Bank Stocks Got Wacked: Between a Rock and a Hard Place as Banks Run Out Free Money

Oh dearie, those bonds.

By Wolf Richter for WOLF STREET.

Bank stocks got whacked today by an item on the list of disclosures by SVB Financial, owner of Silicon Valley bank. These disclosures included a massive capital raise to shore up the balance sheet, and massive actions to shore up liquidity, including selling $21 billion in “available-for-sale” bonds at a whopper of a loss of $1.8 billion. SVB has lots more bonds it can sell at even bigger losses. SVB’s shares collapsed by 69% today, from $267 at the close on March 8 to $85 afterhours on March 9.

The Invesco KBW Bank ETF plunged by 7.6% today. Even the biggest commercial banks got whacked. The standout on this list is First Republic Bank, whose shares plunged 18.9% today.

JPMorgan Chase [JPM] -5.4%
Bank of America [BAC] -6.2%
Citigroup [C] -4.1%
Wells Fargo [WFC] -6.2%
U.S. Bancorp [USB] -7.0%
PNC Financial Services [PNC] -5.0%
Truist Financial [TFC] -4.9%
Capital One [COF] -3.8%
Bank of New York Mellon [BK] -3.6%
State Street [STT] -4.3%
Citizens Financial [CFG] -6.1%
First Republic Bank [FRC] -18.9%

Many mid-size banks got crushed today. Obviously, SVB, which had $210 billion in assets on December 31, takes the cake. Other winners today: PacWest Bancorp (-25.4%), Western Alliance Bancorp (-12.9%), Signature Bank (-12.6%), East West Bancorp (-8.4%).  You get the idea.

SVB has a host of problems associated with its specialty: The startup scene that is now facing a mass-extinction event. Other banks don’t have that kind of exposure to startups.

What rattled folks today was that SVB lost $1.8 billion on the sale of $21 billion of “available-for-sale” securities. It sold them because it needed to raise liquidity and to “reposition” its balance sheet. Its depositors are startups that once had a huge amount of cash on deposit at the bank that they’d obtained from venture capital investors. But those startups are burning cash like there is no tomorrow, and they aren’t getting new funding, and so they’re draining their deposits from the bank. And the bank has to fund those cash withdrawals.

Crypto bank Silvergate collapsed “in an orderly manner” on March 8 because of its losses on its bonds that it was forced to sell because it had a huge run on the bank from its depositors, which were crypto companies, including FTX, that suddenly withdrew combined billions of dollars of their dollar deposits because they needed every dollar they could get because they were themselves collapsing. And the losses on the sale of those bonds killed the bank’s capital.

Investors did the math today. Other banks are sitting on potentially the same problem: If they’re forced to sell bonds now, they’re going to lose a lot of money, even on perfectly good Treasury securities, because yields have risen and therefore bond prices have fallen.

If they don’t have to sell those bonds but can hold them to maturity, they will not lose anything, they will be paid face value for those bonds at maturity, and they collect interest along the way, and nothing happens.

But if they need to sell now to raise liquidity to fund the outflow of deposits, all heck breaks loose.

Banks run out of free money.

SVB depositors are pulling out their cash because they’re burning it. Silvergate depositor were collapsing crypto companies that yanked out their cash. These are somewhat unique circumstances. Other banks don’t face those issues; they face more mundane issues.

If banks don’t offer competitive interest rates on their deposits, retail and business depositors sooner or later figure it out and switch their cash from savings accounts that offer 0.2% or from transaction accounts and cash management accounts that offer 0%, to brokered CDs and Treasury bills that offer over 5%, and to money market funds that offer between 4.5% and 5%.

Banks can hang on to those deposits if they raise their rates to 4% or 4.5%, but that would squeeze their profit margins. So they don’t, and deposits are fleeing.

To fund the deposit outflow, banks can use the cash they have on hand, and they can use the cash they have on deposit at the Fed (what the Fed calls “reserves”). Banks have $3 trillion on deposit at the Fed. This is instant liquidity banks can use to fund deposit outflows. And they currently earn 4.65% on their cash on deposit at the Fed.

SVB mentioned putting some of the cash from the bond sales on deposit at the Fed to earn higher income going forward.

But some banks might not have a lot of cash on deposit at the Fed, or they might want to keep it there to earn 4.65%. So they can raise the interest rate they’re offering their current depositors to retain them, say to 3%.

But raising the rates they pay on all deposits is very expensive for banks. So they might instead try to attract some new deposits by offering CDs through brokers (“brokered CDs”).  But to be competitive, banks need to offer around 5%, which is expensive money, compared to 0.2% they’re paying on current deposits, but they’re losing those deposits.

Banks can also borrow short term from the Federal Home Loan Banks or at the Fed’s “Discount Window” at rates as low as 4.75%, which is also expensive money. And they can borrow at similar rates from other banks. And they can borrow by issuing bonds, but at higher rates.

Or they can fund the deposit outflow by selling bonds, and taking a loss each time they sell bonds, instead of squeezing their profit margins quarter after quarter by borrowing at higher rates.

Or they can do a combination, which is what they often do.

The issue is simple: the only free money left for banks is from depositors, and depositors have figured out that they’re getting screwed, and they’re fleeing. So Banks are facing higher funding costs – or they face big one-time losses if they raise cash by selling securities to reduce or avoid those higher funding costs. They’re between a rock and a hard place, and SVB explained this to investors today.

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  187 comments for “Bank Stocks Got Wacked: Between a Rock and a Hard Place as Banks Run Out Free Money

  1. Frick says:

    Why don’t they just print more? Out of ink?

      • Gary Fredrickson says:

        Why can’t the Federal Reserve give some sort of no interest loan to the banks from that big pile of Federal Reserve balance sheet assets or maybe even a straight up grant like the incentives big companies get paid to do what they would do anyway?

        Maybe the Fed could categorize it as a balance sheet reduction?

        • Wolf Richter says:

          You missed it. The Free Money era is over. Now the Fed has hiked interest rates all around, and it’s doing QT, and there is no more free money, not even at the Fed. And folks are going to have to get used to it.

          Inflation is a bitch!

        • Augustus Frost says:

          Dumbest post on economics I have ever read.

          Similar to the first post.

