As the Banks Fall (Part 2): Bankruptcies and Consolidations

The banking bloodbath has begun, and it's about to get a lot messier

Mar 13, 2023

New York Stock Exchange - Ken Lund from Reno, Nevada, USA, CC BY-SA 2.0

Well, Outsiders, this got messier faster than I imagined. I expected multiple bank failures to kick off in April and May, not March. If you haven’t read Part 1 of As the Banks Fall: The Beginning of the End of the Modern Slave System, I recommend doing so before carrying on here. This short article will make a lot more sense.

Global markets are experiencing a bit of a bloodbath today as panic sets in amidst last week’s collapse of Silicon Valley Bank. The FDIC (Federal Deposit Insurance Company) held an auction on SVB in hopes of getting a buyer. No institutions in the US stepped up. (HSBC UK bought the SVB’s UK subsidiary for £1.) That’s how fragile this house of cards is. Even PNC Financial Group, which was expected to bid on it, backed out.

The Federal Reserve, the US government, and the FDIC have been in panic mode all weekend. Joe Biden’s out there attempting to reassure everyone that the banking system is sound and that we needn’t worry. (Sorry, Joe, but the system hasn’t been remotely sound since Nixon and not completely sound since the creation of the Federal Reserve in 1913.)

The California-based, crypto-friendly bank, Silvergate, also collapsed last week and has now entered liquidation to make repayment on all deposits. Still, very little attention is being given to it. (Source) On Sunday, New York state regulators closed Signature Bank—which I mentioned in Part 1—after its stock plunged in response SVB’s collapse, saying it posed too much of a risk to the system.

Silicon Valley Bank - The Latest

The FDIC met on Sunday night to strategize re: SVB. The result? By working with the Fed and the US Treasury, they created a “bridge bank,” called Silicon Valley Bank, NA, to transfer all of SVB’s accounts for the opening of business today.

“All depositors of the institution will be made whole,” the FDIC said. (Source) The bank will offer all the normal services SVB originally provided, including online banking. According to Janet Yellen (Treasury Secretary) and Joe Biden, no taxpayer money will be used in the bailout, only money from the Deposit Insurance Fund. (Source)

To be a bit more specific: depositors get their money back because of “systemic risk exemption” (SRE) rules. The link redirects you to Chapter 3 “Use of Systemic Risk Exceptions for Individual Institutions during the Financial Crisis” of the book Crisis and Response: An FDIC History, 2008-2013. That chapter’s worth a read if you have the time, as it details in rather plain language what happened during the 2008 banking crisis and the 5 years that followed regarding SREs.

Other banks halted for volatility within the last few days:

First Republic Bank (Source)
PacWest Bancorp (Source)
Western Alliance Bancorp (Source)

Beyond banks, let’s look at companies with familiar names deeply affected by SVB’s collapse:

Roku (hardware digital media players, particularly for TV shows and movies)
Etsy (popular e-commerce platform)
Rocket Lab USA (an aerospace manufacturer)
Vox Media (parent company of Vox, Polygon, and The Verge)
Unity Technologies (video game tech maker)
Roblox (online gaming platform)
Circle (owner of crypto “stablecoin” USDC)
Coinbase (faltering cryptocurrency exchange)
Compass Coffee (US coffee roaster based in Washington DC)
Camp (a privately owned toy store chain)

As a small aside: SVB, Signature, and Silvergate are three institutions famous for providing banking services to cryptocurrency exchanges. I suspect these particular bank failures are partly due to a war on cryptocurrencies. In a future article, I will explain the humanitarian use case for them and why TPTB want to keep people as far away from cryptos as possible. (Bitcoin was not created as a get-rich-quick scheme as so many uninformed people think.)

More Bank Failures to Come

Which bank will collapse next?

I suspect Credit Suisse may be the first massive bank to go.

Why do I think this?

The price of their Credit Default Swaps (CDSs) is going through the roof, jumping 36 basis points earlier this morning. A CDS is basically insurance. So, if sales of a bank’s CDSs increase dramatically, it means the market is losing faith in the bank. Or, put differently, the higher the price of a bank’s CDS, the higher the chance of the bank’s failure, as perceived by the market/investors.

What does this mean in even simpler terms?

Wall Street is hedging its bets on Credit Suisse failing.

European markets are a mess as a result. Credit Suisse’s stock fell 15% today. (Source)

What else does this tell us?

CDSs have gone up significantly for others banks too, including major players like Goldman Sachs, Bank of America, BNP Paribas, and Deutsche Bank. This may very well be our signal that savvy investors have a deep lack of faith in the global financial system.

Call to Action

If the last few years have taught us anything, it’s that two things are true about governments: depending on the circumstances, they either gaslight the public for their own means or spew nonsense because their puppets—elected, selected or otherwise—have little grasp on complexities of specific topics. Or both!

So, when Biden or any other global puppet tells you everything is fine, it’s probably not. Respond accordingly.

I’ve said it multiple times before, even most recently in my article How to Thrive in Uncertain Times, but I’ll say it again: it’s time to consider the benefits of holding cash outside the banking system (locked in a safe) and act swiftly.

With all this bank volatility, governments can order a “bank holiday,” lasting anywhere from 1 day to several weeks, locking you out of your accounts. They could also impose capital controls, limiting the amount of money you can withdraw daily from your account.

(Don’t believe me? Ask the Greeks who were limited to €40/day and suffered capital controls for over a year.)

Or, you could get locked out of your bank just as SVB depositors were last week. Having cash on hand means you can at least tend to your daily needs, minimizing unnecessary stress.

Disclaimer: I’m not a financial advisor. Do your own research before determining the best course of action for you and your finances.

If you’d like a hedge fund manager’s perspective on banks in the near future, check out what Bill Ackman has to say. He is the founder and CEO of Pershing Square Capital Management.