Deprcon warning (Free)
SVB and the banking sector
Errata corrected on 13 March (customers notified by email).
During the weekend, we received information on the dire straits of the capital base of regional banks in the U.S., which have deteriorated heavily during 2022. This reflects the collapse in the Tier 1 capital share to risk-weighted assets our CEO Tuomas Malinen reported in his newsletter on 24 February. Alas, the collapse of the SVB is a sign of a wider problem, and it’s no wonder that bailout measures are being taken by authorities across the globe.
HSBC bank has bought the British arm of SVB (with £1) and the Federal Deposit Insurance Corporation (FDIC) has created a Deposit Insurance National Bank (DINB) to handle the insured deposits of the SVB. However, questions remain what will be done to uninsured deposits in the U.S., which are are expected to be large.
The risk of a contagion are real with one New York bank, Signature Bank, already failing. The Federal Reserve is providing funding to depository institutions. Shareholders and certain unsecured debtholders of SVB will not be protected from losses. This creates a risk of a contagion.
We recommend to take precautionary action against wider banking system issues, while we do expect that the authorities in Europe and in the U.S. will do their utmost of stopping the contagion. We will naturally analyze the situation thoroughly. The analysis will be published in the newsletter of Tuomas (and provided here) later this week.
Disclaimer:
The information contained herein is current as at the date of this entry. The information presented here is considered reliable, but its accuracy is not guaranteed. Changes may occur in the circumstances after the date of this entry and the information contained in this post may not hold true in the future.
No information contained in this entry should be construed as investment advice. Readers should always consult their own personal financial or investment advisor before making any investment decision, and readers using this post do so solely at their own risk.
Readers must make an independent assessment of the risks involved and of the legal, tax, business, financial or other consequences of their actions. GnS Economics nor Tuomas Malinen cannot be held i) responsible for any decision taken, act or omission; or ii) liable for damages caused by such measures.