          Apparently, there are people who believe there actually is something for nothing.

        • economicminor says:

          I think the word is Austerity!

          Watch some of Dr Lacy Hunt’s videos about debt. The Pendulum is swinging back.

      • Yort 2.0 says:


        SVB borrowed $15 billion from the Federal Home Loan Bank of San Francisco at the end of 2022 and SilverGate had borrowed $4.3 billion. That said, SVB was required to put up 3x normal collateral.

        Any concerns with contagion via FHLB, FASB 115 panic, etc?

        And you you think Forbes is correct that the two banks failed via different mechanisms?

        Per Forbes 3/9/2023:

        It’s important to emphasize that the Silvergate Bank and Silicon Valley Bank did not start in the same way. In Silvergate’s case, a rapidly shrinking deposit base created the need to sell securities, which created realized losses impacting the bank’s capital position. For Silicon Valley Bank, news of a pre-emptive sale of the AFS securities portfolio (thus, creating realized losses) to meet anticipated cash needs creating investor concern which, ostensibly, may have sparked Thursday’s sharp sell-off, exacerbating the liquidity concerns even more.

        • Wolf Richter says:

          Silicon Valley Bank suffered heavy deposit outflows which FORCED it to sell its $21 billion in AFS, at a $1.8 billion loss, exactly the same as Silvergate.

        • Yort 2.0 says:

          That $1.8 billion was 15% of the bank’s tangible common equity, so yes, it was a big hit for a bank that size and smart investors fled and it created a run on the bank.

          I read there was some big named tech company execs standing at the front door as they had been told they had to show up to get cashiers checks. What a mess, glad we have the FDIC to clean it up.

        • Cas127 says:

          FDIC bank reports are highly detailed, if only quarterly.

          There may have been some clues buried in SVB’s latest FDIC report…I wonder if the FDIC (or any other regulator) requires mark-to-mkt for available-for-sale securities (let alone Hold2Maturity).

          In this day and age, it really is possible to have full-daily price transparency on FDIC-insured bank “assets” (certainly for the Treasuries, public bonds, less so for the loans…although nowadays somebody will quote some price on anything…and there is usually *some* trading activity on almost everything).

          I wonder what the 10% loss on their bond sales (all Treasuries?) implies about the average term of that portfolio…if they held a bunch of 1-3 years and still got thwacked bad enough to put them out of business…what can *any bank* do to be safe?

          (If you can’t protect yourself with 1-3 year Treasuries…)

    • Flea says:

      That’s what started this mess ,next up deflation ,so rich can buy more assets . On the cheap ,rinse repeat so easy to see. People are dumb

    • Edward Teach says:

      They will. They’ve already guaranteed all non insured deposits just like the last collapse. The Treasury, Federal Reserve and FDIC have guaranteed all deposits will be protected. The only way for that to happen is to print more money to bail them out. The dollar is down, Gold, Silver and even crypto crap is up. Pay no attention to Wolf his memory is bad, they never let the elite to be thrown under the bus. He’s late to the game anyway, banks are dropping like Domino’s another one fell Monday. SVG fell on Wednesday last week. The Federal Reserve, Treasure Secretary are are all from former banks and that revolving door just keeps turning. Watch how the Federal Reserve loans money to Morgan Chase, Goldman Sachs, Bank of America, and Wells Fargo go in and buy up the carnage for pennies at the taxpayers expense. Those 4 banks will get even bigger as they gobble up the banks collapsing all the while carrying derivatives betting against those banks. They play both sides of the game.

  2. William Leake says:

    Indeed, I started moving my money out of banks last April and into 3, 4 and 6 month Treasuries. Banks have not come close to matching Treasury yields for the past year, and the interest on Treasuries is state tax free. People are finally catching on to the fact they can get 5.2% on a 4 or 6 month Treasury, which is more-or-less liquid (if you sell before maturity you might incur a small loss or a small gain). Beats the heck out of .3% at a big bank. No commission to buy or sell Treasuries at Vanguard or Schwab. I noticed today that Ally Bank sent me an email saying they are raising their rate on money market accounts to 3.8% from 3.5% (a reaction to SVB?). Still it is a relatively low rate. Like Wolf says, the banks are screwed. Note: I find the easiest way for me is to buy Treasuries at auction and hold to maturity.

    • Dm says:

      Schwab is paying close to 4.5% on their money market. How are the able to do that and other banks cannot?

      • ru82 says:

        I looked up their holdings. schwab money market has assets ;ole backed commercial paper, CDs from a lot of banks that are paying 4% to 5.5% (I don’t know how schwab got such good CD rates) from TD Bank Group, Barclays, and also repurchased U.S. treasuries.

      • crazytown says:

        Reverse Repos are one of the primary holdings of money market funds these days. So they can pay whatever the fed pays on reverse repo facilities. This means the more you put in a money market, the more money you are helping to shred and get out of the economy.

      • William Leake says:

        As is Vanguard. They are buying short term Treasuries. Banks make money from customers who are too stupid or too lazy to move their money to higher rates, in this case Treasuries.

        • Implicit says:

          Many people hate banks and want nothing to do with them, and they don’t have to because they have cash and don’t care.

      • jr says:

        Bread Savings (Comenity) in UT is paying 4.25% on my savings accounts. CIT in CA is paying 4.05% it’s not too hard to find these returns on common savings accounts. You can have multiple accounts in the same bank each insured to $250K. Single account, joint account, single with beneficiary, etc…

    • Troy says:

      Even 1 month bills are worth the trouble when you’re getting 4.6% yields vs the highest yielding 4.0% high yield saving accounts

      And like you said- no state taxes

    • SWE Josh says:

      I also moved all my cash except a small emergency fund to tbills. I used Treasury Direct instead of Vanguard. I could be wrong but my understanding is that while you don’t pay a commission directly with Vanguard, they give you a lower rate so they make money that way. The downside to using TD is that if you want to sell early you need to transfer it to a brokerage account first and can only do that after holding it for a period of time (I believe 30 days).

      • longstreet says:

        The other problem with TD is trying to talk to a person if you need to.

      • DumpsterDiver says:

        Josh, via VUSXX, their pure Treasury Bill money market, has a current yield of 4.56% and an expense ratio of 0.09%, so they are taking very little off the top. When I was a money manager for some 25 years, I put tens of million of dollars in their very well-managed money markets and never had a bad experience. They are not playing with a spread between their cost of funds and their offering to investors.

