On Friday, March 10, 2023, Silicon Valley Bank, Santa Clara, CA was closed by the California Department of Financial Protection & Innovation.  The Federal Deposit Insurance Corporation (FDIC) was named Receiver. In order to protect depositors, the FDIC transferred all the deposits and assets of Silicon Valley Bank to Silicon Valley Bridge Bank, National Association (N.A.), a full-service bank that was operated by the FDIC. On March 26, 2023, the FDIC entered into a purchase and assumption agreement for all deposits and loans of Silicon Valley Bridge Bank, N.A. As part of this transaction Silicon Valley Bridge Bank, N.A., was placed into receivership.

On Sunday, March 12, 2023, Signature Bank, New York, NY was closed by the New York State Department of Financial Services, which appointed the FDIC as Receiver. Signature's failure just two days after the Silicon Valley Bank's shutdown was the second largest bank failure in U.S. history behind Washington Mutual, which collapsed during the 2008 financial crisis. The FDIC created Signature Bridge Bank, National Association (N.A.), to take over the operations of Signature Bank. On March 19, 2023, the FDIC announced that it, “entered into a purchase and assumption agreement for substantially all deposits and certain loan portfolios of Signature Bridge Bank, National Association, by Flagstar Bank, National Association, Hicksville, New York, a wholly owned subsidiary of New York Community Bancorp, Inc., Westbury, New York.”

Back to back bank failures of both Silicon Valley Bank (SVB) and Signature Bank (SB) have raised questions about the security and stability of the central banking system in this country. It appears as though the Federal government is once again stepping in order to attempt to pay back depositors and broker sales of the failed institutions to functional banks. 

Is this really the best solution to this country’s bank failure problem? Back in 2008, the Federal government “bailed - out” over 700 banks with approximately $245 billion dollars in taxpayer money. The collapse of the housing market and the implosion of mortgage backed securities left the U.S. banking system on the brink of insolvency. A huge part of the equation was the banks overwhelming approval of subprime mortgage loans, which enabled buyers with low credit scores to secure home loans at prices beyond their means. 

Silicon Valley Bank was the 16th largest bank in the United States before its collapse. SVB’s bank documents indicated that corporate leadership was more interested in things like environmental sustainability, climate change, and diversity initiatives than risk management. These documents make SVB sound more like a political institution than a financial institution. ​​Silicon Valley Bank had no chief risk officer between April 2022 and January 2023. Its Risk Committee had no members experienced in risk management. Additionally, it appears as though this very large bank had no accountability from bank examiners. Laws, including the Dodd-Frank Act , are worthless if there is no enforcement mechanism from bank examiners on banks to reduce risk. Without consequences, banks will take unnecessary risks with depositors’ funds. However, not with their own funds: Silicon Valley Bank CEO Gary Becker sold $3.6 million in shares two weeks before the crash, netting a profit of $2.3 million, and other board officers also sold shares this year.

Signature Bank (SB) was one of 20 largest banks in the country, based on deposits and catered to privately held businesses, owners and their executives. Unlike most U.S. Banks, SB was very friendly to cryptocurrency businesses. However, SB stock took a huge hit when FTX crashed and declared bankruptcy in 2022. After hitting a high in 2022, at a price of $365/ share, SB’s stock plummeted to $70/share on March 10, 2023. SB did share one major characteristic with SVB, a high portion of uninsured domestic deposits. At the end of 2021, Signature Bank was fourth in that category with nearly 90% of its deposits being uninsured. SVB was second. Uninsured deposits are amounts above the FDIC insurance limit of $250,000 per individual account. Only after the bank was taken over did the FDIC waive the insurance cap for depositors in both it and Silicon Valley Bank. Why would SB continue to receive deposits knowing that 90% would not be insured? That would be likened to having a $1M home with a homeowners insurance policy of $100,000.00. If that $1M home burns down, you only get the $100,000.00, the amount it was insured for. 

So again, the question has to be asked, why does the government feel the need to step in when the banking industry appears to be making “less than” wise decisions. The 2008 banking collapse was due largely in part to banks lending to individuals that simply could not afford the loans that they were approving. When the housing market collapsed, people walked away from their mortgages because the banks failed to require “skin in the game,” from the buyers. Silicon Valley Bank had a high percentage of uninsured deposits and no accountability whatsoever. How were the  CEO and board officers of SVB able to make millions in profit only weeks before its failure? Signature Bank could have just been a product of bad luck and timing with the FTX crash and the market slump, but we need to remember that 90% of its domestic deposits were uninsured. They allowed that to happen. It seems that maybe the time has come for the government to allow the central banking system to face its natural consequences instead of coming to its rescue. Maybe the time has come for a complete overhaul of our banking system because doing things the way we always have done does not appear to be working. 

Tickers to consider:  CEI ,  MARK & ASST

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