Top financial regulators faced tough questions and even fielded blame from senators Tuesday, March 28 over the collapses of Silicon Valley Bank and Signature Bank. In a Senate banking committee hearing, representatives from the Federal Reserve, Treasury and Federal Deposit Insurance Corporation defended regulator actions that allowed the banks to fail while issuing a government-backed rescue of depositors.

At the heart of questioning Tuesday was where to place blame for the second- and third-largest bank failures in U.S. history.

“First, the bank was rife with mismanagement. Second, there was a clear supervisory failure. Our regulators are simply asleep at the wheel,” Sen. Tim Scott (R-S.C.) said.

Federal Reserve Vice Chair of Supervision Michael Barr, along with FDIC Chair Martin Gruenberg and Treasury Under Secretary for Domestic Finance Nellie Liang, detailed what led to the bank failures earlier in March and what regulators knew ahead of the collapse, particularly at SVB. All three officials will also testify in front of a House committee Wednesday, March 29.

Barr called SVB’s failure “a textbook case of mismanagement” in prepared remarks.

“SVB failed because the bank’s management did not effectively manage its interest rate and liquidity risk and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours,” Barr testified.

On Thursday, March 9, uninsured depositors at Silicon Valley Bank attempted to withdraw $42 billion in funds, around 20% of the bank’s total deposits. The following day, federal regulators took over the bank.

“It’s worth noting that these two institutions were allowed to fail,” Gruenberg said. “Shareholders lost their investment. Unsecured creditors took losses to the boards and the most senior executives were removed.”

Republican senators in particular questioned when regulators became aware that SVB had fundamental liquidity and risk issues. Regulators will release a public report on the investigation on May 1. They said the report will include confidential supervisory information on the banks and a more detailed timeline.

“Of all our supervisors, the Federal Reserve should have been keenly aware of the impact interest rate hikes would have on the value of the securities and it should have been actively working to ensure the bank and supervisors are hedging their bets and covering their risk accordingly,” Scott said.

Barr testified that supervisors did meet with bank management in the fall of 2021 to cite problems identified at SVB and said bank management failed to act on those recommendations.

During Sen. Elizabeth Warren’s (D-Mass.) testimony, she asked all three officials to affirm that they believe financial rules going forward, which they did.

“I anticipate the need to strengthen capital and liquidity standards for firms over $100 billion,” Barr added.

Silicon Valley Bank deposits are no longer under federal control . On Sunday, March 26, the Federal Deposit Insurance Corporation announced that North Carolina-based First Citizens BancShares has acquired $56.5 billion in deposits and $72 billion in loans from Silicon Valley Bank.

The regulatory agency estimates the collapse will cost its deposit insurance fund roughly $20 billion. The fund relies on fees from member banks and does not use U.S. taxpayer dollars.

First Citizens purchased the failed bank at a $16.5 billion discount and is hoping to leverage Silicon Valley Bank’s specialty in technology companies.

“Silicon Valley Bank overlaps our strengths in private banking, wealth management and small business banking,” First Citizens Chairman and CEO Frank Holding Jr. said in an interview with CNBC Monday morning. “What we look forward to learning and listening to is their market expertise in serving the tech and venture market and we’ll be adding a lot of associates with that capability.”

First Citizens has acquired more than 20 FDIC insured institutions since 2009, the bank said in a statement Monday, March 27. And the latest deal moves it into the top 15 banks in the nation, according to Bloomberg Intelligence. Silicon Valley Bank’s 17 locations in California and Massachusetts opened under its new parent company Monday morning.

The new bank will have to meet the expectations of a niche clientele that went to Silicon Valley Bank for very specific reasons. Eric Foster, co-founder of Woop Insurance, which turned to SVB after facing issues with East Coast regional banks.

“Every time I had to wire something it came up as fraudulent,” Foster told Straight Arrow News. “Because we had huge sums of money come in with basically no real reason for it outside of, yes, we are venture-capital backed and that is what the industry is, and then huge sums of money outflow in a really short period of time.”

“Commercial banking was the bane of my existence, because I would spend days just doing normal business transactions, and it had to actually be me, physically had to be the CEO of the company,” he explained.

Foster said Silicon Valley Bank’s reputation and ease of doing business there convinced him to make the switch. In the wake of First Citizens’ acquisition, Foster said it’s, “business as usual at this point.”

Straight Arrow News has been covering the collapse of Silicon Valley Bank and the crisis in the sector.

