Keypoints
1）The $SVB Financial Group(SIVB)$ Incident
2）3 Figures to Understand WHY
3）SVB and Banks Future Destiny
Editor's Notes: The market will fluctuate again, choose the right time to overweight US treasury bonds, increase cash positions, and increase high-quality anti-inflation stocks that can generate regular and predictable cash flows.
After SIVB, SBNY, Who is Next, ZION, TFC, FRC, KEY or RF?
How Global Banks & Top Institutions Responded to the Banking Crisis?
1. The SVB Incident
4 days ago @Forbes awarded SVB ‘America’s Best Bank’:In lastes few days, SVB failed to raise money, Shut its online banking and app. So No one can transfer their money out of the bank. They put themselves for sale. Shut down the branches & ATMs.
Now FDIC(Federal Deposit Insurance Corporation)shut them down. After the $SVB Financial Group(SIVB)$ bankruptcy, the FDIC is responsible for the resolutions of the entire bankrupt bank. In disposition, the FDIC first requires full payment of deposit insurance limited to $250,000. However, if the depositor's deposit exceeds the FDIC's insurance limit, then it is necessary to wait for the FDIC to sell the assets of the bankrupt bank and then resolve its debts (such as paying back the money owed to the government...), then bear Redemption of deposits exceeding the limit.
Prior to this, Silvergate Bank had just closed down last week, then SVB, two in a week, one is cryptocurrency and the other is venture capital. They also belong to the field that will benefit the most after 2020.
Is it true that maintaining high interest rates for too long will trigger a financial crisis, reappearing in 2008?
2. 3 Figures to Understand WHY
Hy's Stockhouse analysis pointed out: In fact, most of the U.S. banks may not be as strong as we think, and they may face liquidity problems in the future.
According to the Q4 2022 Bank Profile released on February 28 by the Federal Deposit Insurance Corporation (FDIC), an independent agency created by Congress, summarizing the financial performance of all FDIC-insured institutions. There are three key points needs mentioned：
Figure 1: Since Q2-Q4 in 2022, a total of $717.9b of deposits have flowed out of the entire banking system.The current number of deposits in the system is 19,215B. Although the outflow ratio is less than 4%, this shows that the most sensitive to interest rates Customers have started moving their money elsewhere over the past 3 seasons!
Figure 2: The current 99bps of Deposit Costs does not sound high at first glance, but the figure shows that it is a quarterly increase of 46bps, that is, from 53pbs to 99bps from Q3 to Q4 in 2022, nearly doubled!It is impossible for Deposit Costs to be only 0.99% of Q4, and the cost of bank deposits will rise in 2023, because this figure lags behind the Fed's policy interest rate. America Banks will either raise deposit rates by then, or the number of deposits it will accept to continue to decline in 2023.
However, if the number of deposits continues to decline in 2023, the risk of liquidity will increase, because banks have to lend more, and deposits in the system cannot be lost.
What will happen if the Deposit Costs continue to rise? It is to increase the pressure of net interest margins, and finally cause the pressure of surplus on the bank's profit and loss statement!
The point is that once a bank faces deposit outflows, it may admit compensation and sell liquid assets such as securities.
Figure 3 shows that the unrealized losses of Available-for-sale securities and Held-to-Maturity securities in the Q4 2022 added up to a quarterly increase of $620.40B. Although it was slower than Q3 2022, once it was like Silicon Valley Bank had happens, it will still hurt the stock market.Silicon Valley Bank was just facing liquidity problems. The emergency short-term funds of $15B from San Francisco Federal Home Loan Bank are not enough, so SVB still has to sell $21B of Available-for-sale securities, resulting in $1.8B loss.
Therefore, the level of the bank's own deposits, the cost of deposits compared with peers, as well as the share of securities on the balance sheet and the maturity of securities will determine the bank's response to changes in market yields, and whether it will affect the bank's liquidity.
3. SVB and Banks' Future Destiny
The $SVB Financial Group(SIVB)$ incident, whether it is big or small, is enough to make investors cautious!
Because liquidity problems and runs on the next worst capitalized bank could follow. The tipping point is still a run, especially now that the portfolio is relatively fragile.
Famous Hedge fund Manager Ackman also publicly stated that once SVB fails, more banks will face runs and collapses, and the dominoes will fall one after another.
At present, SVB has been taken over by the FDIC, and depositors under 250K will be guaranteed to get out, but it only accounts for 4% of the bank's total deposits. That is to say, 96% of the start-ups and technology companies in Silicon Valley will face the problem of how to pay their salaries next week, and they will explode without the intervention of big names.
The market may continue to fluctuate again. It is recommended to overweight U.S. Treasury bonds at the right time, increase cash positions, and increase high-quality anti-inflation stocks that can generate regular and predictable cash flows.
$Financial Select Sector SPDR Fund(XLF)$ ,$First Republic Bank(FRC)$ $Direxion Daily Financial Bear 3x Shares(FAZ)$
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