Silicon Valley Bank
The 18th largest bank in the United States, California's Silicon Valley Bank (SVB) failed Saturday, sparking the largest run on a bank in U.S. history and raising concerns that more bank-related pain might be coming -- from board rooms to kitchen tables of everyday Americans.
How could this happen? News reports indicate a number of issues, including rising interest rates, likely were in play. But longtime Alabama attorney and businessman Donald Watkins lays a major chunk of the blame at the feet of the Biden administration and its apparent commitment to lax policing of white-collar wrongdoing, such as seemingly is taking place with the ongoing accounting fraud at Southern Company, the parent firm of Alabama Power. Writes Watkins, in a post at his Facebook page:
The 18th largest bank in the United States has failed. Regulators from the FDIC seized control of Silicon Valley Bank [yesterday] morning. The bank, which is based in Santa Clara, California, has $209 billion in assets and $175.4 billion in deposits.This is what happens when Joe Biden's Department of Justice keeps giving big Wall Street banks and utility companies a prosecutorial "pass" on their crime sprees. These "passes" are handed out like hotcakes. For example, Wells Fargo Bank's rap sheet is longer than Mafia boss John Gotti's. Yet, Wells Fargo continues to commit fraud against millions of its customers on an unrelenting basis, without fear of federal criminal prosecution. Likewise, the Atlanta-based Southern Company has committed at least $27 billion in accounting fraud over the past 10 years. Yet, the company does not fear prosecution from Biden's weak and inept Department of Justice.
In fact, Southern Company officials privately brag about the choke hold the giant utility has on the Department's Criminal Division, via its political connections to top Department officials.How do corporate titans get away with financial chicanery that puts the rest of us at risk? Watkins provides a simple answer: money:
These Wall Street corporations can easily purchase a prosecutorial "pass" for their crimes by directing their affiliated political action committees to channel large sums of money to the Biden re-election campaign, even while they continue to carry out their mult-ibillion dollar fraud schemes. These contributions will be laundered through PACs affiliated with the Biden campaign.In Washington, big PAC money talks -- loud. It's a bipartisan thing. Just ask Hunter Biden and Jared Kushner.
Meanwhile, federal prosecutors busy themselves by chasing and prosecuting low-level bank employees who may have embezzled $1,000 or more from the bank's teller window. This is the only time these prosecutors brag that they are fighting financial crimes. What federal prosecutor can't win a criminal case against a no-name defendant with a court-appointed lawyer in a rigged criminal proceeding?
I predict that more big banks will fail because the FDIC and federal prosecutors are not doing their jobs. They waste their time majoring in minors.
History tells us that soft treatment of financial criminality truly is bipartisan. The previous largest bank run in U.S. history was in 2008, with the failure of Washington Mutual Bank (WaMu) -- and that came on George W. Bush's watch. The collapse of WaMu was a relatively minor blip compared to recent events at Silicon Valley Bank. Writes Felix Salmon, of Axios:
Silicon Valley Bank's customers withdrew $42 billion from their accounts on Thursday. That's $4.2 billion an hour, or more than $1 million per second for ten hours straight.
To put that in context, the previous largest bank run in modern U.S. history took place at Washington Mutual bank in 2008, and totaled $16.7 billion over the course of 10 days. That's a mere trickle in comparison to what was seen at SVB.
Silicon Valley is a small, tight-knit place. Most of SVB's customers are just one degree of separation away from a small group of venture capitalists who started making it clear on Thursday that they thought pulling cash from SVB was a smart and prudent move.
By Friday morning, it was clear that the VCs' friends and clients had listened. The amount of cash left in SVB's coffers, per California's department of financial innovation and protection, was negative, to the tune of $958 million. SVB itself was insolvent.
No bank can withstand that kind of outflow in a single day — especially when a similar-sized outflow was all but certain the following day. That's why SVB is now a ward of the state, desperately hoping to find a buyer before Monday.
Why does Monday matter? Axios' Dan Primack explains:
The U.S. government on Friday assumed control of Silicon Valley Bank and its billions of dollars in customer deposits, temporarily shutting all branches and freezing withdrawals.
This weekend is key to determining if the situation escalates from an inconvenience to a crisis for SVB clients, most of which are businesses that need to meet payroll.
One big reason this weekend matters so much is that the next pay period for many companies is next Wednesday, March 15.
The best-case scenario is that another financial institution steps up and agrees to buy SVB, thus automatically strengthening its balance sheet.
Such a purchase presumably would facilitate the reopening of client accounts, and also calm nervous investors who've been dumping shares of SVB rivals like First Republic and PacWest.
It also could reopen venture lending, which is a key financing tool to many startups.
The worst-case scenario is that the market opens Monday and SVB remains a ward of the state, with no white knight on the horizon.
Could this shaky situation put key sectors of the U.S. economy in a crunch? Yes, according to a report from Ramishah Maruf at CNN:
Though experts quelled fears of a wider contagion, the bank’s collapse could have significant ramifications on the startup and tech sectors.
Founded in 1983, Silicon Valley Bank provided financing for almost half of U.S. venture-backed technology and health-care companies. They have been hurt by higher interest rates and dwindling venture capital.
While relatively unknown outside of Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC.
The wheels began to come off Wednesday, when SVB announced it had sold a bunch of securities at a loss, and it would sell $2.25 billion in new shares to shore up its balance sheet.California regulators closed down the tech lender Friday. The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.
The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, said all insured depositors will have full access to their insured deposits by no later than Monday morning. It said it would pay uninsured depositors an “advance dividend within the next week.”
The FDIC took over in the mid-morning Friday; usually it waits until markets close.
“SVB’s condition deteriorated so quickly that it couldn’t last just five more hours,” wrote Better Markets CEO Dennis M. Kelleher. “That’s because its depositors were withdrawing their money so fast that the bank was insolvent, and an intra-day closure was unavoidable due to a classic bank run.”