      • William Leake says:

        I use Schwab. I get exactly the same rate on Treasuries as Treasury Direct. No commission. Schwab makes its money on its settlement account, which pays like .4 percent.

        • Augustus Frost says:

          The only difference is custodial risk.

        • MM says:

          “The only difference is custodial risk.”

          Could you elaborate on that?

        • Halibut says:

          I use Schwab too (since I dumped my so called advisors). I am extremely happy with them. I’m done with “advisors” and was choosing between Schwab, Fidelity and Vanguard. They all have good reputations but I chose Schwab and, so far, could not be happier. They’re always checking on me but never pushing me into anything.

          So far, I’ve bought nothing but Tbills and the folks I speak with have said I’m making good decisions there.

          Surely, they could make better money by selling me something else, but they just haven’t “pulled any sh*t” with me.

    • Swamp Creature says:

      My credit union gave me 4% on a 9 month CD 6 months ago. I’m putting my money in there. They will probably offer 5% when it rolls over.

      • crazytown says:

        You can get a 5% 2 year treasury. But same as CDs, why lock up your money when a money market fund at Schwab will give you 4.5% with no holding period requirement. No need to lock your money up with a bank.

        • crazytown says:

          I was incorrect about the 2 year. 30 bp drop yesterday

        • Orangecats! says:

          Because CDs are fixed rate. Plus you can take out the monthly interest. But since rates might go even higher you could do savings for now (I’ve got 5% savings at Primis Bank ) and then lock in the highest rate CD for 2 years or more. I’m waiting for 6% lol.

      • BlackBeard says:

        Watch the Bank Runs happen now, come Monday watch all uninsured depositors start pulling their money out of banks. All banks are insolvent only a fool would deposit their money into a bank. Watch the banking system blow up again🙄 Buy Gold and bury it or cry in your beer when fiat finally goes to its true value of zero.

    • IdahoPotato says:

      Plus, T-Bills don’t have state and local taxes. My Ally interest has both. So T-Bills are a nobrainer.

    • MM says:

      I too had noticed that T-bills consistently offer 20-40bps higher yield than equivalent-duration brokered CDs.

      In that context, I’ve been wondering if other folks had been pulling their cash out of banks to stuff it into T-bills/money market funds etc, and if that would cause problems for the banks themselves.

    • Fed up says:

      Who puts their money in a bank that pays 0.3%. Ally, since you mentioned it, is paying over 5% on CDs. I don’t need the money right away so can lock it up for a year or longer. Short term treasuries aren’t long enough for me. Too uncertain where yields will be in a few months, so I prefer to lock in a higher rate for longer.

      • MM says:

        If interest rates keep going higher (they will), wouldn’t you want to avoid locking yourself into below-market yields?

        • Fed up says:

          If they go higher. That’s a big if. I don’t have to chase the highest yield.

      • Implicit says:

        The yield curve has been inverted for a while. Short term yields looking better in the bond market.
        “the yield curve inverted eight times, for at least one month at a time, in the last 30 years. The average duration of an inversion was seven months, with an average negative spread of 0.33%, or 33 basis points.”
        If you consider July of 2022 the start of this inversion, we are in the the 7th month now. Looks like this inversion will be longer than average.

    • Flea says:

      When everyone is on the same ship it usually sinks. Be careful

  3. Javert James says:

    The statement “…If they don’t have to sell those bonds but can hold them to maturity, they will not lose anything, they will be paid face value for those bonds at maturity, and they collect interest along the way, and nothing happens….” is not quite accurate.

    True, if the hold until maturity, they lose none of the original value; however, in the mean time, the interest on the original amount is very low, squeezing profitability. That’s not quite “nothing”.

    • Wolf Richter says:

      That’s not a loss. That is a “smaller than maximum profit.” You rarely get the maximum profit. Only with hindsight can you always get the maximum profit. Smaller than maximum profit is good enough. Bonds are designed that way. So you make 3% instead of 4%. No biggie. And you can sleep at night.

      • Juliab says:

        Wolf if I am not American and do not live in the USA can I buy such bonds. If yes, what is the limit and how is this purchase done.

        • crazytown says:

          Respectfully, there are plenty of resources out there for foreign investors that you could research yourself.

        • J Hamilton says:

          Schwab has a international division, you can invest in USA via Schwab +1-415-667-7870, multilingual service, as pointed out above you can get +4.5% in their money market accounts currently, no I do not work for nor represent Schwab, but unlike crazytown if I take the time to answer a reasonable question I attempt a polite answer

        • crazytown says:

          I’m going to cry myself to sleep that you’d be so mean to me bro.

          Jk, go enjoy your weekend

        • Yort 2.0 says:

          Schwab went down 11.69% today. Schwab net interest margin is under pressure as their bank deposits dropped 17% YOY, and last year $10 billion, which is approximately 50% of revenue, was net interest revenue.

          So banks were forced to eat a bunch of near ZIRP treasuries and MBS, and then aggregate bonds fell about 19% from July 2020 peak, and now we have a bank cleanup ongoing in what one poster appropriately labeled “Aisle 666”. And some mini-bank-wanna-be brokerage firms are getting J-Powelled along with the banks.

          Is it time yet to bring in “The Yellen” like Oct 12, 2022 after which the market staged a near 20% recovery with “Adequate Liquidity” babble?

          Or will Jay stay the course and send the remaining banks a red rose floral arraignment with the message “May the odds be ever in your favor”???

        • Wolf Richter says:

          Lots of people have diminished the importance of QT, that it was too small and too slow, that it didn’t do anything, etc. etc. But this is what happens when liquidity gets drained from the financial system. It’s not smooth.

        • tolkapiam says:

          i am a non us citizen /resident (alien), i have brokerage account with TDAMERITRADE for more than 15 years.

        • AlexW says:

          Speaking of a lack of liquidity…

          I was in the San Leandro Comerica last Friday, with the line going slow, seemed to be a problem with all the tellers.

          Lady comes out and says to the line, “we don’t have any cash, we are only taking deposits.”
          Apparently the ATMs were still stocked, as she directed anyone who needed cash to use the ATM.

