You’ve Got the Runs

Long story short, we don’t stress test our banks well enough, but we are stress-testing the hell out of bank customers and investors. As I covered on Friday, a series of unfortunate events led to the largest bank run in history. Silicon Valley Bank’s customers withdrew “$4.2 billion an hour, or more than $1 million per second for ten hours straight.” By the weekend, the Feds had taken over the bank, but it was still unclear whether large account holders would ever see their money again. Startups that had tens of millions in the bank were emailing investors to say they might not make their next payroll. On Sunday, the depositors’ fears abated as federal regulators announced that SVB’s customers would have access to all their money by Monday morning. The same is not true for other stakeholders. As Janet Yellen explained, SVB and New York-based Signature Bank (another instituiton that failed this weekend) are not getting a bank bailout like the ones we saw during the last financial crisis. “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and the reforms that have been put in place means that we’re not going to do that again.”

+ Just Another Manic Money: If the bank run gave the runs to SVB, the gastrointestinal contagion spread to other regional banks, their depositors, and especially their shareholders when the market opened Monday. First Republic Bank was down as much as 75% in early trading. (I bought some of their shares on Friday afternoon when I thought the stock had already been oversold. I planned to pop champagne, instead I needed to pop some Imodium.)

+ “The ability of these banks to fly under the radar in the US was no accident. Greg Becker, SVB’s CEO, lobbied US officials several years ago to raise the asset threshold at which banks would be considered systemically important.” Thanks to heavy lobbying and bipartisan support, the failed Silicon Valley Bank and Signature Bank weren’t required to take the Fed’s stress tests. (Instead, the rest of us were.)

+ Elizabeth Warren’s I told you so moment in the NYT (gift article): Silicon Valley Bank Is Gone. We Know Who Is Responsible. “In the aftermath of the 2008 financial crisis, Congress passed the Dodd-Frank Act to protect consumers and ensure that big banks could never again take down the economy and destroy millions of lives. Wall Street chief executives and their armies of lawyers and lobbyists hated this law. They spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it … Banks like S.V.B. ‌— which had become the 16th largest bank in the country before regulators shut it down on Friday ‌—‌ got relief from stringent requirements, basing their claim on the laughable assertion that banks like them weren’t actually ‘big’ ‌and therefore didn’t need strong oversight.”

+ Signature Achievement? Here’s a related twist: Barney Frank, who put the Frank in the Dodd-Frank Act, is a board member of just-failed Signature Bank.

+ Here’s the latest on the mayhem from Bloomberg. (I gotta say, this investment shit was more fun when everything went up all the time and we were all geniuses.)

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