RELATED REPORTS:

• Why are banks collapsing and is your money safe in the bank?
• Is your money safe in the bank after Silicon Valley Bank failure?
• How Silicon Valley Bank Collapsed in less than 48 hours
• Exclusive: Ex-Credit Suisse director says UBS deal could worsen bank contagion
• Will federal regulators secure deposits at all failing banks like they did at SVB?
• Former FDIC chair: A ‘mistake’ to guarantee 100% of deposits at banks

Nations have always struggled to kick cigarettes for good. Quitting outright would require either a complete ban on possession and sales, or the entire population would have to just – stop. So far, the best solution has been a patch: the slow and steady release of regulation.

Smoking causes about 480,000 deaths in the U.S. each year, or four times as many as all drug overdoses combined. Those deaths are preventable, so… why not prevent them?

It’s not like car accidents, where one could argue the automobile’s benefits to society outweigh the overall costs (autos cause one-tenth the casualties as smoking). Cigarettes don’t have that kind of utility.

Dr. Ken Warner has 45 years of experience in tobacco policy and harm reduction. Professor Emeritus and Dean Emeritus of the University of Michigan’s School of Public Health, he’s written hundreds of publications and served on the original board of directors of the American Legacy Foundation, which later became the Truth Initiative and produced award-winning anti-smoking ads. He was also the World Bank’s representative on the international WHO Framework Convention on Tobacco Control, an international health treaty signed by more than 100 countries (but not the U.S.).

Straight Arrow News asked Dr. Warner if the United States, in consideration of such a high death rate, could ever ban smoking.

“The first thing you have to realize is that no country in the world has successfully banned cigarettes,” he replied, before adding, “The Kingdom of Bhutan has come close.”

Bhutan’s approach to prohibit tobacco lasted 16 years. A 2004 all-sales ban lead to a 2010 comprehensive ban. The latter resulted, mostly, in a higher prison population. Tobacco use remained steady throughout.

“In the 1600s, Sultan Myrad IV, of what is essentially now Turkey, prohibited all forms of smoking tobacco, and made it punishable by death,” Warner added. “He personally, in disguise, would walk around the streets and find people smoking and he would kill them on the spot. But that didn’t get people to quit smoking, which is itself pretty telling. This is powerful behavior.”

Cold turkey, indeed. Yet, in a world where nary a cigarette ban has survived long-term, New Zealand and Mexico may soon challenge that history.

“We have more regulation in this country on the safety of the sale of a sandwich than a cigarette,” New Zealand Associate Health Minister Ayesha Verrall stated in a public hearing for then-newly-proposed tobacco laws.

The island nation has changed that. Its new policies, now enacted, include a rising age limit. This will lead to a total ban on smokes down the road, because eventually no one alive will be able to buy them. In 2023, the minimum age to buy tobacco products is 15. In 2123, the minimum age will be 115.

Mexico, for its part, made smoking illegal in virtually all public spaces – indoor and outdoor – amounting to some of the strictest policies in the world.

What stops the U.S. from passing similar legislation?

“There are six southeastern states called the ‘tobacco states,’” Dr. Warner explained. “For decades, if you wanted to get anything done in the Senate, you had to make sure you had the tobacco bloc states with you, which meant in turn, that you couldn’t do anything against the tobacco.”

(The six states include North Carolina, Kentucky, Virginia, Tennessee, South Carolina and Georgia.)

At the local level, 15 states abolished cigarette sales in the 1890s, but according to the National Library of Medicine, “those laws all disappeared from industry pressure and the lure of tax revenues.”

In 1964, the surgeon general released its Earth-shattering report “Smoking and Health.” This report stated officially that smoking causes cancer and “contributes significantly to the overall death rate.” A well-established tobacco industry would not go quietly.

Warner was the senior scientific editor of the 25th anniversary surgeon general’s report in 1989 and contributed to the 50th anniversary report, as well as several in between.

Talk of smoking bans leads to philosophical concerns, as well, like the right to privacy and personal autonomy, even at the risk of one’s health and well-being.

In Warner’s words, “It’s largely a self-affecting behavior. Not exclusively, but there are people who philosophically are opposed to bans on anything that is largely self-affecting.”

The U.S. has experience with prohibition laws, of course, and that didn’t go well. As with Bhutan, a black market and the organized crime to serve it created a situation where the remedy was worse than the disease. In both cases, the laws were repealed.

Between the interests of profit, privacy and public health, harm-reduction has become the more practical approach. The world held its breath when Ireland banished all smoking from inside the workplace in 2004 and made it look easy.  Many countries and states followed suit, and many deaths have been avoided.

