities. The problem is the rapid increase in interest rates in 2022 and 2023 caused the value of these securities to plunge. A characteristic of bonds and similar securities is that when yields or interest rates go up, prices go down, and vice versa.

The bank recently said it took a US$1.8 billion hit on the sale of some of those securities and they were unable to raise capital to offset the loss as their stock began dropping. That prompted prominent venture capital firms to advise the companies they invest in to pull their business from Silicon Valley Bank. This had a snowball effect that led a growing number of SVB depositors to withdraw their money too.

The investment losses, coupled with the withdrawals, were so large that regulators had no choice but to step in to shut the bank down to protect depositors.
Read more here: https://theconversation.com/silicon-va ... t-201626
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FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California
Last Updated March 12, 2023

Entire Press Release:
(FDIC) WASHINGTON – Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.

All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.

As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.

Customers with accounts in excess of $250,000 should contact the FDIC toll–free at 1-866-799-0959.

The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.

Silicon Valley Bank is the first FDIC–insured institution to fail this year. The last FDIC–insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.
Source: https://www.fdic.gov/news/press-releas ... 016.html
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One Percent Move Report for March 10, 2023

Extract:
(Morgan Stanley)
  • The S&P 500 Index decreased 1.4% Friday to 3,861.73, continuing the descent below its 200-day moving average.
  • All 11 S&P 500 sectors declined as Consumer Staples (-0.5%) and Health Care (-0.7%) outperformed while Materials (-2.1%) and Real Estate (-3.3%) lagged the index.
...
  • US equities and US Treasury yields fell today following the Federal Deposit Insurance Corp.'s possession of a US regional bank in order to protect insured depositors. As a result, futures markets anticipated tightening financial conditions and considered a 25bp rate hike as more likely than a 50bp hike following the Federal Open Market Committee (FOMC) March 21-22 meeting.
Read more here: https://www.morganstanley.com/content/ ... -20230310

caltrek’s comment: While treating the SVB collapse as bad news, it does not look like the markets are getting dramatically upset about the situation. Will, see if that holds up this coming week.
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Regulators close New York's Signature Bank, citing systemic risk
Source: CNBC

U.S. regulators said Sunday it shut down New York-based Signature Bank, a second financial institution they shuttered after Silicon Valley Bank’s collapse.

“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” Treasury, Federal Reserve, and FDIC said in a joined statement Sunday evening. The banking regulators said depositors at Signature Bank will have full access to their deposits.

“All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the regulators said.

Signature is one of the main banks to the cryptocurrency industry. As of Dec. 31, Signature had $110.4 billion in total assets and $88.6 billion in total deposits, according to a securities filing.


This is breaking news. Please check back for updates.
Read more: https://www.cnbc.com/2023/03/12/regulat ... -risk.html
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Long Before Silicon Valley Bank’s Collapse, Its CEO Helped Kill Tougher Oversight of Banks Like His
by Hannah Levintova
March 11, 2023

Conclusion:
(Mother Jones) At the 2015 Senate hearing, Becker had his sights set on chipping away at a portion of the Dodd-Frank Act, the sweeping Wall Street reform bill passed in the wake of the 2008 financial crisis. A key rule in the law required that “Too Big To Fail” banks—which Dodd-Frank defined as those with more than $50 billion in assets—undergo stricter oversight, including higher capital ratio requirements designed to shore up the big banks’ ability to withstand financial shocks.

Becker, along with several other banking executives, asked senators to raise the threshold for banks that should be subject to this expanded level of supervision from $50 billion in assets—a milestone his bank was quickly approaching—to $250 billion. His testimony explained that the stricter risk checks would needlessly cost his banks millions, diverting resources from their ability to lend to “small and growing businesses” that are “job creation engines.”

He argued that there was no need for these expensive, federal-government-mandated checks because SVB’s activities had a “low risk profile”—and because the bank was perfectly capable of keeping itself in check with its “strong risk management practices.”

Following the hearing and three years of SVB lobbying lawmakers, Becker got his wish: In 2018, Trump signed a bill into law raising the threshold for stricter bank oversight to $250 billion in assets.

Fast forward to 2023. With about $209 billion in assets, SVB has continued to operate below the bar where they’d be subject to stricter risk checks. For years, they’ve invested the bulk of their clients’ deposits in hopes of earning returns. But in recent months, many of their startup clients have come to the bank to withdraw money, faced with a new landscape where taking on debt to operate their businesses is a lot more expensive, thanks to the Fed’s recent aggressive hikes in interest rates. But SVB didn’t have enough liquid cash to pay all of those requests at once. The result: major losses at the bank and, on Friday, a full-on collapse—the exact sort of bank failure that the original regulations that Becker fought against had set out to prevent.
Read more here: https://www.motherjones.com/politics/2 ... dd-frank/
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Credit Suisse Default Swaps Hit Record as SVB Failure Hits Banks

Source: Bloomberg
The cost of insuring the bonds of Credit Suisse Group AG against default climbed to the highest on record as the collapse of Silicon Valley Bank sparked concern about broader contagion in the banking industry.

Five-year credit default swaps for the Zurich-based lender jumped as much as 36 basis points on Monday to 453 basis points, according to pricing source CMAQ. They widened the most in a Bloomberg index that tracks the CDS of 125 European high-grade companies.



Shares of European banks and insurers slumped on Monday and Credit Suisse’s stock tumbled as much as 15% to a fresh record low. Even before the turbulence caused by SVB’s demise, investors were worried about Credit Suisse’s ability to put in a place a restructuring plan that will pivot it further to private lending, hive off large parts of the investment banking business, and reduce costs by cutting 9,000 jobs.

Earlier this month, Credit Suisse said it was delaying publication of its annual report following a last-minute query by US regulators over previous financial statements.
Read more: https://www.bloomberg.com/news/articles ... hits-banks
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