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The second biggest bank failure in history

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By Michael O’Connor, theislandinvestor.com

The answer…about four days.

This week was dominated by the second-largest bank failure in US history.

A lot has already been written about the collapse of Silicon Valley Bank (SVB), but let's break it down in simple terms and look at the potential implications for investors.

Firstly, the issues that unfolded in SVB were not driven by fraud or questionable lending policies but by an asset-liability mismatch. SVB used liquid customer deposits to purchase longer-dated but safe, treasuries and MBS securities.

Tech-based start-ups and VC companies represented the majority of SVB's customers. These customers made a lot of money in recent years as the value of their companies skyrocketed, and they needed somewhere to put all this cash. So they gave it to SVB.

Typically banks will make profits by taking that money and lending it out to customers at higher interest rates in the form of loans. However, the majority of SVB's customers didn't need loans, so SVB invested all that cash in longer-dated bonds.

So, they now have very liquid liabilities (deposits) being offset by not-so-liquid assets (longer-term bonds).

There is nothing inherently wrong with this. Banks do it all the time. However, this interest rate risk would typically be hedged using swaps, but SVB had no such interest rate hedges in place to protect itself. This was the fatal mistake. Some shocking risk management decisions left them making a massive bet on the direction of interest rates. As you have probably guessed by now, the gamble didn't pay off.

As interest rates went up, the bonds went down in value.

Still, this is a relatively avoidable disaster, provided all depositors don't require their money back at the same time.

Lo and behold, some customers got nervous and withdrew their deposits. As more customers did this, SVB had to sell some of the 'safe' bonds they had purchased at a $1.8bn loss in order to give money back to customers.

Then some venture capital companies advised their start-ups to get their money out of SVB, which spooked customers further.

From there, more money is withdrawn, so SVB sells more bonds and books more losses … the vicious cycle feeds on itself until it's all over.

Two takeaways

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While these latest developments are reminiscent of the GFC days, there are some crucial differences.

In my opinion, the risk of contagion remains low, mainly due to the Fed's decision to step in and protect deposit holders on Sunday evening.

Also, large US banks (above $250 Billion) have greater regulation scrutiny, have less concentrated exposure to a single niche and have smaller investment portfolios relative to total assets. Almost 60% of SBV's total assets were held in its investment portfolio vs a 25% average for US banks.

From here, I expect to see further concentration in the banking sector. Customers will flow from Tier 2 banks towards the larger (too big to fail) fully regulated institutions.

People are finally starting to realise that banks don't hold your money safely in a vault. You are simply a largely unsecured creditor in a system leveraging your money to make profits.

Bank deposit rates remain close to zero, so you are getting all the risk and none of the reward.

At the very least, any money that isn't needed for day-to-day living should be moved into very short-term T-bills or Euro bonds. These provide higher returns and a better level of protection for your assets. It's a no-brainer.

If you would like me to help you go from uninvested to invested, email mike@theislandinvestor.com or scan the QR code.

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New private children’s assessment clinic confirmed for Killarney town centre

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The consultant psychiatrist who blew the whistle on the South Kerry CAMHS scandal, Dr Maya Sharma, is officially opening a new private children’s assessment clinic in Killarney town centre.


The development follows reports in the Killarney Advertiser in May that Dr Sharma was seeking a return to Kerry.

The clinic is now confirmed to open within the next two months after suitable town centre premises were successfully secured.

The facility will provide a range of specialist assessment services for children, giving local families an alternative option within the county to bypass long public waiting lists.


Dr Sharma previously exposed the over-medication and inappropriate treatment of young patients within the South Kerry Child and Adolescent Mental Health Services.

Her disclosures led to a major state investigation which revealed hundreds of vulnerable children had been harmed or put at risk by unsafe clinical practices.


Councillor Martin Grady, who assisted in finding the town centre location, welcomed the finalisation of the plans and praised Dr Sharma’s bravery and dedication.


“I am absolutely delighted that we were able to work together to secure suitable premises for Dr Sharma here in Killarney,” Cllr Grady said. “She is a tremendous asset to our town and to County Kerry. The work she has carried out over the years has made a real difference to so many children and families. Personally, I want to sincerely thank Dr Sharma for her bravery and honesty in coming forward and speaking the truth for the betterment and protection of vulnerable young people receiving treatment. Her actions required immense courage, and many families throughout Kerry and beyond recognise the importance of what she did.”


Cllr Grady noted that Dr Sharma has a strong personal connection to the area, particularly her love for the local National Park, and is eager to begin practicing in Killarney again.


“There are massive waiting times for children requiring assessments through the public system,” Cllr Grady added. “While this private clinic won’t replace public services, it will provide families with another option and will greatly increase local capacity. We are fortunate to have someone of Dr Sharma’s calibre choosing to establish her practice here.”

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St Mary’s Church hosts John McCormack tribute


A musical recital celebrating the legacy of Irish tenor John McCormack took place at St Mary’s Church of Ireland on Friday last, July 3.


The event featured Kerry tenor Gavan Ring, who was joined on stage by pianist Gary Beecher and violinist Kenneth Rice.


The trio performed a programme of songs, operatic pieces, and transatlantic melodies associated with McCormack’s international career and his influence on Irish-American identity.
A key element of the performance included a dedicated tribute to the historic musical partnership between McCormack and violin virtuoso Fritz Kreisler.


The concert was held as part of the new ‘Summer in Killarney’ festival, a cultural series marking 250 years of Irish contributions to American culture.

The festival is presented by the Killarney Chamber of Tourism and Commerce, with support from the NPWS, Heineken 0.0, Fáilte Ireland, and Kerry County Council’s Community Support Fund.

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