Back in the U.S., Congress passed, and President Obama signed, the Family Smoking Prevention and Tobacco Control Act in 2009. This legislation gave the FDA the authority and responsibility to regulate tobacco products.

“It had a lot of quirks in it,” Warner explainer, “and a lot of people who were critical of it, even calling it the ‘Marlboro Protection Act’, because they feel it was set up to protect cigarettes.”

The biggest ‘quirk’ was that any tobacco product on the market as of 2007 was grandfathered and essentially cannot be removed.  The FDA, whose mission is to protect the public health, is forced to leave what Warner calls “the most dangerous product in human history” on the shelves.

Warner recited the statistics from memory: “Cigarette smoke contains 7,000+ chemicals. Scores of them are known to be toxic to human beings. There are 70 known carcinogens, causes of cancer, included in cigarette smoke. It’s the single most dangerous product in human history and has killed far more people than any other product.”

Even so, as of 2009, prohibition of cigarettes in this country is, for all intents and purposes, off the table. Even regulation at the federal level can seem futile.

“They have to go through an incredible bureaucratic review process. And if they do manage to get something to the state where they’re going to announce that they’re planning to adopt a policy or regulation, all of a sudden there’s a flood of lawsuits from the tobacco industry,” Warner explained.

That can sometimes delay even the smallest action on federal tobacco policy for years. Graphic warning labels, common among many other countries’ harm reduction efforts, were intended to be placed on packs here in 2012. 10 years later, they’re still in the drawer.

“There are 90 to 100 countries around the world that have these kinds of labels, so we’re coming to this very, very late,” Warner told Straight Arrow News.

Since the 1964 surgeon general’s report, smoking has been on the decline — down 68% across the board. But according to Dr. Warner, the popularity of vaping and e-cigarettes has complicated the issue.

“I’ve been working in this field for 45 years, and this is one of the most interesting periods of history with regard to nicotine and tobacco,” Warner said. “And it’s also one of the most divisive, because the e-cigarette issue has completely divided the tobacco control community into: the mainstream of public health, which is focusing almost exclusively on the risk to kids (of vaping), and on the other side the harm reduction community who sees vaping as a way out of smoking for a significant subset of smokers.”

For better or worse, fully prohibiting cigarettes is simply not in America’s future. But, as Warner points out, the trends point to a demographic shift.

“It’s no longer the physician, or the lawyer, or the engineer,” he said. “Now it’s people from lower socioeconomic classes. It is minority groups, disadvantaged groups. It is people suffering from mental health problems or other addictions. And we’ve kind of written them off.  We’ve kind of forgotten about them, which is a public health tragedy.”

There are separate efforts in Congress to end normal trade relations between the United States and China. While the two bills by Rep. Chris Smith, R-N.J., and Sen. Josh Hawley, R-Mo., are slightly different, they would both significantly increase tariffs on goods imported into the United States from China.

The lawmakers believe increasing the tariffs will hurt China economically and give the United States an advantage.

“As an exporting economy, their survivability economically is completely dependent on how much of their goods they can send to the United States,” Rep. Smith said.

How much would tariffs increase?

If either of the bills are approved, popular items the U.S. imports from China would see tariff increases. 

• Video game consoles like Xbox and PlayStation would go from being tariff-free to 35%. 
• The $200 million of dog and cat food imported annually would increase from 0% to 10%. 
• The $23 billion of furniture and bedding that’s currently tariff-free in most cases would be 40% for items like wooden dining tables and cribs, and 45% for a light fixture.

“We don’t want to get any more dependent on China than we already are. That’s why this step is necessary, right now. Rebuild our manufacturing base, strengthen our working class, take on China,” Sen. Hawley said.

Here’s where the proposals differ

Smith’s proposal links U.S.-China trade relations to human rights. Every year, the U.S. would have to examine China’s human rights record and determine that the CCP is improving in its treatment of Uyghur Muslims and other ethnic minorities. If there is no improvement, the tariffs remain at the increased level. It used to be that way until President Bill Clinton delinked human rights from trade with China in 1994.

“We’re talking about a country in China that has so excelled in human rights abuse, torture, forced abortion, religious persecution, like almost nowhere else on Earth,” Rep. Smith said.

Hawley’s bill is focused on American workers. It would automatically increase tariffs as described earlier and give the president the authority to make them even higher.

Previous tariff increases

China has a history of retaliating after the United States increases tariffs. For instance, when former President Trump imposed tariffs on steel and aluminum in 2018, China responded with increases on fruits, meats, wine, tubing, piping and more. 

But the lawmakers aren’t concerned about that kind of retaliation.

