Lehman Moment 2.0: Here Is How Some Traders Are Extracting Over 2,000 Percent Profits From the Panic Around Silvergate and Silicon Valley Bank (SVB)

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The US Federal Reserve’s monetary tightening regime over the past few decades has always ended up creating some form of financial distress or a major credit event. In fact, Morgan Stanley’s Michael Wilson has bet his reputation on the emergence of such a credit event, which might finally be at hand if yesterday’s synchronized wave of selling in the US banking sector – led by names such as Silvergate and Silicon Valley Bank (SVB) – is anything to go by.

Yesterday was unique in the sense that multiple idiosyncratic factors affecting a number of different banks amalgamated to unleash sizable volatility across the banking sector.

First, Silvergate bank announced early in the morning that it was winding down its operations. This announcement had been largely priced in by the market given the fact that the bank had terminated Silvergate Exchange Network (SEN) just a few days back. Bear in mind that the SEN was Silvergate’s star attraction.

JPMORGAN: The $SI collapse is “another setback for the #crypto ecosystem .. Replacing this instantaneous network for processing dollar deposits and withdrawals” will be “difficult ..”

“.. the reversal in the futures spread .. is also indicative of a deterioration in demand.” pic.twitter.com/0FUrDoDCuJ

— Carl Quintanilla (@carlquintanilla) March 9, 2023

So, what had gone so wrong for Silvergate? Well, the bank was one of only two major banking entities that served crypto firms in the US, with the Signal bank constituting the only other major counterpart. In the aftermath of FTX’s bankruptcy, Silvergate suffered outflows of as much as $8 billion. These outflows