2nd bank, Signature Bank, collapses after the fall of Silicon Valley Bank.

 

A man withdraws cash from Signature Bank. CNBC/Reuters.

A 2nd bank, the New York based Signature Bank, has collapsed after last Friday's collapse of the Silicon Valley Bank. CNBC. The bank was a large funder of cryptocurrency. Regulators shut down the bank in order to stop the crisis from spreading. The FDIC said that depositors will be made whole and the funds to do so won't come from the taxpayer. The bank is the 2nd major bank to fail recently, as Silicon Valley Bank collapsed on Friday due to a bank run. While depositors at both banks will be getting their money back, bond holders and equity holders are going to be wiped out. 

My Comment:

Before we start I will say that economics are far from my area of expertise. I have a basic understanding of what is going on, which is probably better than a lot of people. But don't take my word on this subject as gospel. 

What is happening is that both banks had runs on their accounts due to bad financial news for both banks. The banks did not have the cash on-hand to cover the wave of withdrawals and that is what caused the collapse. Why they didn't have the cash on-hand to cover the withdrawals is a bit more confusing. From what I understand for SVB was that they had not been getting enough returns from government treasury bills. The rate of return for T-bills had been killed due to extreme inflation. 

Everyone's question on Friday was if this was going to continue. Now that we know it will, the real question is how bad are things going to get. Is this a 2008 style financial collapse or is it a 1930's style depression. Right now it's too early to tell and it will depend on how well the Biden administration, the Federal Reserve and the FDIC handles it. 

The FDIC is trying to stop the bleeding. Though much of the money that was lost here was uninsured, the deposits will be made whole due to their insurance program anyways. The theory is that this will reduce panic and will prevent people from trying to make runs on other banks. Apparently that didn't work because there was a 2nd run, this time on Signature Bank. 

The Biden administration? They are out to lunch, like usual. Biden's off in Delaware this weekend, again. And even if he was here I doubt he would do anything effective. Biden has a long history of doing exactly the wrong thing. In a sane world we would have a president that would get on TV and calm the country and hopefully stop the panic. But instead, he's just as absent as he was during the East Palestine train derailment. 

What happens tomorrow is going to be very important. If the panic continues and there are runs on more banks we could have a major economic collapse on hand. Indeed, the SVB may have wiped out a lot of startups, who might not get their money in time to keep operating. That could happen across the entire economy, which could lead to a lot of businesses either downsizing or going out of business entirely.