“Let them follow through on it,” Rep. Smith said. “We should not be aiding and abetting an economy that props him up. And by him, I mean Xi Jinping, and by extension, the entire Chinese Communist Party.”

“We are already too dependent on China. We found that on COVID. I mean where are much of our critical supply chains located, China, where are too many of our medical supply chains located, China, again, our manufacturing China,” Sen. Hawley said.

Both lawmakers strongly disagree with the decision to allow China into the World Trade Organization (WTO) in 2001. They believe China’s WTO admittance, along with normalizing trade relations, has led to lost jobs in the United States as companies moved overseas for cheaper labor.

If Hawley’s bill is approved, it will take effect in two years. Smith’s legislation would take effect immediately.

Deutsche Bank is the latest financial institution to face significant pressure in March 2023, as its share price has fallen around 25% over the past month as of Friday, March 24. The harsh spotlight on Germany’s largest bank comes as the cost to insure the bank’s debt against default spiked to multi-year highs on Friday, March 24.

According to data from Refinitiv, the price of the bank’s credit default swaps – a type of insurance for bondholders – had its largest one-day spike on record on Thursday, March 23, but was still far below levels of the previous global financial crisis.

The global banking industry has been in turmoil since U.S.-based Silicon Valley Bank failed on March 10. The ripple effect traveled across the pond to Europe, leading to an emergency government-orchestrated buyout of Switzerland’s second-largest bank, Credit Suisse.

On March 19, UBS Group agreed to buy its struggling rival in a deal worth $3.25 billion. Credit Suisse has faced its share of troubles for years, but the stunning end to the 166-year-old institution continued to shake markets, as evidenced by Deutsche Bank’s latest troubles.

“Deutsche Bank is one from a global standpoint that has had trouble for years that you could almost put in a similar category, meaning they’ve just had problem after problem like Credit Suisse has,” a former Credit Suisse director Hal Lambert said Monday, March 20. “So I don’t know whether they have a risk of liquidity problem right now or not. But they’re certainly under a lot of pressure.”

That pressure came to fruition as Deutsche Bank saw $3 billion in market value wiped away in a week. But German Chancellor Olaf Scholz insisted Friday, March 24 the financial system is stable.

“Deutsche Bank has thoroughly reorganized and modernized its business model and is a very profitable bank. There is no reason for concern whatsoever,” Scholz said.

Deutsche Bank began a restructuring process in 2019 to reduce costs and improve profitability.

RELATED REPORTS:

• Is your money safe in the bank after Silicon Valley Bank failure?
• Former FDIC chair: A ‘mistake’ to guarantee 100% of deposits at banks

Artificial intelligence is already the next big thing, from OpenAI’s ChatGPT to Google’s Bard AI. But as generative AI platforms increasingly get in the hands of everyday people, could the technology end up on the wrong side of a lawsuit? Here is the legal action threatening AI in this week’s Five For Friday.

#5: Defamation

Chatbots have a tendency to make up facts. They are trained with a ton of data, but when given prompts, bots like ChatGPT don’t scrub the internet for new information. As a result, the AI sometimes convincingly spews sentences out of thin air, including quotes. This has journalists, lawyers and academics chatting about whether AI chatbots can be guilty of defamation. It would be pretty tough to prove a computer acted with malicious intent in spreading lies, but will the developers behind the AI platforms be held accountable?

#4: Intellectual Property Infringement

Character.AI lets users chat with their favorite fictional characters and real-life celebrities. Generative AI chatbots like this use available data in the ether to figure out how someone might respond. It can emulate text-based conversations with the likes of Kanye West or Keanu Reeves, among others. But it gets a little more legally murky when it offers the chance to converse with fictional characters like Luke Skywalker or Spider-Man. Is Disney going to continue to allow Character.AI, which is valued around $1 billion, to use its intellectual property, especially when it has no control over what is said?

#3: Deepfake

Machine learning has made way for deepfake technology, which allows users to take an existing video, replace the face and even replicate someone’s voice. These have been making waves on social media with videos featuring Tom Cruise and a number of politicians. But there are even more nefarious actors out there who use the AI to make pornographic material. As of right now, few states have laws on the books that specifically address the technology. In the week of March 19, 2023, TikTok said it won’t allow deepfakes of any “real private figure,” but it appears public personalities are still fair game, as long as it’s disclosed and they aren’t making any endorsements.

