Every week ago, investors were pricing in a 50 basis point Fed rate hike at the March 22 meeting.
Now, in spite of everything the fears of a bank failure, I do not know what the Fed will do.
But whatever the Fed does, I bet it causes more chaos than calm.
Treasury Secretary Janet Yellen – the government’s version of Anthony Fauci – loudly announced Saturday that the feds wouldn’t bail out Silicon Valley Bank.
Nonetheless, on Sunday, they jointly announced with the Fed and FDIC that they were bailing out SVB depositors – though not shareholders or creditors – while claiming that it wasn’t a bailout in any respect.
Inconsistency breeds fear.
The media claims that the collapse of SVB was the second largest in history, and that the Latest York-based Signature Bank was the third largest. Terrifying.
But they weren’t really #2 and #3. Yes, SVB had over $200 billion in deposits and they’re #2 in that respect.
But in terms of economic impact – which really matters – the SVB, for instance, was only about 4% larger relative to the size of the economy in 2023 compared to the Bank of the United States when it collapsed in 1931.
![Treasury Secretary Janet Yellen](https://nypost.com/wp-content/uploads/sites/2/2023/03/NYPICHPDPICT000007998615.jpg?w=1024)
![Chart showing how the US gave more to small banks.](https://nypost.com/wp-content/uploads/sites/2/2023/03/small-large-banks.jpg?w=1024)
That is despite the undeniable fact that SVB was about 1,000 times greater in dollars than Latest York’s Bank of the United States.
Nominal GDP growth (unadjusted for inflation) has been the difference since then. Relative to GDP at the time, Signature and SVB were smaller than the 1984 Continental Illinois collapse—relative pimples, not massive hemorrhages.
UK Finance Minister Jeremy Hunt, boasting that the UK had saved around 3% of SVB’s stockpiled assets, stated that had they not intervened, “strategically essential (British) corporations would have been ‘destroyed'”.
Statements like this are scary. But name one British company that will be destroyed. you’ll be able to not. He cannot either.
![UK Finance Minister Jeremy Hunt](https://nypost.com/wp-content/uploads/sites/2/2023/03/NYPICHPDPICT000005644836.jpg?w=1024)
President Biden said the boards of failing banks ought to be fired. Again – terrifying. But when?
Had senior management been fired last weekend, the FDIC would don’t have any one to talk to at SVB to allow customers to redeem their deposits. There can be chaos.
Later, Mr. President, about that shooting talk.
The essential problem of SVB? Its depositor base was too concentrated in enterprise capital firms and employees.
When VCs began urging their portfolio corporations to withdraw their SVB deposits before others did last Thursday, an SVB run began from amongst these corporations, employees, families and friends.
![The customer is escorted to Silicon Valley Bank headquarters on Tuesday.](https://nypost.com/wp-content/uploads/sites/2/2023/03/NYPICHPDPICT000008244552.jpg?w=1024)
![Graph showing the decline in US commercial loans and deposits in recent years.](https://nypost.com/wp-content/uploads/sites/2/2023/03/loan-deposit-ratio.jpg?w=1024)
Hardly any American bank has a depositor base as concentrated as SVB. First Republic Bank – the same size as SVB with a big geographic footprint but with a far more diversified depositor base by industry – fell heavily on Friday and early Monday due to all the fear.
But then it stabilized, then soared up.
Banks use deposits to fund long-term loans that depreciate when long-term rates of interest rise – as they did amid rising inflation concerns in 2023.
SVB’s marginal balance sheet didn’t delay to last week’s. Mockingly, the 10-12 months bond rate just fell 0.5% – in fact, it fell somewhat overall in 2023. The SVB fell in between.
Most banks don’t do that due to their diverse depositor base.
Large banks are in a significantly better financial condition than small ones.
But overall, banks are close to the best condition (as measured by total loans to assets) in my greater than 50-12 months investing profession.
The stock is up this 12 months as I expected, but has been down since February.
There are a lot of things I do not know – for instance, where the supplies can be in 45 days.
I do know that when bank failures occur, stocks are much higher two years later.
Sentiment shows (like the comments on my March 5 column) overwhelming negativity and fear.
As Warren Buffett said, “Try to be fearful when others are greedy and greedy when others are fearful.”
Be greedy.