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How Fed policy contributed to Silicon Valley Bank collapse
Yahoo Finance
Mar 13, 2023
Yahoo Finance Live’s Julie Hyman explains the Silicon Valley Bank crisis and how Federal Reserve interest rate hikes added pressure to bonds and the bank. The segment aired on March 10, 2023
Right. Given the fact that our banks are federally-chartered, and under federal jurisdiction, and heavily-regulated, they survived the Great Depression.
As I recall from high-school history, even more regulations were piled on after the Great Depression. That's where the phrase "banker's hours" comes from, meaning that banks could only be open from 9:30 AM to 3:00 PM weekdays, except for Fridays, when banks were open until 6:00 PM, so people could cash their weekly paycheques. This meant that there couldn't be a run on the banks on a Wednesday, say, because those who had jobs, were working during banker's hours. And those who had little to nothing in the bank, weren't going to cause the bank to fail if they took out their deposits during banker's hours.
Oh, and you could only do business with the bank branch with which you had deposits. If you had a TD account at Yonge and Lawrence in Toronto, you couldn't use it at the TD branch at 3rd Street and 5th Avenue in Calgary, if you were in Calgary. Hell, you couldn't use it at the HQ of the TD Bank, at the corner of King and Bay in Toronto. That changed, of course, and now I can maintain TD accounts in Ontario and Alberta (for example), and do whatever I need to do at any TD branch across Canada. Usually six days a week, up to 8:00 PM.
The point is, that being federally-chartered, Canadian banks tend to be very few (the Big Five). We don't have the "First National Bank of Springfield, USA," which has one branch, and boasts assets of under $10M. Further, federally-chartered Canadian banks are extremely well capitalized with billions, and in some cases trillions, of dollars in assets. They are, in typical Canadian fashion, conservative and careful, about their investments and their loans. And they make money, hand over fist, precisely because they are so conservative and careful. It may not be as much as they could by gambling on high-risk investments--but they make money.
I'm not surprised, OK maybe a little, that here on CD in the numerous threads on this banking crisis, no one has mentioned this story. Not a word about Canada etc. Especially from the guy who told me a few weeks ago that the Canadian banking system was stuck in the 1970's.
Wonder what he's thinking now?
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Originally Posted by Zoisite
Two reasons I can think of for why there's no mention of it.
Unless the story has been picked up by other media besides G & M then for those who don't and won't subscribe to G & M (like myself or like other media that aren't subscribers) then they aren't going to know about it stateside. I'm in Canada and even I can't read that article because I'm not a subscriber to G & M. So I don't know anything about it.
That doesn't surprise me at all that others don't know about it, it's no more than I would expect. I have no doubt that they (and perhaps other American media) don't want to know and don't want others to know about whatever Canada is doing about it so are turning a blind eye and a deaf ear. I think perhaps in this case that is just as well so as to avoid increasingly worse resentment and begrudgement from a certain sector towards Canada. You can lead a hide-bound resentful old horse to water but you can't make it drink and you cant expect any gratitude from it for the relief that the water might have offered.
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Probably the reason it didn't hit the news, is because its pretty much a non story. Yeah, customers who had deposits over the FDIC limit ran and withdrew at the first sign of trouble and I don't think they kept all that money in a shoe box in their closet. Some went to Canadian HQ'd banks, some went to big American banks who worked on an exit plan for customers when this all melted down over the weekend.
This of course does not take away from the fact that Canadian banks are well capitalized, stable and regulated. Therefore it would make perfect sense to go there for temporary safety, especially considering there are quite a few Canadian companies in the venture start up world that are customers of SVB.
Not too surprised 9,000 banks in the U.S.failed....
The U.S. has an amazing number of banks compared to most countries...
peaking in 1984 with almost 15,000 banks (there are about 44,000 banks in the world)....
now, almost 40 years later down to just over 4,000 (still too many imo)
Canada has only about 35 domestic banks....
Dominated by "The Big 5" .....and their ranking in the world...
Not too surprised 9,000 banks in the U.S.failed....
The U.S. has an amazing number of banks compared to most countries...
peaking in 1984 with almost 15,000 banks (there are about 44,000 banks in the world)....
now, almost 40 years later down to just over 4,000 (still too many imo)
Canada has only about 35 domestic banks....
Dominated by "The Big 5" .....and their ranking in the world...
Toronto Dominion .....#23
The Royal Bank ....#26
Scotiabank .....#39
The Bank of Montreal .....#42
Canadian Imperial Bank of Commerce ....#55
Top 4 largests banks in the world are Chinese....
USA Top Five are....
JP Morgan Chase .....#5
Bank of America .....#7
Citigroup .....#11
Wells Fargo ......#16
Goldman Sachs ....#25
All of these are "too big to fail" banks ....
I always think two things when I hear "too big to fail" - "famous last words" and "Titanic."
Probably the reason it didn't hit the news, is because its pretty much a non story. Yeah, customers who had deposits over the FDIC limit ran and withdrew at the first sign of trouble and I don't think they kept all that money in a shoe box in their closet. Some went to Canadian HQ'd banks, some went to big American banks who worked on an exit plan for customers when this all melted down over the weekend.
This of course does not take away from the fact that Canadian banks are well capitalized, stable and regulated. Therefore it would make perfect sense to go there for temporary safety, especially considering there are quite a few Canadian companies in the venture start up world that are customers of SVB.
I get that on one level it's a non story. My thoughts were more along the lines that this would be the moment for the US to perhaps look outside their borders at places where the banking appears more stable and ask the question why.
Naive I know.
All the stories in the US media about other countries seem to be only about other countries that are having a negative reaction to what happened.
I get that on one level it's a non story. My thoughts were more along the lines that this would be the moment for the US to perhaps look outside their borders at places where the banking appears more stable and ask the question why.
Naive I know.
All the stories in the US media about other countries seem to be only about other countries that are having a negative reaction to what happened.
IDK. Maybe that makes them feel better.
To be fair, they don't have to look far. They just have to look at the provisions in the Dodd Frank Act that were gutted, that would have flagged this and possibly prevented the whole failure or at the very least failed in a way where they would have easily found a buyer. Don't get me wrong, I didn't agree with every part of Dodd Frank, but parts definitely had their merits.
I work in the venture start up world, so I know that we will never have the same banking regulations as Canada, as its just not realistic with our economic environment. For reference, more VC money flows through my little state of Massachusetts than the entire country of Canada. With that though, comes big risk and big reward, you have to take the good with the bad.
All that said, some level of regulation is necessary and can be done in a balanced way that protect people from this happening again, because yeah its a complete s* show.
But behind the glossy promotion were some big problems. Divisive management, costly exposure to finance company Greensill Capital, which collapsed in 2021, a seedy money laundering case, and waning customer confidence in the last few months, which saw billions being withdrawn from the bank.
All it took to turn those doubts into a stampede was an apparently off the cuff remark from the Saudi National Bank, which owns almost 10% of Credit Suisse, suggesting it would not be increasing its investment.
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But Credit Suisse is a "too big to fail" bank. In theory, it had the capital to prevent this week's catastrophe. Also in theory Swiss financial regulators and the Swiss National Bank keep an eye on those systemically important banks and can intervene before disaster strikes.
The people who could have prevented the meltdown were asleep at the wheel.
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