With the Crisis Around Silicon Valley Bank (SVB) Resolved, the Focus Shifts to First Republic Bank (FRC), and the Crypto Sector Now Risks Becoming “Unbanked”
This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.
The Federal Reserve is trapped, and it has no one to blame for the oncoming financial wrecking ball but its hubris. While the timely action by the US Treasury, the FDIC, and the Federal Reserve averted the crisis that the depositors of the Silicon Valley Bank (SVB) faced over the weekend, the focus has now shifted to finding the next canary in the coal mine, and the First Republic Bank (FRC) appears to be the logical domino at risk. Meanwhile, with Silvergate and Signature Bank both rendered defunct, the crypto sector is facing the specter of becoming “unbanked.”
Ever since the Great Financial Crisis (GFC) of 2008, banks in the US have had an implied incentive to take excessive risk, with the understanding that these institutions will be bailed out by the US Treasury and the Federal Reserve if the proverbial shit does hit the fan.
As we noted in a dedicated post last week, the crisis began on Thursday when Silvergate bank, impaired by around $8 billion that the bank lost in the FTX saga, announced that it was winding down its operations. Later that day, SVB announced that it would book a $1.8 billion after-tax loss on a fire sale of investments intended to boost liquidity. SVB also announced that it would try to raise $2.25 billion via equity offerings. However, the bank failed to raise the required capital, prompting the regulators to shut it down on Friday.
1/14$SVB fails two days after $SI fails. Why now? What was the catalyst?
tl:dr Their deposit rates are too low, and there is an effective run on the entire “low yielding” banking system.
The fix is simple – raise deposit rates to
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