Dit viel in mijn inbox. Het is in het Engels, maar dat zal nog wel net lukken hier.
Now here we go again.
Fifteen years later… after countless investigations, hearings, “stress test” rules, and new banking regulations to prevent another financial meltdown, we have just witnessed two large banks collapse in the United States of America-- Signature Bank, and Silicon Valley Bank (SVB).
Now, banks do fail from time to time. But these circumstances are eerily similar to 2008… though the reality is much worse. I’ll explain:
1) US government bonds are the new “toxic security”
Silicon Valley Bank was no Lehman Brothers. Whereas Lehman bet almost ALL of its balance sheet on those risky mortgage bonds, SVB actually had a surprisingly conservative balance sheet.
According to the bank’s annual financial statements from December 31 of last year, SVB had $173 billion in customer deposits, yet “only” $74 billion in loans.
I know this sounds ridiculous, but banks typically loan out MOST of their depositors’ money. Wells Fargo, for example, recently reported $1.38 trillion in deposits. $955 billion of that is loaned out.
That means Wells Fargo has made loans with nearly 70% of its customer’s money, while SVB had a more conservative “loan-to-deposit ratio” of roughly 42%.
Point is, SVB did not fail because they were making a bunch of high-risk NINJA loans. Far from it.
SVB failed because they parked the majority of their depositors’ money ($119.9 billion) in US GOVERNMENT BONDS.
This is the really extraordinary part of this drama.
US government bonds are supposed to be the safest, most ‘risk free’ asset in the world. But that’s totally untrue, because even government bonds can lose value. And that’s exactly what happened.
Most of SVB’s portfolio was in long-term government bonds, like 10-year Treasury notes. And these have been extremely volatile.
In March 2020, for example, interest rates were so low that the Treasury Department sold some 10-year Treasury notes at yields as low as 0.08%.
But interest rates have increased so much since then; last week the 10-year Treasury yield was more than 4%. And this is an enormous difference.
If you’re not terribly familiar with the bond market, one of the most important things to understand is that bonds lose value as interest rates rise. And this is what happened to Silicon Valley Bank.
SVB loaded up on long-term government bonds when interest rates were much lower; the average weighted yield in their bond portfolio, in fact, was just 1.78%.
But interest rates have been rising rapidly. The same bonds that SVB bought 2-3 years ago at 1.78% now yield between 3.5% and 5%… meaning that SVB was sitting on steep losses.
They didn’t hide this fact.
Their 2022 annual report, published on January 19th of this year, showed about $15 billion in ‘unrealized losses’ on their government bonds. (I’ll come back to this.)
By comparison, SVB only had about $16 billion in total capital… so $15 billion in unrealized losses was enough to essentially wipe them out.
Again-- these losses didn’t come from some mountain of crazy NINJA loans. SVB failed because they lost billions from US government bonds… which are the new toxic securities.