          I was depositing a chunk of cash and fed VA check, wondering if their cash issue would metastasize before the checks I needed to cover cleared.
          Being kind of locked-in, (check’s in the mail) I figured I’d take a chance and go ahead with the deposit, mentioning to the tellers (they were moving in groups) that this had happened before. They looked puzzled, so I continued, “in 1929 (I’m not near my home references, but I think also during a banking crisis in the early 30s).
          They all still had puzzled looks on their faces, obviously having no knowledge of our Econ History…

          As I was finishing up the tellers were expressing relief that they now had some money to dispense. My deposit was instantly recycled, paid out to a subsequent customer.

          I don’t know if/how this relates to the general liquidity situation, but it is certainly a good omen. This caused me to check their recent stock history, and it does not look good.

        • Wolf Richter says:


          you’re confusing 1. “cash” as in dollar bills (which ATMs and tellers can run out of) and 2. “cash” as in money in the bank that you can send around electronically or by check. NOT the same thing. The problem with Silicon Valley Bank was #2.

          A run on the bank today does NOT take place by people withdrawing $200 in dollar bills at the ATM. That’s just silly. And indicating that there are problems in the banking system because you cannot get $200 in dollar bills at a particular branch is just nut-cake stuff.

          A run on the bank takes place when lots of companies each withdraw many millions of dollars electronically — which is what happened to SVB.

      • Flea says:

        Does treasury direct send tax form for taxes

        • Midwest guy says:

          Yes, they give you a form at the end of the year. Easy to access online

  4. Depth Charge says:

    We need a lot of collapses to happen. We need all cryptos to go to zero. We need all zombie companies to fail. We need house prices to collapse close to 75% in most areas. We need new car prices to collapse. We need politicians to collapse – literally.

    • Halibut says:

      You’re overoptimistic. But 50% slide of S&P might materialize.

      • VintageVNvet says:

        Old School and some of us other older folks, or at least claiming to be older, predicted S&P 1500-1800 and DOW similar early in 2020.
        Housing back where it should be, has been, and will be sooner and later again and again.
        Seems a bit more realistic these days.
        As recently quoted somewhere, ”ya ain’t seen nothing yet!”

      • Swamp Creature says:

        Larry Mc Donald’s prediction may come to pass sooner rather than later.

    • Whatsmynameagain says:

      Yes to all.

    • Expat says:

      The battle over house prices continues. Many pundits are still peddling the “lack of houses” meme. Others are simply whining about interest rates. There are still plenty who can’t help saying, “They’re not making new land!”
      Meanwhile some are admitting to the largest bubble in history but timidly saying perhaps a 15% fall in selected markets is warranted.

      Homo economus? Nah, just homo non-sapiens.

      • Up North says:

        In Canada that’s the narrative for sure with immigration scares that they don’t get housing (our in numbers keep being high)
        I’m actually wondering now if immigration is part of the supply demand equation for housing prices for BoC!

        • phleep says:

          Is Canada facing a situation vaguely like the USA in ’06, lots of folks over-leveraged in overpriced housing? That is the impression I am getting.

    • says:

      Mitch McConnell may have begun that trend.

    • johnny says:

      We need the Fed to go to hell. It’s the biggest all-time scam in the universe.

    • Lisa_Hooker says:

      I need egg in my beer.

  5. Sufferinsucatash says:

    So, should we all flee to FDIC protected funds now?

    • VintageVNvet says:

      Agree with you, like totally dude,,, Except for the gold bugs part, into which thinking I totally WAS, but got over it…
      IF one wants to be secure in their investment(s) in a long term total crash,,, either ammo or seeds would be the very best in such a situation.
      OF COURSE ”THE” main thing will be rapport with neighbors of each and every and all kinds…
      IMH estimation, .22s will be worth the equivalent of many dollars today,,, and others worth having for their ”hunting” similarly, though any well placed shot with a .22 will bring down any deer and any other mammals of the same bulk/weight,,,
      GOOD LUCK and may the GREAT SPIRITS bless your every effort to align with them!!!

      • TweedleDeeDumb says:

        Remember Vintage you can hold gold overseas in relatively safe countries such as Switzerland and Singapore and do so at very low premiums over spot when purchasing even with Silver trades. Personally use Bullion Vault and GoldMoney (since 2006 and 2009 respectively) and no fired crypto-managers are employed in any of these companies. Gold better than S&P 500 since January, 1, 2000 and no one’s liability unlike a Federal Reserve Note, also called a Dollar.

      • Lili Von Schtupp says:

        Speaking of great spirits, don’t forget booze. Preppers stockpile liquor for post-Skynet barter/currency.

        Or so I’ve heard.

    • elbowwilham says:


    • cb says:

      or treasuries

  6. sine99 says:

    Apparently the story here is depositors are “waking up” and moving to t-bills. Finally, some rational behavior. But what I cannot understand is why any person or, more importantly, institution, is pouring money into 10year and greater t-bonds that are yielding materially less than less risky short duration t-bills. Even if these people are betting on imminent deflation, it’s still not rational to me to be taking on so much long-dated risk.
    My main point here is this: When are THOSE long-dated bond buyers going to wake up? I suppose blow-ups like SVB will cause some of them to double-down on the pivot thesis and load up even more on long dated bonds, causing the >10yr to rally, leaving me to further scratch my head and shrug my shoulders.

    • crazytown says:

      There is a lot of friction in doing transactions for huge funds and pensions. They cannot just buy billions of dollars of 3 month treasuries every 3 months, they have to buy some longer dated securities. This is an area that you as an individual has an edge, you can be more nimble.

    • Augustus Frost says:

      Also matching of assets to liabilities, pension funds and insurance companies.

      Some are also speculating on interest rate changes.

    • Flea says:

      In a depression,that would be one hell of a return just saying

  7. Martok says:

    @William Leake you said:

    “People are finally catching on to the fact they can get 5.2% on a 4 or 6 month Treasury”

    “I find the easiest way for me is to buy Treasuries at auction and hold to maturity.”

    That’s what I have been doing too.

    I read Blackrock’s weekly summary and they said Treasuries, Gold – I’m not a buyer of Gold though.