#2: Malpractice

Is it possible for AI to be guilty of malpractice? That’s a question being asked as part of a proposed class action lawsuit against DoNotPay. The company made headlines when it offered $1 million to anyone willing to use its “robot lawyer” to argue a case in front of the Supreme Court. Straight Arrow News even talked with DoNotPay CEO Josh Browder after he made the offer. But then he said he received “threats from state bar prosecutors” when he tried to use the AI lawyer in traffic court. The class action suit stems from a man that used the online service for a number of legal documents, claiming he received “substandard and poorly done results.” Concerns over AI malpractice can only get worse as people use the tech for medical advice, and who knows where it goes if AI therapy takes off.

#1: Copyright

Generative AI has to be fed a ton of information to be able to respond to user input and this can be a copyright law minefield. Getty Images is already suing Stability over its art crafted by AI Stable Diffusion. Getty’s suit claims the company scraped 12 million of its high-quality imagery to train the AI. Getty sells those images at a premium and has already made licensing deals to a number of AI companies. Artists also sued Midjourney, a similar AI platform that was used to generate images of every American president, but they look “cool” and have a mullet. Take a look at all of that glory instead of focusing on the people out there making fake AI images of former President Donald Trump being arrested.

Treasury Secretary Janet Yellen attempted to assure banking institutions on Tuesday that the U.S. is prepared to step in and help smaller banks facing bank runs that pose the risk of contagion. It was a more direct sign of support than she gave in testimony to senators last week.

One week ago, federal regulators took extraordinary steps to protect the uninsured customers of failed Silicon Valley Bank and Signature Bank. While the FDIC insures deposits up to $250,000, more than 90% of accounts at both banks were over that limit.

“Rest assured, they’ll be protected, and they’ll have access to their money as of today,” President Joe Biden said on March 13.

Unlike the bank bailouts of 2008, regulators did not use taxpayer money to make depositors whole. Instead, they drew from the government’s bank Deposit Insurance Fund, which FDIC-insured banks across the country pay into. The government said any losses to the fund would be backfilled by a special fee on banks.

“We felt that there was a serious risk of contagion that could have brought down and triggered runs on many banks,” Treasury Secretary Janet Yellen told senators on March 16.

LEARN MORE: Former Credit Suisse director says UBS deal could worsen bank contagion

A bank run happens when a large amount of customers attempts to withdraw money at the same time over fears surrounding the bank’s solvency. Because banks typically only hold a small percentage of assets in cash, withdrawal requests that exceed what they have on hand can cause insolvency, like with SVB. In one day, SVB customers attempted to withdraw 20% of the bank’s total deposits.

LEARN MORE: How Silicon Valley Bank collapsed in less than 48 hours

When a bank run happens, there is little a bank can do if it can’t unload assets in time. Customer fears can be exacerbated when their deposits are uninsured.

“Everybody’s insured up to $250,000, but these are small startups and other firms that have multimillion dollars – or cryptocurrency firms that are having a stablecoin, in the case of Signature [Bank] – where there’s bunches of millions of dollars, and they want to take them out. Because it will be uninsured, it will be frozen in this bank, short of what the regulators did over the weekend,” Public Citizen financial policy advocate Bartlett Naylor said. “Much as regulators and our president is trying to reassure us, this system runs on faith.”

And that faith is shaken. For more than a week, Americans have been pulling their money out of smaller regional banks and putting it into banks considered “too big to fail,” which has helped exacerbate the crisis of confidence in regional banks, from First Republic to PacWest.

LEARN MORE: Is my money safe in the bank?

While the federal government made the decision to fully secure the uninsured deposits at Silicon Valley Bank and Signature Bank, Yellen initially said banks will only get that treatment if the federal government believes letting it fail would create systemic risk and significant economic consequences. This has led some to accuse Yellen of picking favorites.

“What is your plan to keep large depositors for moving their funds out of community banks into the big banks?” Sen. James Lankford, R-Okla., asked Yellen. “We have seen the mergers of banks over the past decade. I’m concerned you are about to accelerate that by encouraging anyone who has a large deposit in a community bank to say, ‘We are not going to make you whole but if you go to one of our preferred banks, we will make you whole.’”

“That’s certainly not something that we’re encouraging,” Yellen answered. “That is happening right now because depositors are concerned about the bank failures that have happened and whether or not other banks could also.”

On Tuesday, Yellen clarified U.S. support in prepared remarks to the American Bankers Association, noting that actions similar to those taken at Silicon Valley Bank and Signature Bank could be taken at smaller institutions that suffer bank runs.

“The situation is stabilizing,” she added. “And the U.S. banking system remains sound.”

Since the swift collapse of Silicon Valley Bank, the entire banking system has been in turmoil. The news of failed and struggling banks has left millions of Americans with pressing questions.

