ResearchThree Things (3/13)

Three Things (3/13)

Mar 13, 2023

While the financial crisis destroyed careers and reputations, and left many more bruised and battered, it also left the survivors with a genuine sense of invulnerability at having made it back from the brink. Still missing in the current environment is a genuine sense of humility.” - Andrew Ross Sorkin, Too Big to Fail

Silicon Valley Bank 

What a 72 hours. The global business community was on edge the entire weekend waiting for the results of the Silicon Valley Bank dilemma - the second-largest collapse of a financial institution in US history. It seemed like the Twitter crowd had formed a rough consensus by midday Saturday: let the bank fail; but save the depositors. And that’s exactly what happened. In the dying moments of the weekend (the US Gov’t had until 6pm ET Sunday to figure this out before equity future markets opened), Janet Yellen & Co saved the day:

“Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” (Press Release)

Signature Bank

It didn’t just stop there. The third-largest collapse of a financial institution in US history also happened over the weekend. Signature Bank, a New York-based bank with deep ties to the real estate and crypto industry, was closed by regulators Sunday after failing to find a buyer or another solution to shore up its balance sheet. 

“Signature Bank came under the spotlight with the collapse of the FTX crypto exchange late last year. FTX had accounts with Signature Bank, which the company said represented less than 0.1% of its overall deposits. In December, after FTX’s collapse, Signature said it planned to shed as much as $10 billion in deposits from digital-asset clients.” (Bloomberg)

Market Reaction: Crisis Averted

Naturally, a lot of derivative thinking began to emerge over the weekend as well. The biggest risk being discussed was the possible mass contagion in the banking sector and “flight to quality,” leading Americans to pull their capital out of regional banks into one of the Big Four. As of the time of this writing, equity futures were up, implying the market believes that the Fed did in fact restore confidence.

“Stock futures jumped Sunday evening after regulators announced a plan to backstop all the depositors in failed Silicon Valley Bank and make additional funding available for other banks. S&P 500 futures gained 1.1% and Nasdaq 100 futures rose 1.2%. Futures tied to the Dow Jones Industrial Average were up by 265 points.” (CNBC)

As of writing this newsletter, Twitter is a 5.33% holding in the ARK Venture Fund.

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