    There are many other articles from well known people who say the same about short-term Treasuries

    I have talked to Reps at Fidelity and TD Ameritrade and they are being flooded with orders of auctioned Treasuries, both with zero fees.

    • William Leake says:

      FYI, Schwab acquired TD Ameritrade and is slowly integrating it into Schwab.

      • Martok says:

        I’m aware, my acct hasn’t yet, and will be EOY.

        Stick to the topic, I gave you a compliment.

  8. GringoGreg says:

    The solvency issue with banks are the MBS and CLO that unlike treasuries(except they are losing inflationary $$) will never be cashed out at full nominal value.

  9. GringoGreg says:

    SVB balance sheet is full of MBS that are way underwater.

    • Wolf Richter says:

      ALL bonds that were issued during the low-yield era that still have long remaining maturities are under water. Government guaranteed MBS might be less under water than Treasuries with similar maturities because holders get the flow of pass-through principal payments at face value that reduces the amount of the MBS every month with no loss. So you get your money back in a monthly flow without having to sell the MBS. The average life of a 30-year mortgage in the US is about 7 years, which is when they get paid off via sale of the home or a refi! The principal is forwarded to the holder, which reduces the amount of the MBS. At some point, when the MBS has been whittled down far enough – maybe 7 years or so into the life of a 30-year MBS – the issuer will call the MBS at the remaining face value, at no loss to the holder. No one can ever hold 30-year MBS for 30 years because most of the mortgages in the pool will be paid off long before then, and there’s nearly nothing left in the pool, and the MBS will be called long before then. This is a big advantage of MBS during times of rising rates. And a disadvantage during times of falling yields.

      • cb says:

        what an extensive financial knowledge base

      • Alex says:

        Is this really still the case for this time period? You said it yourself that the fed is having a hard time unloading MBS because there’s not much repayment happening due to no one buying or selling houses.

        So banks or large holders of MBS that need to sell due to leverage may be in trouble no? Either to raise funds or cover margin borrowing?

        This is all so vastly interesting. All my adult life has been filled with stupid low interest, now I’m starting to see the flipside. I’m glad that as a young adult I got in to all the big stuff at stupid low rates.

        • Wolf Richter says:

          “not much repayment happening due to no one buying or selling houses.”

          There is still a lot. For the Fed recently, it means $15-$20 billion a month in pass-through principal payments and reduction of MBS. That’s about half of the cap.

          But there was a lot more a year ago.

          These pass-through principal payments are ALWAYS flowing, sometimes more, sometimes less.

        • Flea says:

          Do you understand,the pendulum of interest rates and home or stock bond values .You need a lot of education,which you may get the hard way. Good luck

      • Timothy says:

        You are assuming the previous 7 year mortgage lifetime. With a frozen housing market in a stalemate between buyers and sellers, that could perhaps double, or more. Now there’s a protracted liquidity problem. Does that sound familiar? The FRB arsonists can and will fix a liquidity problem with the ga$oline hose as per usual.

  10. Sea Creature says:

    I remember in bust #1, when and the rest starting going bust, someone had done an analysis of the runway left for a whole bunch of these non-profitable VC’d companies and came up with a pretty good timetable of when the bankruptcies would all start coming in.

    I wonder if anyone has done that yet for bust #2 (now), and what the timetable looks like for most of these companies.

    Now that would be interesting..

  11. TXinCA says:

    Chase current savings rate is 0.01%. Hard to believe in this environment.

    • Thunder says:

      We call anyone having excess funds parked at 0.01% as having paid a stupid tax. But people are so very lazy they deserve it.

      • Bobber says:

        The largest group of people holding their money in bank savings paying sub-1% are the older retirees, many of whom don’t trust the internet economy and don’t know how to use a computer or tablet. They get cash by driving to the bank, writing a check for cash, and working with the bank teller. They deposit their social security and other checks by driving to the bank.

        Thus, they value the convenience and security of a bank above all else. If that costs them 3% a year, many of them are OK with it. How else can a person continue their internet phobia?

        Also consider, banks and credit unions that provide this type of personal service need a lot of branches, which costs a lot, so these banks can’t pay high deposit rates.

        • Implicit says:

          Ha Ha Ah, the ignorant joy of not letting money own you.

          I know many people like that, and they are less worried about money than many younger people. They earned that privilage by doing real; work for many years.

    • Swamp Creature says:

      Wells Fargo pays .01 interest on your savings. Last year I got $4 interest on $25,000. They are too busy paying fines for ripping off customers.

    • crazytown says:

      Chase has $3 trillion in assets. They don’t care, at all, about an individual’s $50 or $500 or $5000 or even $50000. If they started to lose a lot of deposits (liabilities that fund the bank) they would start to care, but they have so many customers that don’t care to switch banks that why would they offer more than 0.01%? Move your money yourself….

  12. porque says:

    First movers will be okay.

    SVB is beating our mortgage brethren to the juice curds left.

    Very long-term, svb probably will supercede many of the others in the top 20 now, by leaps.

  13. Countrybanker says:


    If you add AFS unrealized losses to HTM unrealized ‘lower future profits’ which are similar. To unrealized losses; and may be recognized when sell such HTM bonds for cash to pay depositors, how many banks have negative equity?

    And from an economic point of view, existing low rate loans have similar unrealized losses?

    Have you done the math?

  14. Digger Dave says:

    It speaks to the state of America that banks would rather create large “one time” losses than make smaller profits. Sounds like the stock buyback philosophy transferred to another facet of quarterly report manipulation.

    There’s another option for banks when all else fails – sell yourself to a bigger fish. When growth is over in America it’s prime executive enrichment hour.

  15. SocalJimObjects says:

    Fake News. Would you rather believe Wolf or Janet Yellen? Here’s what the later said:

    ““Would I say there will never, ever be another financial crisis?” Yellen said. “You know probably that would be going too far, but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” according to a report from Reuters”


    • SocalJimObjects says:

      Fed Chair Janet Yellen said the banking system is “very much stronger” due to Fed supervision and higher capital levels.

      • Wolf Richter says:

        She was talking about the banking “system,” not individual banks. There will always be some bank failures. There are a few every year in the US. The key is contagion. Is there contagion from one bank to the rest of the banks? That’s the question. There is lots of contagion within crypto, as we have seen. It’s all interconnected, and as one goes down, all go down. But what Yellen said is that this is not the case in the banking system.

