Small / Regional Banking Crisis & SVB Update

Looks like the catastrophe is spreading to CNN & elsewhere.

Bank runs are self-feeding panics and self-feeding crises.

One person (or institution) tells another, who tells another, who tells another to go withdraw all their money from an institution, and under pressure — the institution buckles. Because it doesn’t have all your money.

When you put $100 into a bank, it then takes part of (the vast majority, usually) that money and makes loans against it. The banks holds onto, say, $10 of yours. This is called bank reserves.

When everyone tries to withdraw their money at the same time, the bank can be overwhelmed — but is supposed to keep reserves on hand so it can fulfill obligations to its depositors.

When enough people overwhelm the system with too many redemptions at the same time — it’s a bank run. Bank runs can quickly turn into bank panics.

At this point, it looks like the smaller, regional banks are being hit first — with larger banks encouraging clients of smaller banks to bring them money.

Greedy bankers gonna be greedy bankers.

From yesterday:

Silicon Valley Bank as a Bellweather for the Banking World

When it hits CNN, you know it’s too late:

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New York CNN — 

SVB Financial Group is reportedly exploring a sale after selling billions of dollars of assets to make its customers whole and sparking a panic on Wall Street this week.

Reuters and CNBC, citing people familiar with the matter, reported that the financially strapped bank was considering a potential sale to a larger institution. SVB didn’t immediately respond to CNN’s request for comment.

via CNN