Control Panel: Will SVB collapse be contained?

The collapse of Silicon Valley Bank (SVB) on Friday, the second-largest bank failure in U.S. history, was extraordinarily fast. It was a classic run on the bank by its customers.

It’s important to note that SVB did not do anything dodgy, like the shenanigans which caused many bank collapses in 2008. SVB held its assets in perfectly safe U.S. Treasury debt. The root cause of SVB’s collapse was the suppression of interest rates by the Federal Reserve during 2020 and 2021, which forced SVB (and many other banks, including the Fed itself) to buy bonds at bubble high prices. (Bond prices rise when interest rates fall.)

When the Fed raised yields in 2022 to combat inflation the value of SVB’s book of bonds fell. Trillions of dollars of U.S. Treasuries held all over the world lost value when the Fed raised the fed funds rate and also began to (gradually) sell their own gigantic book of bonds. The 10-year Treasury shows the enormous swing from a yield of 0.55% in August 2020 to a current yield near 4%.

Banks can carry bond values at par as long as they plan to hold them to maturity. Unfortunately, SVB was forced to sell its bonds when customers demanded to withdraw their cash. The market value of these bonds is much lower than par.

The failure of SVB was due to the Fed’s actions. It is typical for banks to borrow short, and lend long. That is, they get funded by savers with maturities at the short end of the yield spectrum (savings and checking accounts), and lend to companies and households at the long end (mortgages, corporate loans, etc.). It is not typical for the yield curve to be so extremely inverted for such a long time. That’s due to the Fed. SVB (and all other banks and bond owners) were blindsided. The “everything bubble” affected the bond market as much as the stock market.

Many of SVB’s customers are high tech, entrepreneurial and/or small businesses which were already disproportionately stressed by the Fed’s raising of borrowing costs. Many have much more deposited at SVB than the FDIC’s insurance limit of $250,000.

The FDIC moved quickly to assure depositors that they will get their full FDIC insurance reimbursement by Monday (tomorrow). But it will take longer to sort out the remaining assets of SVB. Meanwhile, the companies may not be able to make payroll, pay their suppliers, etc.

The danger from the SVB collapse is more than just an ordinary bank failure. There is a danger of contagion as customers of other banks realize that SVB’s problem is widespread, especially in smaller regional banks. Shareholders have already been devaluing these bank stocks. If customers begin to withdraw their money contagion could spread. At the very least, customers with more than $250,000 could begin to withdraw their money to split their accounts between banks to stay below the FDIC limit.

There is also the danger of the collapse of a large number of high-growth, cutting edge companies (also small companies) in Silicon Valley and northern California. Even England has guaranteed U.K. companies with money at SVB.

Today has a whiff of 2008 as big wigs from President Biden to California governor Gavin Newsom to House Speaker Kevin McCarthy to Treasury Secretary Janet Yellen to Fed Chair Jerome Powell are in discussions and/or making public announcements.

Yellen Says Regulators at Work to Contain Fallout From Silicon Valley Bank Collapse

The Treasury secretary’s comments on Sunday morning sought to assure the public that the overall banking sector was safe.
By Alan Rappeport, The New York Times, March 12, 2023

Treasury Secretary Janet L. Yellen said on Sunday that regulators were working throughout the weekend to deal with the fallout from the collapse of Silicon Valley Bank but tried to assure the public that the American banking system is “safe and well capitalized.”…[end quote]

Regulators Face Urgent Task to Stem Spread From Silicon Valley Bank

Next steps could have ripple effects through the financial system

By Nick Timiraos, The Wall Street Journal, March 12, 2023

Eric Rosengren, who was president of the Federal Reserve Bank of Boston from 2007 to 2021, said the fallout could be particularly disruptive because of how heavily concentrated the lender was in venture capital and the technology sector. Any ultimate resolution by regulators could have further reaching implications not only for venture-capital firms, but also for endowments and pension funds that have been increasing their exposure to venture capital, he said…

Jerome Powell, who was a senior official in the Treasury Department during the George H.W. Bush administration, spent a weekend in January 1991 with counterparts from the Fed and FDIC addressing the collapse of the Bank of New England Corp., then the third-largest bank failure in U.S. history.

“We came to understand that either the FDIC would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning,” he said in a speech 10 years ago. “We chose the first option, without dissent.”…[end quote]

It’s possible, perhaps likely, that the FDIC will protect all of the SVB’s depositors, without regard to deposit insurance limits, as they did with Bank of New England Corp. in 1991. SVB is more sensitive in that the customers represent high-tech, high-growth companies that are more important to the U.S. economy than their total size would indicate.

The links to the Control Panel will be below as usual, but the METAR for next week depends upon the response of government agencies to the SVB collapse.