        Commercial real estate will take down some smaller and regional banks that are heavily concentrated in CRE. Years ago, Rosengren at the Boston Fed kept talking about it. And so what? It will happen. The key is that the banks that go down don’t take down other banks in the process.

      • Tom S. says:

        I’m definitely no expert, but I do think there is some level of contagion to other investment banks. Many startups are still unprofitable cash burns that are going to require additional funding. To provide that funding more short-term paper may need to be sold to market at a loss. The sudden rise in rates could make some bank’s balance sheets appear more robust than they actually are.

        That said, I was looking at some of the stress test scenarios yesterday, they’re really aggressively bad. I think the banks that the Fed tests are pretty well capitalized to handle some serious downturns. Now a 4-5 year slowdown event, absolutely noone is planning for that, but it may materialize.

      • cb says:

        Those higher capital levels a result of and are offset by reduced purchasing value of the dollar due to the FED’s schemes to create money, suppress interest rates and support asset values and allow low interest refinances.

        Yellen …………….. Savers and middle America would be better off if she and her comtemporaries went to clown school.

      • Flea says:

        U believe this bs

  16. longstreet says:

    And all these banking woes with the “gift” of the Fed paying on excess reserves (since 2009)
    The inflation is the great problem and it didnt need to happen.
    And the government spending and debt is competing, draining, the private sector. Pull money from banks, buy govt debt.

  17. Brant Lee says:

    Perhaps this is where the big crack in the ceiling appears. Without free money from the Fed and now savings accounts, how long will the free cash last to cover withdrawals? Much less make a profit.

    Hello Cypress. See the lines at the ATMs of people withdrawing their daily allotment from the banks. Banks can and will pull all kinds of crap (legally) to hold or freeze your funds.

    • Swamp Creature says:

      I’ve noticed Wells Fargo ATM machines seem to frequently run out of cash over the weekends. They were out of $50 bills the last time I went. This could be a sign that people are taking more cash out of the bank than they have previously.

    • 91B20 1stCav (AUS) says:

      Brant – no doubt auto-c at play, but believe Cypriots might prefer ‘Cyprus’ (and, I don’t presume to spell it in Greek or Turkic) rather than the big ol’ one we had blow over on the ranch in last month’s NorCal storms…best to you.

      may we all find a better day.

    • JOHNNY says:


      • Wolf Richter says:


        Brant Lee is telling you some stupid BS. Don’t take it seriously. Just laugh it off. I should have deleted this stuff, but didn’t catch it in time.

  18. david pare says:

    I’ve been wondering when the holders of longer-dated treasuries would end up showing their losses. Answer: now. Its happening now.

    Any resources out there that show sthe average duration (for their bond holdings) of the various banks? A 2023 “Texas Ratio” equivalent.

    Might be useful. Especially for depositors.

    Thanks for the report.

    • Augustus Frost says:

      The fantasy make-believe of securities accounting assumes permanent sufficient liquidity. It works most of the time, until it doesn’t.

  19. David Hall says:

    Banks are FDIC insured up to $250,000 per account, per person, per bank. Someone with $500,000 might be insured, if the money is split evenly into two accounts, one in each of two FDIC insured banks.

    Real estate investments are at risk in some areas as the price to rent ratios there are near record highs. Multifamily home construction in buildings with five or more units is near a record high. Many of these are intended to become apartment complexes, but may be converted to condos, if officials will allow. Rental vacancies are near a 40 year low.

  20. Dr Duration says:

    The SEC is currently proposing tweaking money market funds. The reason that is interesting or related to banks starting to be exposed for leverage stupidity, brings about anxiety in me

    What terrifies me, is the concept of thirty year olds with superficial bachelor degrees, managing money market funds.

    My kid falls in that range, so I’m sympathetic to younger folks with careers in complex jobs.

    Nonetheless, it terrifies me to ponder a room full of young morons making decisions about how to play with customer funds, in terms of bouncing excess reserves around, chasing yield or making bets.

    Hopefully, the job of managing money in a money market fund isn’t considered to be the fun equivalent of playing with customers funds at a crypto holding entity?

    I just fear that the level of sophistication required to understand risk and to be a fiduciary, isn’t something engrained in anyone who hasn’t experienced an environment where liquidity risk may be exploding exponentially.

    It’s possible that the Fed and SEC have intelligent seasoned veterans, but, they’ve been patting themselves on the back lately for their pandemic excellence, which leaves me wondering if anybody has been paying attention to the packs of wolves in the chicken coop.

    From sec

    The Securities and Exchange Commission (“Commission”) is proposing amendments to certain rules that govern money market funds under the Investment Company Act of 1940. The proposed amendments are designed to improve the resilience and transparency of money market funds. The proposal would remove the liquidity fee and redemption gate provisions in the existing rule, which would eliminate an incentive for preemptive redemptions from certain money market funds and could encourage funds to more effectively use their existing liquidity buffers in times of stress.

    • 91B20 1stCav (AUS) says:

      ‘…taking the dismal OUT of the ‘dismal science’…’ is possibly how new folks got into that game…

      may we all find a better day.

    • magda says:

      This is not fair to the 30 year olds. They were 20 when the old system collapsed (2008). Since then, the incentives were distorted by morons with pseudo Nobel prizes in ‘economics’. You have to align to incentives to be successful in any environment. Blame our corrupt institutions for making the crooked rules and creating crooks.

    • Lisa_Hooker says:

      The GFC was about 14 years ago.
      Today’s 27 year old trader was a freshman in High School.

  21. Michael Engel says:

    SVB trading halted. SVB “expert” might face the Judge one more time.

  22. phillip jeffreys says:

    SVB trading reopened.

  23. John says:

    When Pension Funds start selling their holdings for liquidity we will know it is getting bad.

    • Augustus Frost says:

      Not just pension funds. Also mutual funds, ETFs, and private equity, as written on this site.

  24. Alex says:

    I think you have my house bugged. Just this week I went “Damn banks are offering me 3% while they get 5% risk free!”

    I pulled all my long term savings and bought a ton of treasuries. The interest earned from those are also not taxed on the state level.

    Now I have the barest amount of money left in the bank.

