Cryptocurrency: BANK RUN PANIC Spreads Around Globe, Crypto and Gold Demand Skyrockets, FDIC Coverup

grarpamp grarpamp at gmail.com
Sun Mar 12 16:07:33 PDT 2023


> Not your keys, Not your Money...

Yellen Says Government Will Help SVB Depositors But "No Bailout" As
Fed, FDIC "Hope" Talk Of Special Vehicle Prevents More Bank Runs

https://www.bloomberg.com/news/articles/2023-03-12/us-discusses-fund-to-backstop-deposits-if-more-banks-fail

With just hours left until futures open for trading late on Sunday
afternoon, the situation remains extremely fluid and for now it
appears that regulators, central bankers and treasury officials (we
won't mention the White House where the most competent financial
advisor is Hunter Biden) still don't have a clear idea of how they
will coordinate or respond.

Take Janet Yellen, who said on Sunday morning that the US government
was working closely with banking regulators to help depositors at
Silicon Valley Bank but dismissed the idea of a bailout.

Speaking with CBS on Sunday, the treasury secretary sought to assure
US customers of the failed tech lender that policies were being
discussed to stem the fallout from the sudden collapse this week. The
Federal Deposit Insurance Corporate (FDIC) took control of the bank on
Friday morning.

“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 we are not going
to do that again,” Yellen said (oh but you will, you just don't know
it yet).

“But we are concerned about depositors, and we’re focused on trying to
meet their needs.”

It wasn't clear which depositors she meant: as we first pointed out on
Friday, out of SIVB’s $173 billion of customer deposits at the end of
2022, $152 billion were uninsured (i.e., over the $250,000 FDIC
insurance threshold) and only $4.8 billion were fully insured. As we
also noted last week, a further look at SIVB funding (pie charts)
shows unusually high reliance on corporate/VC funding; only the small
red private bank slice looks like traditional retail deposits to us.

As a result, as JPM's Michael Cembalest says "It’s fair to ask about
the underwriting discipline of VC firms that put most of their
liquidity in a single bank with this kind of risk profile. At the end
of 2022, SIVB only offered 0.60% more on deposits than its peers as
compensation for the risks illustrated below; in 2021 this premium was
0.04%".

Meanwhile, late last night, Bloomberg reported that the FDIC and the
Fed are "weighing creating a fund that would allow regulators to
backstop more deposits at banks that run into trouble following
Silicon Valley Bank’s collapse."

According to the report which cites people familiar with the matter,
"regulators discussed the new special vehicle in conversations with
banking executives." And here the punchline:

    The hope is that setting up such a vehicle would reassure
depositors and help contain any panic, said the people. They asked not
to be identified because the talks weren’t public.

Well, needless to say, any time one mentions "hope" as a wise
macroprudential policy, alarms go off, because the entire banking
system suddenly becomes reduced to a game of chicken as follows:
Fed/regulators won't backstop deposits today and won't admit a bank
crisis is emerging, but if a bank crisis emerges and there is a flight
of deposits on Monday morning, they will move.

But then it will be far too late as once a bank run has started it is
virtually impossible to stop it under controlled circumstances and is
why the number one prerogative for regulators is to avoid just this
kind of outcome, which is catastrophic for a fractional reserve system
that is entirely based on confidence, and where available "demand
money" is merely a fraction of the $18 trillion in deposits, far more
than the $2.2 trillion in circulating currency.

Furthermore, a quick look at historical unsecured depositor impairment
numbers show that losses imposed on uninsured depositors range between
6% and 65%: huge numbers in today's context even assuming that banks
are mostly solvent (which they likely won't be once the commercial
real estate crisis hurricane hits).

Meanwhile, as Jason Calacanis writes, this is just the beginning.

    ON MONDAY 100,000 AMERICANS WILL BE LINED UP AT THEIR REGIONAL
BANK DEMANDING THEIR MONEY — MOST WILL NOT GET IT

    THIS WENT FROM SILICON VALLEY INSIDERS ON THURSDAY TO THE MIDDLE
CLASS ON SATURDAY — MAIN STREET FINDS OUT MONDAY
    — @jason (@Jason) March 12, 2023

And while he may be conflicted - he certainly has some material losses
as a result of the SVB failure - one look at what is already taking
place at some smaller, vulnerable banks such as this First Republic
Branch in Brentwood should be sufficient to see what comes tomorrow if
the Fed makes the wrong decision today.

    I’ve never seen a bank run in Brentwood Los Angeles in over 40
years — this is at first republic bank branch. People standing in rain
pic.twitter.com/k31PqqpyO3
    — pjb.eth (@Dr_PhillipB) March 11, 2023

The flipside to all this is that the longer the Fed waits to assure
depositors - even uninsured depositors - that they are safe, the more
firepower (bailout funds, TARP 2.0, rate cuts, QE) it will have to
deploy much sooner than anyone previously expected as the crisis
spirals out of control.


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