Silicon Valley Bank, a regional bank in California, was placed in receivership on Friday by the Federal Deposit Insurance Company (FDIC). This takeover was in reaction to a run on the bank by unsettled depositors in fear of the safety of their cash. Silicon Valley Bank (SVB) specializes in tech start-ups.
In the last week, SVB stock prices plummeted when the bank announced on Wednesday that they had sold many securities at a loss to cover withdrawals. Stock value was down 40% on Thursday and 60% by Friday when trading in SVB shares was halted. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation.
The situation was dire two weeks ago, and that is when SVB executives did what should be investigated, and both should be held accountable. SVB CEO and President Gregory Becker sold over 12,000 shares for $3,578,652.31 on February 26, while CFO Beck sold $575,180 in stocks in a separate transaction on the same day. Both saw what the future held for the bank, used insider information, and cashed in while many customers found their assets in jeopardy.
The other activity that needs to be investigated is employees were given bonuses on Friday, just hours before the bank was padlocked. Officers and employees went home with cash in hand while questions arose about customers’ deposits. Deposits for customers are insured up to $250,000, but any balances above that limit are in jeopardy.
The failure of SVB had ripple effects, and the Market saw back-to-back dips of 500 points on Thursday and Friday. There is a concern for Monday on Wall Street, and regional banks are bracing for considerable withdrawals as nervous customers move their cash from smaller to larger and safer institutions. The Markets, already confused by the Biden Economy and activity by the Fed to play with interest rates, are set for more losses in the next session.
The issue with SVB that brought on its demise was the practice of investing in Securities. When the economy softened due to Biden’s poor economic policies and the Fed raised interest rates, those Securities lost value. SVB had to sell Securities at a loss to raise needed capital, and those losses sounded alarms for investors. They started pulling cash, and the downward spiral brought us to last week.
As I am writing this article on Sunday afternoon, there are dozens of people waiting in the rain outside of Republic National Bank in Studio City to be able to withdraw funds on Monday morning. It is estimated that over 100,000 investors nationwide will be looking to remove their deposits on Monday. Most are insured, but many do not want to absorb the risk. We should know by midweek how far the contagion from SVB has spread.
It is not just the banks, but the website ETSY delayed payments to its sellers on Friday out of concern about the volatility in the banking sector. There are three critical takeaways from SVB. The issues were self-inflicted with bad policy decisions, Joe Biden’s economy was the trigger that began the run on SVB, and this will not be the last ban we will focus on down the road. And, by the way, somebody at SVB must be held accountable for their poor management decisions and insider trading.
