SVB Collapse Is 'First Twitter-Fueled Bank Run': Lawmaker

News March 13, 2023 at 02:07 PM
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House Financial Services Committee Chairman Patrick McHenry, R-N.C., on Sunday called the Silicon Valley Bank collapse "the first Twitter fueled bank run," after one theory has surfaced that the run was sparked by "one email newsletter and an accompanying tweet, and the Twitter reaction that followed," as reported by Fortune.

According to Fortune, Evan Armstrong, lead writer of the business-focused newsletter Napkin Math, tweeted on Friday: "This is the first time we've seen a social media induced bank run — if your customer base is active on twitter, this can happen to you just as easily."

Armstrong tweeted:

Kinda insane that this entire debacle was potentially caused by @ByrneHobart's newsletter. Here's how the butterfly effect happened.

1) Byrne posts this article/Tweet calling out SVB's risk. 2) Pretty much every VC I know reads this newsletter 3) They all start to pay very, very close attention to SVB earnings 4) Absolutely massive earnings miss by SVB 5) Peter Thiel, USV, and Coatue are first to send out messages/mass emails to portfolio co's to pull out funds 6) Tech Twitter catches word of this 7) Bank Run 8) Collapse 9) If FDIC/Buyer doesn't come in, in the next 7 days, potential 20%+ collapse of entire startup industry.

"This was the first Twitter fueled bank run," McHenry said Sunday in a statement. At this time, "it is important to remain levelheaded and look at the facts — not speculation — when assessing the right path forward."

He added that he has "confidence in our financial regulators and the protections already in place to ensure the safety and soundness of our financial system."

Greg Valliere, chief U.S. policy strategist for AGF Investments, said Monday morning in his Capitol Insights newsletter to expect hearings on how regulators overlooked "the flashing red signals" that Silicon Valley Bank was in shaky shape.

"Were officials seduced by the chummy relationships between the regulators and the San Francisco Fed?" Valliere wondered. "There will be lots of congressional hearings to come on that."

Rep. Maxine Waters, D-Calif., ranking minority member on the committee, said Sunday that she was "alarmed by the failure of Silicon Valley Bank."

Waters and Sherrod Brown, D-Ohio, said in a joint statement that: "As we work to better understand all of the factors that contributed to the events of the last several days and how to strengthen guardrails for the largest banks, we urge financial regulators to ensure the banking system remains stable, strong and resilient, and depositors' money is safe."

Waters said she's "closely monitoring and convening Committee members with regulators so myself and members can understand the latest around the SVB's closure" by the California Department of Financial Protection and Innovation (DFPI) and the Federal Deposit Insurance Corp. appointed as receiver.

President Joe Biden said Monday morning in televised remarks that "thanks to quick action by my administration, Americans can have confidence that the banking system is safe."

The FDIC took control of SVB's roughly $209 billion in assets Friday. Over the weekend, it took control of Signature Bank's roughly $110 billion in assets.

Signature was a major provider to the crypto industry; its failure was the third largest in U.S. history.

"All customers that had assets in these banks can rest assured that they'll be protected and they'll have access to the money as of today," Biden said.

The seizure of SVB's roughly $209 billion in assets led to the second-largest bank failure in U.S. history and the largest since the 2008 financial crisis, Greg Kyle, director at Bates Group, said Monday in a briefing. The 2008 collapse of Washington Mutual, with approximately $300 billion in assets, was the largest, he noted.

The failure of SVB, Kyle continued, "comes on the heels of Silvergate Capital announcing on Wednesday that it would voluntarily wind down operations and liquidate its bank."

Silvergate, with around $11 billion in assets, was a major lender to the crypto industry.

Published reports say that ahead of SVB's collapse, many of its top executives — CEO Gregory Becker, CFO Daniel Beck and Chief Marketing Officer Michelle Draper — sold shares worth $4.5 million in the company.

The good news, Valliere said, "is that this collapse was addressed immediately, with — hopefully — minimum contagion. The bad news is that this crisis probably will not dissuade the Fed from more rate hikes. A 50 basis point move later this month seems unlikely, but a quarter-point hike is still on the table (inflation data tomorrow and Wednesday will be crucial)."

Treasury and FDIC are believed to be working to find a buyer for Silicon Valley Bank.

Bank Regs

Raymond James analysts opined Monday in their Washington Policy briefing that Federal banking regulators have used "a systemic risk function to fully protect the deposits" of SVB and Signature Bank following their failure "and have established a new liquidity program to ensure the banking industry has adequate liquidity. The announcement that all deposits will be fully insured at SIVB and SBNY is aimed at preventing additional runs on community and regional banks."

The Fed, the Raymond James analysts opine, "is likely to continue to push for more dynamic stress testing [of the banks] and M&A approval may be further delayed."

Further, they state, the "events of last week into the weekend make it much more likely that regulators aggressively push through the resolvability of Large Bank Organizations (LBO's), which would cover institutions from $200-700 billion in assets. Additionally, the holistic capital review by the Fed will be biased upward on quality of capital as well as levels of capital."

Pictured: House Financial Services Committee Chairman Patrick McHenry, R-N.C.

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