Some of the breakout searches on Google this past week include: What caused the banking crisis? Are we headed for a depression? Is my money safe in the bank?

In this special report and the reports to follow, Straight Arrow News is working to answer these questions, provide the context behind what’s happening and bring on experts to tell us what they think is coming next in banking.

What happened to Silicon Valley Bank?
Click here to go straight to this video.

The California bank was a bit of a special breed. It called itself, “the financial partner of the innovation economy,” and claimed to bank nearly half of all venture-capital-backed startups in the U.S. In other words, it had a pretty homogenous client base.

Commercial banks usually make money by taking in customer deposits and then using that money to dish out loans to other customers, earning money on the charged interest. But for the past couple of years, many of SVB’s customers didn’t really need loans. The startup world was flush with venture-capital cash because with low interest rates, money was cheap. By the end of 2022, SVB said it had $212 billion in assets.

In lieu of providing more loans, SVB used a lot of its assets to buy up large amounts of interest-bearing government bonds, and planned to hold those bonds until they matured. Here’s where its problem started.

With inflation at 4-decade highs, the Federal Reserve started rapidly hiking interest rates starting in March 2022. Money started draining out of the startup world and SVB’s customers needed to take out their money to pay bills and make payroll. But SVB had a lot of it tied up in these bonds. And because interest rates had gone up, their lower-interest-yielding bonds were worth less on the open market.

On Wednesday evening, March 8, SVB announced in a press release that they were trying to raise money by selling more shares. The bank also said they sold $21 billion worth of bonds at a $1.8 billion loss. It was trying to shore up its balance sheet and add liquidity but it caused its customers to panic. Big-time VC firms started telling startups to pull their money and it triggered a bank run.

On Thursday alone, March 9, customers attempted to pull out $42 billion, 20% of the bank’s total assets. That’s way more cash than any bank is required to have on hand and SVB certainly didn’t have it liquid.

“We wired out the money yesterday, but Silicon Valley Bank did not honor our wire,” Shelf Engine CEO and SVB customer Stefan Kalb said March 10. “So we were not able to move any of our cash out of our bank account. Unless someone comes in and is able to support Silicon Valley Bank through an acquisition, through other means, a lot of us are going to be in a very painful situation very quickly. And so the big ask is for the federal government to come in and step in.”

By Friday, March 10, federal regulators took over the bank and shut it down. Two days later, on Sunday, New York-based Signature Bank became the next casualty as customers there worried their deposits would also be unsafe.

Stopping a nationwide bank run
Click here to go straight to this video.

A bank run happens when a large amount of customers attempt to withdraw their money at the same time over fears surrounding the bank’s solvency. Because banks typically only hold a small percentage of assets in cash, withdrawal requests that exceed what they have on hand can cause insolvency, like with SVB.

When a bank run happens, there is little a bank can do if it can’t unload assets in time. Customer fears can be exacerbated when their deposits are uninsured.

“Everybody’s insured up to $250,000, but these are small startups and other firms that have multimillion dollars – or cryptocurrency firms that are having a stablecoin, in the case of Signature [Bank] – where there’s bunches of millions of dollars, and they want to take them out. Because it will be uninsured, it will be frozen in this bank, short of what the regulators did over the weekend,” Public Citizen financial policy advocate Bartlett Naylor said.

One week ago, federal regulators took extraordinary steps to protect the uninsured customers of failed Silicon Valley Bank and Signature Bank. While the FDIC insures deposits up to $250,000 (more on that below), more than 90% of accounts at both banks were over the limit.

“Rest assured, they’ll be protected, and they’ll have access to their money as of today,” President Joe Biden said on March 13.

Unlike the bank bailouts of 2008, regulators did not use taxpayer money to make depositors whole. Instead, they drew from the government’s bank Deposit Insurance Fund, which FDIC-insured banks across the country pay into. The government said any losses to the fund would be backfilled by a special fee on banks.

“We felt that there was a serious risk of contagion that could have brought down and triggered runs on many banks,” Treasury Secretary Janet Yellen told senators on March 16.

“Much as regulators and our president is trying to reassure us, this system runs on faith,” Naylor said.

And that faith is shaken. For more than a week, Americans have been pulling their money out of smaller regional banks and putting it into banks considered “too big to fail,” which has helped exacerbate the crisis of confidence in regional banks, from First Republic to PacWest.

While the federal government made the decision to fully secure the uninsured deposits at Silicon Valley Bank and Signature Bank, Yellen said banks will only get that treatment if the federal government believes letting it fail would create systemic risk and significant economic consequences.