The Fed will almost certainly restrain the next rise of the fed funds rate to 0.25%. Without the SVB collapse it would likely have raised the fed funds rate 0.5% due to the strong jobs report and inflation.

The stock market’s reaction will be volatile and possibly extreme. If the FDIC announces early Monday morning that it will rescue SVB customers without regard to the $250,000 limit the market will probably respond with glee. If not, there will probably be a hit to the NASDAQ stocks that were affected most by the increase in bond yields since those are most likely to have funding from regional banks. QQQ will probably plunge as many investors will try to get out the door first. SPX will also drop since many financial companies as well as high-tech will be hit.

It’s unlikely but possible that the contagion will spread and the SVB failure presage a financial crisis. The mainstream financial press says that the large national banks will not have a problem since their customer base is widespread and deep and they are well-capitalized. METARs can have a finger on the pulse by watching the VIX and the Financial Stress Index.

If the VIX rises above 40 at the same time that the Financial Stress Index rises above 5 it’s a sure sign of a financial crisis that would cause the Federal Reserve to step in. I think that the Fed will try to keep out of the current situation and stay on its planned course unless this happens. The FDIC (and possibly Treasury to back it up) are supposed to handle banking problems…unless there is a danger of complete market melt-down when the Fed is forced to act.

I don’t know how the bond market will react to the SVB collapse. Treasury yields suddenly plunged on Friday and the entire yield curve dropped. This may continue next week.

The trade is strongly risk-off as SPX and junk bonds literally fell off a cliff (gapped down) relative to the U.S. 10YT price. The Fear & Greed Index suddenly dropped into Extreme Fear.

All bond holders know the market value and par value (if held to maturity) of all their bonds. They are only too aware of their book losses. Investors who hold individual bonds to maturity have nothing to worry about. Investors in bond funds have drops in NAV that cannot be healed by holding to maturity since funds do not mature. They can hold their shares to the duration of the fund as older (low-yielding) bonds will mature and be replaced by newer (higher-yielding) bonds. But selling bonds or shares of the fund will lock in the loss, as it did with SVB.

Next week is probably going to be interesting, to say the least. The METAR is stormy. This may be a good buying opportunity for stocks but not for bonds.



Things move quickly. Will be an interesting week.

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.


The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.



That is what happens when a bank doesn’t have size, isn’t one of the privileged 13.

Meanwhile, I saw on the wire today that PNC looked at SVB, and declined to take it over. SVB must really be toxic.


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Well, they reached for yield by buying long term bonds even in a rising interest rate environment. If not dodgy, it’s stupid.

No, the “root cause” was specializing in a narrow and volatile sector, but putting deposits in assets which were not liquid enough to satisfy possible depositor demands. Then to compound it they floated a plan to significantly dilute owners interests, sold a good slug of bonds at a loss, and spooked their own customers into starting a run on the bank. The Fed didn’t do that, the bank managers did that.

Indirectly, maybe. The Fed has been telegraphing these moves for a year, maybe longer. SVB kept the long bonds, even in a rising interest rate world. Stupid. They could have accepted less, or even taken a small loss a long time ago but didn’t. Don’t blame the Fed for a bank’s shortsighted managers.

What I’m trying to figure is why so many VCs insisted their startups bank exclusively, or primarily at SVB. Were the VCs double-dipping by having an ownership position? Or were they attracted by loosely-goosey regulation at the bank? There must have been some reason, but as yet I haven’t found it.


I’ve read that the officers of the companies making deposits at SVB got outlandish sweetheart deals on loans and mortgages, but I don’t know how true that is.

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I don’t know how true this is either, but it won’t surprise me:


Silvergate. SVB. Now Signature bank has failed (today). But the Fed and Treasury appear to be saying the things investors want to hear. Futures up nicely right now.


Sure it will. Lehman Brothers was contained too.


The depositors in full will be made whole I think I just read.

This is “Operation Twist”. The results are the US treasury/FED completely backing the financials. In turn yields are regulated by the Open Market Committee while rising to head off inflation. The monetary release creates growth in the US economy.

Serious doubt this will end the bear market. This will do the opposite stagflation.

Why this is not the end of the bear market is not clear yet. But one factor is the lag time of acts like the IRA building into the system economies of scale. Perhaps corporate profits will not rise in Operation Twist for this year.

Wendy, first of all, love the links you supplied. Excellent execution on supplying charts and graphs. These type posts from you cut much time out of me having to go look up stuff from the FED etc. And the chart candle glances book pages you put together are very good for us speed readers of charts.

That said, Goofy has raised some great points and some fine questions about the VCs, and I am looking at the lack of bank runs today, thinking about the VCs losing their minds on these all-day twitter podcasts, which were entertaining as all, but also a “tell” of who was talking book to back bad bets.

