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The second biggest bank failure in history




By Michael O’Connor,

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From there, more money is withdrawn, so SVB sells more bonds and books more losses … the vicious cycle feeds on itself until it's all over.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


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 or scan the QR code.

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Killarney twinned with Italian town

By Sean Moriarty It has taken 10 years but the Italian town of Casperia is now an official twin town with Killarney. The idea to twin the picturesque town near […]




By Sean Moriarty

It has taken 10 years but the Italian town of Casperia is now an official twin town with Killarney.

The idea to twin the picturesque town near Rome was first mooted by the old Killarney Town Council.

However, when town councils were discontinued in 2014 the task was handed over to Killarney Town Twining Association and was supported by the elected Killarney Municipal District members of Kerry County Council.

A delegation from the association and the council visited Casperia in 2019 to sign the Italian side of the twining agreement.

The pandemic further delayed the process but on Thursday last Killarney Mayor Niall Kelleher and Casperia Mayor Marco Cusso met to formally sign the charter in Killarney.

“This was honouring a commitment made by the former town council to establish a twinning under European guidelines back in 2014,” said association chairman Sean Counihan.

“Unfortunately the town councils were abolished and Killarney Town Twinning Association pursued the matter.

“We are delighted that the municipal authority saw fit to move the beautiful town of Casperia near Rome from association status to full twinning with Killarney.

“We deeply appreciate the members’ positivity in honouring the former Town Council’s decision.”

The signing between the two mayors took place over the St Patrick’s Festival weekend when Killarney Town Twining Association also welcomed groups from other towns like Pleindfeld in Germany and Concord, North Carolina, USA.


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Music and fun at Fossa Rambling House

By Sean Moriarty The Fossa Two Mile branch of Comhaltas Ceoltóirí Éireann held its first Rambling House night of music and dance on Saturday night. Their return to the stage […]




By Sean Moriarty

The Fossa Two Mile branch of Comhaltas Ceoltóirí Éireann held its first Rambling House night of music and dance on Saturday night.

Their return to the stage was timed to coincide with the St Patrick’s weekend celebration and also marked the first big event at the Castlerosse Park Resort since it re-opened on Thursday night following its winter break.

As well as a feat of Irish music, dance and poetry, Fossa-based Ukrainians gave performances in their native language too.

“What a great night we had at our CCÉ Rambling House last Saturday night,” Chairman Tim Kissane said.

“There are so many people to thank that we apologise in advance if we miss anybody out. Firstly, to the management and staff Castlerosse Park Resort for hosting our event and the wonderful service they provided.

“To our very talented stalwart musicians Mike Jack, Noreen and Maura who entertained us all so well from start to finish.

“To all our guest performers, from The Racing Pigeons to the Biddy Group and all the singers, musicians and storytellers in between go raibh mile maith agaibh. Special mention to our Ukrainian singers who performed two songs in their native language for us on the night. Thank you to all our members and supporters and to Fear an Tí, Mick Myers agus Bean an Tí, Theresa Kissane who kept the night flowing. Our fireplace display was kindly lent to us by the Beaufort Pioneers and adorned with ‘things of old’ from Brendan O’Sullivan.”


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