“What is your plan to keep large depositors for moving their funds out of community banks into the big banks?” Sen. James Lankford, R-Okla., asked Yellen. “We have seen the mergers of banks over the past decade. I’m concerned you are about to accelerate that by encouraging anyone who has a large deposit in a community bank to say, ‘We are not going to make you whole but if you go to one of our preferred banks, we will make you whole.’”

“That’s certainly not something that we’re encouraging,” Yellen answered. “That is happening right now because depositors are concerned about the bank failures that have happened and whether or not other banks could also.”

Is money safe in the bank?
Click here to go straight to this video.

This is one of the most important questions to answer, and the short answer is yes, up to $250,000. Now here’s the longer answer and how to maximize coverage beyond $250,000.

Most banks are FDIC-insured. As long as a customer banks with a FDIC-insured bank, the money is safe up to $250,000, per account owner, per account type, per institution.

That means if a couple is married and has a joint bank account in Bank A, they could have up to $500,000 insured between the two of them. One of them could also have a single owner account at the same institution and be covered for an additional $250,000 in that account. The FDIC explains on its website the different account types one can use to spread out coverage. Money market deposit accounts are also insured up to $250,000.

A single person who has more than $250,000 to bank can also divvy it up into different institutions and be covered. That person could put $250,000 in Bank A, $250,000 in Bank B, $250,000 in Bank C, and so on.

Credit unions also come with a similar $250,000 guarantee. Instead of the FDIC, the National Credit Union Administration is what secures credit union deposits up to $250,000. So from credit union to small community bank to so-called “too big to fail” institution, under that limit, money is safe in the bank.

Credit Suisse is the latest bank to fall
Click here to go straight to this video.

As banking turmoil spreads around the world, over the weekend Switzerland’s largest bank agreed to buy its struggling rival, Credit Suisse, in a deal worth $3.25 billion. Credit Suisse has faced its share of troubles for years, but the stunning end to the 166-year-old institution is continuing to shake markets.

Swiss authorities cut a deal with UBS to acquire Credit Suisse, which includes $280 billion in state and central bank support, according to Reuters reporting of the deal documents. That is equal to about a third of the country’s gross domestic product. Yet Swiss Finance Minister Karin Keller-Sutter insisted the move is not a bailout, but a commercial solution needed to stop potential contagion.

“I don’t think it’s going to [stop contagion] at all, I think it’s going to exacerbate it,” said Hal Lambert, founder of Point Bridge Capital and a former director at Credit Suisse. “What you’ve created is this monstrous bank in Switzerland… you have one institution now that literally could collapse the Swiss economy if it were to have a problem. So this is not the end of things, this is the very beginning of something they’re going to have to work through over many years to try to reduce that systemic risk.”

Lambert said the forced takeover could create even more fear. Global markets wobbled Monday on the news before rallying on hopes the banking crisis is easing.

It all started with the March 9 bank run and subsequent collapse of Silicon Valley Bank, followed by the failure of Signature Bank. By the time Credit Suisse released its annual report on March 14 declaring the bank had found “material weakness” in its financial reporting, faith in the institution was shaken.

“[Credit Suisse has] had problems for years and they’ve lost billions of dollars in bad decisions. It’s really been poorly managed for the last few years,” Lambert said. “Swiss National Bank should have started a much longer time period ago, they should have been on this a couple of years ago and looking for solutions to reduce the risk of Credit Suisse.”

Lambert said he believed had U.S. banks not triggered turmoil, Credit Suisse would still be standing today. But the obvious cracks at Credit Suisse made it vulnerable to a takeover, which Swiss regulators orchestrated with UBS.

“Let me be very specific on this: UBS intends to downsize Credit Suisse, its investment banking business, and align it with our conservative risk culture,” UBS Chairman Colm Kelleher said Sunday.

“I think there’s gonna be a lot of layoffs,” Lambert predicted, along with more outflows from investors who had assets at both banks. “When you combine them, they’re going to look out and go, ‘Wait, I don’t want to have this much at one bank now, because I’ve already spread my risk out.’”

In a country that relies on financial services to drive its economy, Lambert said the pressure is on Switzerland to make sure the end of its No. 2 bank does not mark the beginning of a banking crisis in the country.

LEARN MORE: Former FDIC Chair calls guaranteeing 100% of deposits at banks a ‘mistake’

It’s a big week ahead in business with banks in crisis. The Federal Reserve is meeting Tuesday, Mar. 21 and Wednesday, Mar. 22. Will its fight against inflation take a backseat to the banking crisis? Or will it still hike rates despite the turmoil? Stay with straightarrownews.com for unbiased, straight facts.