    The change is happening and it’s happening fast. This to me is the real QT behind the curtains. All that liquid cash is finding a home and it’s not at the banks. It’s being pulled from the volatile stock market and being stuck earning a decent return while the stock market burns.

  25. A says:

    I wondered how institutions buying trillions of dollars of 1% 10-year bonds or even negative yielding bonds wasn’t financial suicide.

    Turns out, it was as dumb as it looked!

    • Wolf Richter says:

      Free Money is a virus that turns brains to mush.

      • Seen it all before, Bob says:

        “I wondered how institutions buying trillions of dollars of 1% 10-year bonds or even negative yielding bonds wasn’t financial suicide.”

        The US government and European governments thank you for your patriotism. You have spent your hard-earned money on saving their *sses.

        Who in the heck would invest in 1% 10/30 year Treasuries 2 years ago?
        Who in the heck will invest in sub-4% 10/30 year Treasuries now?
        It must be the young ones who haven’t seen it all before.
        History will prove them wrong and bring us all down with them.

        Actually, I am an optimist and staying short term until this all plays out.

        I am not in control. The Fed is.

        • 91B20 1stCav (AUS) says:

          …old, oft-unheeded (by those whose life occurs in a period of relative stability) Jackson Browne lyric: “…don’t think that it won’t happen just because it hasn’t happened yet…”.

          may we all find a better day.

      • BENW says:

        “The Free Money era is over. Now the Fed has hiked interest rates all around, and it’s doing QT, and there is no more free money, not even at the Fed. And folks are going to have to get used to it.”

        That’s funny. I can’t wait to see the national debt balloon in the coming months once the debt limit is raised. In my book, that’s still free money and a lot of it. And we all know once the economy tanks at some point that Elizabeth Warren & the Uniparty will start handing out free money again.

  26. Nick Kelly says:

    ‘In 2024 Russia may run out of money’

    Oleg Deripreska

    • Augustus Frost says:

      Not if they have a huge current account surplus as I have read.

      • sufferinsucatash says:

        Russia is the loser Bobby fisher beat and is still looking at their chess board wondering what moves to make. Your done son!

  27. Dr Duration says:

    Is this where we get an education in recognition issues from corporate balance sheets— surely everyone saw this problem with all these banks last quarter. This matter of not recognizing impairment is pretty standard, but apparently everyone ignores risk.

    As an example from Costco sec report, recognizing changes in interest rates is immaterial and any speculation or leverage can be smoothed out, in anticipation of a fed pivot. That’s just standard thinking throughout Wall Street, but please correct me and teach me, so that I can adjust my portfolio strategies

    Gross unrecognized holding gains and losses on available-for-sale securities were not material for the periods ended February 12, 2023, and August 28, 2022. At those dates, there were no available-for-sale securities in a material continuous unrealized-loss position. There were no sales of available-for-sale securities during the first half of 2023 or 2022

  28. Icebox says:

    I made a fixed income ladder. Moved all my cash into 1 month, 3 month, 6 month, and 1 year Treasuries and CDs. As the securities mature I roll them over into another. Just remember, with all this banking stuff going on don’t put more than $250,000 in one bank. The FDIC insurance is capped at $250,000 per depositor, per insured bank. So I spread my money around to different banks.

  29. old school says:

    I was going to post a couple of days ago but decided not to because I didn’t want to get criticized that you are never more than one day from the Fed easing. I was thinking more along the lines of a geopolitical event, terrorist attack or severe natural disaster. I wasn’t really thinking about a bank blowup. Excess leverage means system is vulnerable to shocks.

  30. nick says:

    Is the bank going to be “allowed” to fall?

    • Slick Willy says:

      Bill Ackman is calling for a bailout.

      With a straight face.

      • a says:

        Billionaires are the first to demand tax cuts in the good times and the first to demand socialist free money government handouts at the first sign of the slightest pain. Never forget it.

        • nick says:


        • Bobber says:

          Are you suggesting that some people exploit the system?

          If that’s true, you better tell Yellen, Powell, McCarthy, and Biden about that. We need to get on top of this development, before damage is done!

          Let’s sign a letter and send it to them. Better yet, let’s make a sign and sit on a street corner.

        • 91B20 1stCav (AUS) says:

          Quadruple check.

          may we all find a better day.

        • Including Warren Buffett….

    • rojogrande says:

      Yes, FDIC has stepped in apparently.

  31. Flintstone says:

    I apologize if this is a dumb question…I assume the bonds in question are held as tier 1 capital againt deposits unless they have a trading desk in which case they should be hedged . Are these securities not marked to market on a daily basis so as to be in compliance with their capital ratios?

  32. Seen it all before, Bob says:

    I pulled most of our savings out of Chase in protest of their 0.1% savings account rate. Recently, I put most of it in 6 month Treasuries at 5.2% until Chase wakes up and decides to get with the program. Chase has paid with their 5% loss yesterday (Yawn.). I hope I am the one throwing a stone at Goliath.

    I am a small voice among many.

    I am still waiting for 10/30 year Treasuries to break 8%. Then I will retire and drive up the Fed Job’s report.

    • I remember when I had the chance to do this in the early ’80s. I bought 30 acres of land instead, which also worked, though in a more complicated way.

  33. Bobber says:

    The 10 year yield is dropping as though the Fed is going to pivot.

    Lets see if they bail out SVB, which would further evidence the rot in our financial system.

    Banks are not supposed to concentrate lending in a speculative area like start-ups. When companies like SVB get bailed out at the expense of taxpayers, or by putting taxpayers at risk, it creates moral hazard.

    Is this why governments were formed…to backstop aggressive speculation at the expense of the citizenry?

  34. American Dream says:


    Sucks for anyone with more then 250k in there🤷

    • rojogrande says:

      That was fast. It brings to mind Hemingway’s quote: “How did you go bankrupt?… Two ways, gradually and then suddenly.”

    • Bobber says:

      I doubt many people in the bottom 99% had that much in deposits at the bank. The FDIC rules are widely known. It’s a wrist slap for lazy members of the 1%.

    • butters says:


      $hit must be really bad for them to act so swiftly. Came on news one day, collapsed the next day. I bet most banks are like that…..Sound economy.

