Back to the Wild West

The resurgence of unstable banking

Issues contributed:

• The general narrative told on the collapse of SVB and Signature Bank has been mostly ‘smoke and mirrors’.

• The characteristics of the failures of SVB and Signature Bank send a dire warning on the overall health of the U.S. banking system (see our warning).

• The U.S. system has, effectively, returned to the era of unstable banking of the 1800’s.

While the acute phase of the renewed global financial crisis seems to have subsided, for now, questions abound. Why did the SVB and Signature Banks fail? Could this occur with another bank? Are banks safe?

Authorities, media outlets and analysts have provided varying explanations on the failure of Silicon Valley Bank (SVB), ranging from “textbook case of mismanagement” to the high share of held-to-maturity assets (government) bonds, causing a devastating liquidity crisis for the bank, and further blaming the high share of uninsured deposits. It turns out that not one of these are correct, in actuality. They have most likely been told to the public to calm the smoldering panic among depositors.

The most troubling thing is not that SVB and Signature Bank collapsed, or why, but how they collapsed. It carries a chilling warning on the banking system returning to an era, where banking panics were the norm.

It’s now also obvious that the GFC 2.0 started on 28 September 2022, when the Bank of England (BoE) was forced to step back in the gilt (U.K. government bond) markets to halt the ensuing collapse of British pension funds. The collapse of SVB, Signature Bank and Credit Suisse were just the 'second act’ of the global financial crisis, with many more acts likely to come.

Please go and check our Special Issue on the GFC 2.0 to obtain a comprehensive picture of what happened and what can be expected. I effectively continue, where we left off.

The “mystery” of the collapse of SVB

The ‘smoke and mirrors’, concerning the collapse of SVB and Signature, relate to their financial positions.