It took less than 48 hours for Silicon Valley Bank to fall from the preferred startup and venture capital bank with $200 billion in assets to being irreparable. Since its collapse and federal takeover, fears have spread throughout the global banking sector, leading to closures of other banks.

The California bank was a bit of a special breed. It called itself “the financial partner of the innovation economy” and claimed to bank nearly half of all venture-capital-backed startups in the U.S. In other words, it had a pretty homogenous client base.

Commercial banks usually make money by taking in customer deposits and then using that money to dish out loans to other customers, earning money on the charged interest. But for the past couple of years, many of SVB’s customers didn’t really need loans. The startup world was flush with venture-capital cash because with low interest rates, money was cheap. By the end of 2022, SVB said it had $212 billion in assets.

In lieu of providing more loans, SVB used a lot of its assets to buy up large amounts of interest-bearing government bonds and planned to hold those bonds until they matured. Here’s where the bank’s problem started.

RELATED REPORTS

• Exclusive: Ex-Credit Suisse director says UBS deal could worsen bank contagion

• Will federal regulators secure deposits at all failing banks like they did at SVB?

• Is your money safe in the bank?

With inflation at 4-decade highs, the Federal Reserve started rapidly hiking interest rates starting in March 2022. Money started draining out of the startup world and SVB’s customers needed to take out their money to pay bills and make payroll. But SVB had a lot of it tied up in these bonds. And because interest rates had gone up, their lower-interest-yielding bonds were worth less on the open market.

On Wednesday evening, Mar. 8, SVB announced in a press release it was trying to raise money by selling more shares. It also said it sold $21 billion worth of bonds at a $1.8 billion loss. The bank was trying to shore up its balance sheet and add liquidity but that caused its customers to panic. Big-time VC firms started telling startups to pull their money and it triggered a bank run.

On Thursday alone, Mar. 9, customers attempted to pull out $42 billion, 20% of the bank’s total assets. That’s way more cash than any bank is required to have on hand and SVB certainly didn’t have it liquid.

“We wired out the money yesterday, but Silicon Valley Bank did not honor our wire,” Shelf Engine CEO and SVB customer Stefan Kalb said Mar. 10. “So we were not able to move any of our cash out of our bank account. Unless someone comes in and is able to support Silicon Valley Bank through an acquisition, through other means, a lot of us are going to be in a very painful situation very quickly. And so the big ask is for the federal government to come in and step in.”

By Friday, Mar. 10, federal regulators took over the bank and shut it down. Two days later, on Sunday, Mar. 12, New York-based Signature Bank became the next casualty as customers there worried their deposits would also be unsafe.

When Silicon Valley Bank collapsed, more than 90% of its accounts were uninsured. Federal regulators took extraordinary measures to secure customers’ uninsured deposits at both SVB and Signature Bank, but Treasury Secretary Janet Yellen has warned not all banks will get the same treatment.

Yellen told senators that uninsured bank deposits would only be secured if the federal government believed letting a bank fail would create systemic risk and significant economic consequences. Given that, customers around the country have started pulling money from smaller banks and depositing them into larger banks, further exacerbating the pressure on regional and community banks.

LEARN MORE: Will federal regulators secure deposits at all failing banks like they did at SVB?

Many more are wondering if their money is safe in the bank. It was a breakout search on Google this past week.

This is one of the most important questions to answer, and the short answer is yes, up to $250,000. Now here’s the longer answer and how to maximize coverage beyond $250,000.

Most banks are FDIC-insured. As long as a customer banks with a FDIC-insured bank, the money is safe up to $250,000, per account owner, per account type, per institution.

That means if a couple is married and has a joint bank account in Bank A, they could have up to $500,000 insured between the two of them. One of them could also have a single owner account at the same institution and be covered for an additional $250,000 in that account. The FDIC explains on its website the different account types one can use to spread out coverage. Money market deposit accounts are also insured up to $250,000.

A single person who has more than $250,000 to bank can also divvy it up into different institutions and be covered. That person could put $250,000 in Bank A, $250,000 in Bank B, $250,000 in Bank C, and so on.

Credit unions also come with a similar $250,000 guarantee. Instead of the FDIC, the National Credit Union Administration is what secures credit union deposits up to $250,000. So from credit union to small community bank to so-called “too big to fail” institution, under that limit, money is safe in the bank.

LEARN MORE: How Silicon Valley Bank collapsed in less than 48 hours