Silicon Valley Bank Collapse Isn’t A ‘Lehman Moment’ – At Least Not Yet
Since the implosion of the US financial system in 2008, Wall Street has been on edge for the next “Lehman Moment.” This is the triggering event named after the ill-fated investment bank that led to the widespread collapse of the banking system and economy.
The latest alleged Lehman Moment occurred on Friday, Silicon Valley Bank Crash.
With assets of about $200 billion, it is the second largest bank failure in history.
Bank stocks have been crushed in recent days as traders and investors worry about losses from SVB. Signals of systemic risk spreading through the broader banking systemleading to a series of bank losses, some of which may collapse, and then plunge into recession.
Then banks will stop lending, businesses will retreat, and the economy will collapse.
I say “alleged” because, according to my sources, this is not the Lehman Moment. At least not yet.
The SVB’s slide into the abyss points to problems with years of unfettered spending, the plumbing of the banking system built through money printing at the Federal Reserve and bankruptcy under the Biden administration. They say it’s a warning sign.
As reported, FDIC took control of SVB on Friday SVB went bankrupt.
Its parent company, SVB Financial, is in a hurry to find a buyer.
Since it will be difficult like Lehman, there is a great possibility of complete collapse.
Regulators such as the FDIC and Fed must approve the sale, narrowing the list of acquirers to major financial institutions.
Big banks will be hesitant to buy SVB’s portfolio.
Hard to rate, and probably not a starter given their experience during the financial crisis. I decided to hold it.
As such, potential buyers are alternative asset managers such as private equity and companies such as Blackstone and Apollo.
However, both are vulture investors and may only want to acquire SVB’s portfolio at a very low price.
In other words, bankers I interviewed say a Lehman-like failure is almost inevitable for SVB.
Here’s the good news. The underwater mortgage debt that led to Lehman’s bankruptcy was found on the balance sheets of all the big banks, so government bailouts were needed to prevent financial Armageddon.
The Silicon Valley portfolio business is pretty unique. Primarily servicing venture capital firms that have started to withdraw money from their accounts due to increased technical losses.
That forced banks to sell Treasury bonds, which had slumped amid the Fed’s rate hikes, leading to a crash. Big banks like JP Morgan have a more diverse customer base, so they don’t have to worry about letting go of the Treasury to meet bank runs, at least for now.
But that doesn’t mean SVB experience isn’t an issue.
It’s clear that the recent massive fiscal spending and money printing has distorted the plumbing of the banking system and the recent Fed rate hike is starting to wreak havoc.
SVB’s holdings of Treasury securities exploded during this financial surplus bonanza, as did all major banks.
Prices remained stable and high during the Biden administration’s spending as the Federal Reserve (Fed) continued to issue money, essentially buying bonds that the Treasury Department was selling.
All was well until inflation kicked in and forced the Fed to turn around.
Fed interest rate rises Currently, bonds held by all major banks, not just SVB, are falling.
There is also good news here. Unlike Silicon Valley, most large banks have a diverse depositor base and do not pull deposits away.
Still, held in the banking system is a matrix of assets whose prices have been distorted by the money-printing age of mega-government and, under the right circumstances, the potential to create the Lehman moment that markets feared. there is.
https://nypost.com/2023/03/10/silicon-valley-banks-collapse-isnt-a-lehman-moment-at-least-not-yet/ Silicon Valley Bank Collapse Isn’t A ‘Lehman Moment’ – At Least Not Yet