It was Bound to Happen

Three banks in a week…gone.

Silvergate, Silicon Valley Bank and Signature Bank all seized by the FDIC. Two were involved with crypto and SVB due to a lack of risk management and heavy exposure to mortgage back securities and Treasury bonds that have deflated in value since Chairman Powell began raising rates.

The one that concerns me most is Silicon Valley Bank. Not because of its lack of oversight from a management perspective, but rather, how many other small banks are carrying MBS and Treasury they purchase when yield were below 3%. How many small midsize banks have the ability to manage interest rate risk at the level of some of the major banks, such as JP Morgan or Goldman Sachs? I doubt few have this ability. Which could put them in jeopardy.

The other concern I have is headline risk. I got a call today from a friend of mine who is a developer and holds much of his cash in a small bank. His concern was getting his money and then once he had his money, ‘what do I do with it?’, he asked. Ifthis small level developer is asking this question, chances are many other businesses are doing the same and their knee-jerk reaction will be to move money out of their banks, and purchase short term treasury bills or just hold it in cash. What I expect to happen this week is more layers of the onion being peeled back. More exposure to an interest rate risk and more banks asking for help. If the Fed continues to raise rates later this month, there is a good chance we could see a run on banks and a lot of band and corporate casualties.

Todays Market. What I am Considering.