It's 2008 Again: $110 Signature Bank Goes Under

Federal banking regulators made the difficult decision to close New York-based Signature Bank (NASDAQ:SBNY) before Monday after a turbulent weekend, citing systemic danger. As SVB Financial Group (SIVB), one of the biggest banks in America, failed on Friday, tensions were at an all-time high. On Sunday, the FDIC, Fed, and Treasury issued a press release describing the federal actions to current events. Important elements of the government's strategy to address the impending banking crisis:

‍

• The SVB and Signature Bank will promptly return all deposits to customers. Today, both banks are closed. Almost definitely, the preferred and common shareholders will be eliminated, and general creditors will receive any remaining funds after paying depositors. Nonetheless, this means that businesses who rely on SVB funds to pay employees can sigh with relief.

‍

• Through the "discount window," the Fed will make additional cash accessible to banks.

‍

• The Treasury set money aside for the Fed's "Bank Term Financing Program," which will enable banks to obtain extra funding when required.

‍

Although I don't yet have proof, SBNY stock has already experienced an insane increase and fall. Since the bank was taken over by regulators on Monday, it is likely that the shares will be cancelled and zeroed out. As of the most recent tally, Signature had assets of roughly $110 billion and was recognized as a bank that supported cryptocurrencies. When I questioned a source in the real estate sector, they described Signature's lending requirements as "tough" and claimed that while most people hadn't heard of the bank, high net-worth real estate investors were fully aware of it.

‍

Naturally, SVB is also already out of business; on Thursday, the stock's latest close was approximately $106 per share.

‍

Bank Crisis in 2023: Analysis

The speed at which events have developed is the first aspect of this spate of bank failures that I find to be tremendously intriguing. Word would still spread swiftly in 2008, but social media's viral intensity was less of a factor. Now, a lot more individuals can access real-time news on Twitter and watch footage of daytime bank robberies. In ten or twenty years, the majority of people would have probably read about it in the newspaper the following day or online while at home. The news is now always accessible on your smartphone.

‍

Has technology kept up with banking regulations? Most likely not. That might be a problem for banks like First Republic (FRC), based in San Francisco, and PacWest, based in Beverly Hills (PACW). In videos that went viral on Saturday, hundreds of First Republic customers were seen standing outside their branch in the rain in the wealthy Los Angeles suburb of Brentwood.

‍

Ultimately, regulators are allowing First Republic to open on Monday, although it is likely that thousands of customers were heading to the bank early in the morning to withdraw their money. First Republic is now more likely to survive after it was revealed that the Fed and JPMorgan Chase (JPM) are providing a rescue package. This should be sufficient. The run, though, might be challenging to stop. Even if JPMorgan and the government guarantee the deposits, many customers might believe that it's better to be safe than sorry. When it comes to bank runs, customers' perceptions of a bank's safety are just as essential as the institution's actual security. Despite the bailout's conditions, shareholders of FRC won't likely be happy with them.

‍

The Signature closing is also noteworthy. Evidently, the regulators contacted all the affected institutions and found something very wrong with SBNY. We will learn more about the "removal" of management as time goes forward, according to the press release.

‍

Another point: Powell's Fed has so far constructed a highly effective reaction to the developing banking crisis, despite consistently failing to deliver just on inflation front. The major risk, in my opinion, was that Republicans could take one side and Democrats another, there would be some discussion about "moral hazard" for a few days, and then this week, after hundreds of enterprises have missed payroll, a million people would apply for unemployment benefits. Thanks to the Treasury and Fed's prompt action here, that won't happen. Powell's biography by WSJ's Nick Timiraos possibly provided some hints on how such a situation might be handled by mentioning how a young Powell was involved in handling the Bank of New England failure in 1990. In that situation, Powell sided with making depositors whole. Moral hazard is a problem in this situation since the government doesn't want banks to feel empowered to take outrageous risks by the FDIC assurances (i.e. privatize the gains and socialize the losses). Nevertheless, you also don't want your neighborhood bakery, restaurant, or retail shop to fail for no fault of their own because they put their money in a bank that fails.

‍

Resulting Effects For The Stock Market

When reporting on Silicon Valley Bank's demise on Friday, I stated that the common and preferred stock of banks that were too big to fail were buys, the majority of regional banks were holds, and banks that had runs on them or serious rumors about them were sells. I still think that this is the case. The adage that there are always more than a few cockroaches in every pot applies to Signature, the second-largest bank to fail. In the upcoming days and weeks, it's possible that more banks will fail, with some of the first ones probably being some of the major regional banks that are already under a lot of stress. But, nothing has come to light to suggest that the entire banking system is in danger, so daring investors are probably receiving large rewards for purchasing the most commonly traded stock of the too banks in this situation. Stocks are still too costly in my opinion, and cash is still your best bet overall, but you should always look for value.