As someone else raised the question which should be added to goofy’s thinking is this: Thiel loosened his lips last Wednesday and told his Silicon Mafia Army to take their money out of $SIVB. All weekend, Thiel, Calcanis, Chamath, (all the usual suspects) tried to take on the likes of Marc Cohodes (the guy who wrote the outstanding forensic short story on $SI and $SIVB) and Jimmy Chanos - two shorts who called out the VCs for not knowing how $SIVB was too over-invested in long bonds - which as Goofy stresses is beyond stupid.

Matt Levine from Bloomberg has a great look at this from early last week, and his continuing coverage contains thoughts about “How could the people running $SIVB ever think buying long bonds in a time of big rising rates was prudent?”

I fault Silicon Valley Bros for not knowing how their fave bank used their collateral.

As Levine (and Cohodes, Levine, Chanos, El Erian, and others I respect) have said, how could this bank not invest this “free money” in short-term bonds you flip at the end of each month? When short-term yields passed 4% some months ago, the short-term/long-term yields inverted, you would think someone at $SIVB with half a brain would have picked up the phone, started slowly unwiding long term exposure, and actually publicize this move to your 25,000 to 40,000 business accounts (depending if we cout the UK arm just sold the $HSBC this morning.)

Goofy is too kind with his criticisim. This was seriously stupid leadership at $SIVB. And then the CEO taking out about $2+ Million in options, while paying bonuses to employees for 2022 right before the run? Beyond stupid.

I have focused scorn for Silicon Valley Bros who have gamed markets during Late Stage Capitalism. Their greed will fuel the coming changes in banking, investing, and societal backstops to insatiable thievery of the common wealth.

Peter Thiel and his muppets spread the bank run FUD by mouthing off on Clown TV and these podcasts on Twitter from last Wed. until this morning. There was one VC muppet who claimed over 500,000 Americans would be standing in line this morning at regional banks, waiting to take out their money. He was adamant this would happen, getting all worked up to Bill Ackman levels of tears in his voice.

And you can bet your arse those VCs who dabbled in crypto through $SI and now $SNBY have found ways to centralize and insure gains while pushing their false narratives about decentralization.

I hope for Democracy’s sake Peter Thiel is found guilty of some type of insider trading, pump and dump of Crypto, and pump and dump of SPACS with the Usual Suspects of Chamath, Calcanis, ad nauseum, but, I feel these guys are too big to jail - unless the SEC sees proof of insider wheeling and dealing.

If any of Thiel’s friends in SV did the dirty deed of shorting certain banks by purchasing puts against banks (I will add a $KBE (banking sector ETF) post from Destiny Solutions here) last Thursday or Friday, after Thiel’s minions went on CNBC and cried the world was ending, it is very possible $SIVB might have had time to unwind this thing in a less sensational way.

Good stuff Wendy and Goof. Good discussion from others who are obvious readers of this in-depth, unfolding story.

p.s. I’ll see if stockcharts has a pre-set candle glance just for banks. If so, I’ll lay it here. If not, I’m not Wendy, and Wendy has really got this candle glance book down. But I’ll see if there is a preset. If so, I’ll add here.


@PeregrineTrader you might want to look at KRE, the SPDR S&P Regional Banking ETF. Most analysts agree that the regional banks are more vulnerable than the big national banks.

Talk about a falling knife!! [whistle]


Thanks, Wendy, that’s a symbol I never saw before.

By the way, I’m working on candle glances for these regional banks. I got this. I’ll add later here.

(Late edit) first candle glance at some small banks and etfs. (Of course $SIVB $SI etc, no longer have data. They are done. They are no longer traded.

VCs and banking sector investors today:

(late edit) and let’s add some big banks and brokerages who know a thing or two about short-term rates and how to use them AND longer-term rates to their advantage so they can pay this 4.00+% money market interest. Let these settle with regional banks and I can see me playing $FAS and $FAZ, back and forth. Scalp, scalp, scalp, while waiting on earnings to see where we are for individual trades.

Have a good day, all.


I switched late last year to American Eagle Financial Credit Union and Key Bank. I said good bye to Webster Bank.

This is not really about Libertarians and more about pushing and shoving…now where doe it lead?

Dealbook by Andrew Ross Sorkin NYT column no link.


The venture capital community, a group that includes a vocal group of libertarians, was just bailed out. Yes, these investors do good by funding start-ups, but they have also long lobbied for fewer regulations and also benefited from the special treatment of carried interest. This all looks particularly egregious after some of them spent the weekend begging for government help.

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There’s a 3x for regional banks, DPST. Down 35% today. In case anyone wants to gamble on a bounce.

My thoughts on VCs and startups - they were trying to bank on the cheap. Just pay some fees to hold their cash and the banks would no longer need to take risks.