Another One Bites The Dust
Please Note: This column was written Saturday, prior to all the latest news. It was just a train of thought I had then. I will write more on this today. After I follow the news as it develops.
The failure of Silicon Valley Bank last week has got me thinking. (Uh oh). Yes, I am thinking about the financial crisis of 2008 and what this particular failure may mean for the banking industry in 2023.
I am not banking expert but in simplistic terms this failure could have reverberations through the banking industry and I think it is possible that we could see a much keener eye cast on banks of similar ilk. Ok, a keener eye doesn’t mean that depositors will start making a run on one or many banks that have occupied this space. However a wary eye is not a good eye.
The potential is what scares everyone and you have to respect that but the reality is, while this bank has failed it doesn’t mean that every penny that was deposited was lost. Put aside the FDIC coverage for a few minutes. They handle a small portion of the depositor base at this particular bank. Big money VC’s and PE guys were their main customers. This bank was not some sophisticated Ponzi scheme or a bank that lent to bogus mortgage companies. They obviously were a solid part of the Tech infrastructure that made several bad decisions without properly explaining what they were trying to do. Bad business decisions for a bank can often lead to losses but rarely are they fatal.
The loss, as we can see now from news reports is roughly 1.5 billion dollars. Nothing to sneeze at but not enough to take down a bank of this size. It is never a good look when the FDIC comes in and customers can’t access their accounts. Fine, I get that. Businesses run their business through their banks and that is where part of the reverberation will come from. Companies that have bank accounts at SVB will not be able to access those accounts and pay creditors. OK. That sucks and it, along with all the other bad news coming out of Silicon Valley has really put a damper on that booming gold rush in and around San Fransisco Bay Area for sure but a lot of companies have accounts at other banks around the Valley and they will meet their obligations, albeit a little tardy.
This will take time but it will eventually work itself out.
The bigger issue is what is this banks relationship with the various cowboys in the cryptocurrency world and what will be the actual fallout in that world.
Look, I could care less about anyone or anything related to crypto. I have said it a million times, it is a scam and it will continue to be one until it runs it’s course and causes pain for all the fools who banked on it to make themselves rich.
That being said, the ties that bind SVB to different crypto entities might actually be the real disaster here. 175 billion dollars of assets did not just disappear. Depositers will be made whole and they will put their money in the next bank dedicated to their specific needs. Used to happen in the oil patch about once a month. This is our new oil patch, they will figure it out. The damage to smaller banks will more than likely be to their stock value and that will eventually recover as well.
I cry not for the banking sector.
I certainly don’t cry for those crypto lads either. The failure of this bank. The failure of several other Tech related funds, crypto operations, depositories, etc. has not deterred people all that much. They believe that Bitcoin or any of the 4,900 different cryptocurrencies will make them rich and they keep going after that elusive golden ticket.
You ask, how do I connect a pile of mismanaged assets that will eventually be taken over and redistributed to that pile of dog crap that is the crypto universe? Simple. Several cryptocurrency operators used SVB for deposits and for managing the assets of those crypto shiesters. Locking up any sort of crypto account tends to send shudders through the whole universe and that is what we will be seeing this week.
Bank runs tend to play out over a fairly long period of time. First, there is the rumor. Then a major depositor gets his money out. Then he tells his greedy little friends to do the same. Then the run gets out and the first guy tells the WOrld how smart he is and the rest of the fools are holding an account statement with no way to access it.
Obviously, it is a lot more complex than that but I like it simple and that is as simple as it gets. The PE and Venture Capital world have been having a bit of a hard time this year. Stock prices have not had that glorious start they were looking for. They own a ton of portfolio companies they are looking to monetize and the environment has not been great for maximization. Now this. They will survive and they will figure it out and at the end of the day they will get their deposits out.
The damage might be to that space occupied by the Tulip Bulb backers and crypto enthusiasts however. With Stablecoin UDC breaking the dollar barrier this weekend, I think the confidence in this sector is waning and it may mean much bigger things (none of it good) for the cryptocurrency industry.
It may not.
I like to gamble but betting on the success or failure of cryptocurrency is a fools game. I hate the space. I will never invest one penny in it ever and I try and talk anyone and everyone off that ledge.
One last thing and of course I don’t know any of this for a fact but I am pretty sure this bank will be rescued quickly. In the manner that banks were rescued during the financial crisis. Yes, Joe Biden will right a nice check and all will be forgiven.
Why? “In our Nation’s financial interest”. Yeah right. Look at the depositors that stand to lose the most. They are all very large political contributors. Very big. Time for a favor to be repaid?
Am I too cynical?