When the Federal Deposit Insurance Corp. (“FDIC”) shut down Silicon Bank (SIVB), it scared investors out of all major banks last week.
The FDIC guaranteed $250,000 in deposits. But the Treasury and the Federal Reserve changed the rules to guarantee uninsured assets.
In an instant, the value of SIVB stock, preferred shares, and bonds fell to zero. The government did not want to bail out SIVB. Investors would take the loss.
When New York regulators closed down Signature Bank (SBNY), it further shocked investors in financial institutions. Signature Bank had plenty of assets compared to its liabilities. At face value, regulators are worried about its support for cryptocurrencies.
The sudden valuation drop for SBNY stock to zero is unprecedented.
To short up First Republic Bank’s (FRC) deposits, big banks like JP Morgan (JPM), Morgan Stanley (MS), and others deposited $30 billion.
Media is unwilling to compare the banking problems to that faced in 2008. In just one week, the Fed unwound half of its $600 billion quantitative tightening. This will lead to trillions added to the Fed’s balance sheet in the coming months.
In Europe, Credit Suisse’s (CS) questionable survival hurt bank stocks. This added to a highly bearish sentiment for banks.
Investors may consider starter positions in large banks. Their rebound will require the Fed to restore confidence in the system.
