In a week of U.S. banking turmoil following the failures of Silicon Valley Bank on March 10 and Signature Bank of New York on March 12, Odeon Capital Group analyst Dick Bowe declared on Thursday that the crisis was “over” and that the industry had “solved its own problems.” Silicon Valley Bank (which A subsidiary of SVB Financial Group SIVB, -60.41% ) quickly failed after taking losses while selling securities to raise cash to cover larger-than-expected deposit outflows stemming from “elevated cash burn levels” among its clients, venture-capital firms. incl. Greg Robb explained how the perfect storm led to SVB’s collapse. Signature Bank of New York (which was held by Signature Bank Corp. SBNY, -22.87%) had a diverse business model, but it has evolved in recent years. The services of the virtual-currency exchange and related companies suffered reputational damage, particularly after the bankruptcy of FTX in November, until state regulators decided to close the bank. The flow quickened. Following the failure of Signature Bank, the Treasury Department, the Federal Reserve and the FDIC took two extraordinary actions on March 12. First, they said that all depositors in the two failed banks would have full access to their money, including uninsured deposits. Regulators also said the Fed had established a new lending facility that would allow banks to take out new loans secured by their security holdings at par or face value. This means that banks in need of increased liquidity will not be forced to sell bonds at a loss after rising interest rates drive down their market values. But those measures haven’t stopped the run on deposits at First Republic Bank FRC, -32.80% of San Francisco. In the fourth quarter, First Republic was one of several large regional US banks whose interest margins narrowed from a year earlier. Following regulators’ actions on March 12, First Republic said its liquidity and capital remained “very strong,” not only because of the Fed’s new lending facility, but because of “continued access to funding through the Federal Home Loan Bank.” [of San Francisco], and the ability to access additional credit through JPMorgan Chase & Co.” Even after all that, the run on deposits continued at First Republic. Between March 10 and March 15, its overnight borrowings from the Federal Reserve at an interest rate of 4.75% ranged from $20 billion to $109 billion. After the bank provided updated information, Jefferies analyst Ken Yusdin estimated that “total deposit outflows could be up to $89. B,” in a note to clients on Friday. But the good news on Thursday was that a group of big banks led by JPMorgan Chase JPM, -3.78% agreed to deposit $30 billion into First Republic. Many of these are due to people and companies moving their money out of regional banks. Banks saw a huge outflow of deposits. Bowe wrote in a note to clients late Thursday that it appeared the US banking industry was “coming together to address the industry’s problems,” to prevent a run on deposits at “banks of any meaningful size.” There will be enough money available. It appears the federal government was “off the hook.” In a note Tuesday, Bowe predicted Royal Bank of Canada RY, -2.74% would renew its efforts to acquire First Republic. Usdin also believes that “the FRC is likely to find a buyer,” because the bank “could have negative forward earnings as a stand-alone entity.” More on the latest banking industry and regulatory developments: How a Business Owner Coped After the Death of Silicon Valley Bank’s Skift CEO Rafat Ali handled it. Photo courtesy of Skift A dire financial event may seem remote if you aren’t directly affected, but individuals can weather the upheaval. Silicon Valley Bank, its holding company estimates, had $151.5 billion in uninsured deposits as of Dec. 31. Between the bank failure on March 10 and federal regulators’ promise to cover all deposits on March 12, many companies had reason to worry. About Roku Inc. ROKU, -1.44% , for example, said on March 10 that $487 million, or 26% of its cash, was on deposit at SVB, most of which is uninsured. Beth Pinsker interviews Rafat Ali, CEO and founder of Skift, who initially thought his business was “done.” Here’s how Ali and his team scrambled to save their business over the weekend after the Silicon Valley bank failed. Depositor fears spread to Europe Arnd Wiegmann/Getty Images Credit Suisse Group AG CS, -6.94% has had its own liquidity problems, which the Swiss National Bank has addressed with a backstop it announced Wednesday. Credit Suisse said it would borrow about $54 billion through the new facility on Thursday. Read: Shares of Credit Suisse drop for worst week since 2008 financial crisis Are your bank deposits safe? Anyone with bank deposits wants safety as part of the trade-off for lower returns. Getty Images/iStockphoto Typical savers at US banks are probably comfortable enough that the FDIC’s basic deposit insurance limit is $250,000. But you might also be surprised to learn that an estimated 43% of all US deposits were uninsured as of December 31, according to the FDIC. As we have seen, such high levels of uninsured deposits can mean that a bank (and its shareholders) can quickly land in hot water. It turns out that depending on how your bank accounts are registered, you can have more than $250,000 insured through the FDIC at a single bank. CD Moriarty shares strategies for maximizing your insured deposits. More: Where Should You Put Your Cash Amid Banking Fears? Financial advisors give tough love. Will the bank turmoil stop the Fed from raising interest rates? Federal Reserve Chairman Jerome Powell will speak again on March 22 about the central bank’s policies to reduce inflation. Anna Moneymaker/Getty Images Rising interest rates are a mixed bag for banks. So far, rates paid by businesses for deposits have risen at a slower pace, compared to the pace of increases in loan rates. That’s why U.S. banks’ combined net interest margin expanded to 3.37% in the fourth quarter from 2.55% a year earlier, according to the FDIC’s Quarterly Banking Profile. But as interest rates rise, bond market values automatically fall. Due to which there has been pressure on the capital level of banks. Due to this, the Silicon Valley Bank also faced a lot of trouble. So will the Federal Reserve take a break from raising interest rates after the Federal Open Market Committee meeting on March 21-22? Most economists expect the Fed to raise the target range of the federal-funds rate by another 25 basis points following the European Central Bank’s 50 basis-point move on Thursday, Greg Robb reports. What’s next for more venture capital and startup companies on the economy and central-bank policies? The California venture capital community lost an important pillar of support when Silicon Valley Bank failed. Nathan Vardy explains how Silicon Valley Bank built strong relationships with venture-capital firms over the decades. Related coverage: Should you buy bank shares now? One approach to picking bank stocks in a tough environment for the industry is to “go big,” because the biggest banks have such diversified businesses, according to Michael Brush. Robin Beck/Agence France-Presse/Getty Images KBW The Nasdaq bank index BKX, -5.25% fell 28% in March. This is the type of event that will cause some investors to start looking for opportunities among strong players in a depressed sector. As always, the buyer should beware: It’s best to do your own research to form your own opinion about a company’s long-term viability before buying an individual stock. That said, Michael Brush has four tips for investors looking to buy bank stocks now. Read ahead: Reality Check MarketWatch for the Investor Illustration Quentin Fottrell — The Moneyist — answers questions from a reader who bought a stock based on the recommendation of an analyst working for a large brokerage firm, only to see the share price drop. Difficult question: ‘My family is facing significant trauma’ – my father secretly married his carer, who is 40 years his junior. What can we do? Want more from MarketWatch? Sign up for this and other newsletters and get the latest news, personal finance and investment advice.