  35. John says:

    I believe the ticker is SIVB

  36. Bobber says:

    Now that SIVB has been allowed to fold, in plain view of all other aggressive banks, who is going to make crazy loans and loan extensions?

    Will this help deflate the Everything Bubble and lead us towards a more stable economy?

    Financing for crazy ventures could get tight, in the short term.

  37. longstreet says:

    Who owns SVB?
    Vanguard 11.25%
    Blackrock 8%
    State Street Corp 5.2%
    JP Morgan Chase 4.25%

    Something in the spirit of Glass Steagall leaps to mind.

    • longstreet says:

      The ownership I referred to is likely customer money, but guessing there is some proprietary money involved also.

    • Dr J says:

      Those “owners” are probably all custodians for investor-owned funds….

    • William Leake says:

      They probably “own” it through thir etfs and mutual funds. Those will take a hit.

    • Wolf Richter says:

      They don’t own them. Their clients own them. These companies are asset managers that put together mutual funds that have SIVB in them, and the funds are sold to the public. The public owns those shares of SIVB in some mutual funds in their portfolio.

    • Flea says:

      U fool it doesn’t matter .the thieves have made trillions ,also corrupt congressenial thieves . Someone has to have enough balls to tell the truth. China stold nonstop from America,so we could create billionaires. Time to pay the piper. History repeats

  38. crazytown says:

    Anyone else have analysis paralysis right now? Hard to predict the Fed’s (and thus markets) next move after the sudden SVB collapse.

  39. John says:

    Read about a 200 march put for 7500 bucks netted over 2 million.

  40. Dr J says:

    CEO Greg Becker assured investors the bank had “ample liquidity,”
    ……Guess not….

    • Wolf Richter says:

      It’s really a bad sign when bank CEO start “assuring” investors.

    • HowNow says:

      And bye the bye, the CEO sold $3.7M of SIVB shares on Feb. 27th, at $287/share.

      • HowNow says:

        And today, he urged investors to “stay calm.”

        • Wolf Richter says:

          What else are you going to do, after you lost ca. 100% and you cannot even sell the stock?

          A little Zen is a good thing on days like this, LOL.

          Can someone who owns some SIVB confirm this: I think the amount it shows on the brokerage statement is the closing price as of yesterday, $106.

          It would be nice to get this confirmed.

          If true, shareholders could still have the illusion that they didn’t lose 100%.

          And how do mutual funds and ETFs account for this official closing price of $106?

  41. John says:

    Read about a 200 march put for 7500 bucks netted over 2 million. 25 cent per contract if that’s possible.

  42. Blarg says:

    Wolf, what will happen to the companies which were using svb for loans? Will any of them need to refinance or will the loans all just get sold off and the companies keep their current loans?

  43. Citizen AllenM says:

    Geez, hoocoodanode that bond math works that way. Booms carpet the world with liquidity, busts suck it away like the beginning of a tsunami. Once again dear folks, look at that evil foundation of Black Scholes, and contemplate the earthquake valuation change when the “risk free interest rate” changes against the moneyed levered up folks. Leverage is magnificent in gains, and horrific in losses.

    Biggest plonk since IndyMac, lol.

    Houses are doomed for a long while, but real estate is sloooooow compared to Wall Street. How many overleveraged darlings are now on the chopping block?

    Someday this war’s gonna end…

  44. Another Scott says:

    I’m not a banking expert by any stretch, but can any bank survive having so many customers pull out their cash at once? It seems like a high tech bank run.

  45. phleep says:

    So an anticipated path for central banking was, raise rates until something breaks. Meanwhile, try to contain or minimize the breakage, right? Stuff is breaking, but it is peripheral. It started in the most (ridiculously) fragile places, crypto and Cathie Woods and so on. But now it is lapping at the complacent edges of banks. These eddies can sometimes turn into bigger cyclones. I’m recalling Bernanke saying subprime was “contained.” Such is the non-linear.

  46. Brad1976 says:

    The real problem here is nobody know quite how aggressive the liquid asset portfolio’s of the banks are as they do not report that – if most of that stuff is 30yr compared to say 2yr then in a forced liquidation the losses could affected unsecured lenders considering the duration difference esp if the bank portfolio is sector focused. (Banks do have an incentive to skew long duration considering the lack of mtm). A compounding factor also is the capital level of US banks which isn’t exactly great. I do believe SVB is the first time that bail-in was used under the new banking rules.

  47. CreditGB says:

    The curious evolution of Terminology as time and processes advance:
    1) AFS: Available For Sale
    2) AFS: Assets For Sale
    3) AFS: A Fire Sale
    3) AFS: Assets Fell Short
    4) AFS: All For Self (as in every man for himself as they bail out)

  48. notdeadyet says:

    I began pulling cash out of the bank a little over a year ago and started building ladders. However, you do not want ALL your cash tied up… you should keep some cash very liquid just in case things get rocky. Sure enough, in my case, a tenant moved out of one of my rental properties and my emergency fund paid the rent (monthly expenses and paid for repairs and upgrades I wanted to make while the home was vacant). A new tenant moved in after 3 months and I didn’t miss a beat. I now look at the ridiculous rip-off rate my bank is giving me on my “smaller” savings account as a service charge.. But the bank has lost the bulk of my funds. From Wolf’s article, I now see I’m not the only one who has been moving the cash to new and more appreciative places. And it makes sense if a lot of people do the same thing, then the banks will be hurting pups (unless they change their ways, like we have to do).

  49. Franz Beckenbauer says:

    If a bank that is

    – in search of yield because suddenly their deposits exploded (coinciding with money being dropped from Balloons, sorry, helicopters)

    – operating globally (meaning they should always be able to make a buck somewhere)

    – being based in the US, which basically means you snip a finger and the cash comes raining in – just call Jay

    If that bank decides to buy 80 billion of long-dated (10 years+) MBS yielding a paltty 1,7%, that means:

    – they have a very interesting concept of doing business

    -they haven’t seen “The big Short”.

    – now they ‘re in “Margin Call”

    – the rest is: just silence

  50. salinas says:

    Time to short the banks yet?

  51. Ven says:

    Wolf you have been talking of “imploded list” of start ups. As mass extinction is lined up, how about now covering possible future imploded list of banks .

Comments are closed.