Run on the Banks
 

So far it looks concentrated in tech/silicon valley, with SVB and Signature Banking being seized by regulators. However, First Republic and smaller regional banks are now also seeing large withdrawals. Does this indicate broader weakening in the banking system, where post pandemic investments have heavily favored federal bonds?

What a jam the fed got itself in

I went in this morning to make my monthly cash withdrawal from a regional west coast bank that has solid footing and has stayed out of the limelight. They've always had no problem with it and advised if I needed more to call ahead so they'd be sure to have it. Today was different as they immediately balked and looked as if they seen a ghost, after offering half my request the teller muttered she was just doing what she was told, I guess things have changed. After some push back I was given my original withdrawal request but the awkward exchange sure didn't give me the warm fuzzy everything is OK.

SVB was very unique in what it did and why it collapsed... This video does a good job of explaining it.

https://www.youtube.com/watch?v=t5w5mk1_K3A

The problem with long term bonds - even government ones - is that if current long term interest rates rise the market value if your previously purchased bonds goes down precipitously. It matters not to the secondary market that those bonds must eventually be redeemed at face value, the issue is now, the potential alternative uses if that money, and the worry about what inflation may do to the value of the money you do get back on redemption. So if a run on the bank forces them to sell their government bonds at a loss, they may indeed not be able to cover their depositors accounts.

This really only matters if you get in a liquidity crunch. Otherwise, HODL until maturity.

Absolutely. But banks have a lot of noncallable loans and when your reserves are tied up in long term bonds and you DO get where you have a liquidity crunch (which SVB did) you need to start selling bonds at a loss and as soon as you start doing that people notice and you DO get a run on the bank)

Yes, this was a niche specialty unit, with some of it's foundations based on silicone valley exuberance and hype. The usual Fake-It-Till-You-Make-It business model in the Bay ran out of runway and this is fallout from that.

But it seems to be a good thing that the Fed is intervening, it would be awkward if this news started panic runs on other, healthy banks... few banks could actually cough up all or most of their deposits on a moments' notice.

True but the fed intervention should be limited to the FDIC insured amount. Why are these start ups in California getting special treatment? Any one of us would be taking a haircut on anything over 250K.

No, it's not the government's job to protect the banks, investors, and prop up bad business decisions.