SVB Banking Crisis EXPLAINED 📈

Transcript

bankless Nation we have a banking crisis that just happened over the weekend David the second largest bank in U.S history collapsed Silicon Valley Bank svb so people are calling it we've been monitoring this all weekend we wanted to give you guys an update uh we do these special episodes every once in a while usually when the world's on fire something crazy is going one of those times yeah if we're just drinking from the fire hose and finding out more information as things go so we may even have some updates in this live stream but David what are we going to cover today yeah so all of this news broke almost exactly when we stopped recording the weekly roll up on Thursday so all

the and it seems to be that this episode I mean it's news is still breaking but it's unless something big and new happens it seems to be that all of this event all the events have happened between Thursday evening and Sunday evening and then the markets open this this Monday morning and the Fallout of all those events have now taken place it could be that this whole entire story started and ended inside of the last three days and so we weren't able to cover it on the bankless Friday weekly roll-up which is why we are doing this weekend roll up on Monday right now to cover what the hell just happened in the world of of finance and Banking and the fed and Treasury and FDIC Silicon Valley

Bank Signature Bank uh Silver Gate Bank the run on all of the banks all of the the mid to low tier Banks and the flight towards the big Banks and is this overall an attack on crypto I think is where this conversation will eventually end uh Ryan were you I was Doom scrolling this weekend how are you doing yeah I was like look I was Doom scrolling this weekend my big question was was U.S usdc going to be okay right right that was definitely a big question in my mind and also another big question around uh Signature Bank right because that was that was kind of the the next that's where usdc has a whole bunch of its it's stores as well and then a big question around Silicon Valley Bank like

what was going to happen to depositor funds right because this is a story that is definitely in the banking sector and effects in a big way Silicon Valley Tech companies so a whole bunch of the crypto startups that we know were panicking over the weekend like are we going to be able to make make payroll on Monday and then there was this question of contagion is this going to spread Beyond Silicon Valley Bank to the rest of the U.S banking system is crypto going to get um you know wrapped up in this and of course because by seven the markets are trading encrypting this stock market's closed FDIC can come in and be like oh we're just stopping this bank and we're going to sort it out over the weekend and we'll give you an update Monday well um crypto still trades and so you saw usdc

trading like 10 cents off the peg dropping uscc got down to 88 cents did it really 88 cents okay so you're like oh Milton you're looking at die and you're like what's going on is there something I don't know my gut around this was that the Fed was going the FDIC rather was going to come and Reserve depositor funds like bail bailout is the wrong term but like guarantee I should say guaranteed to contact deposits protect customers yeah because if they don't the entire banking sector right could risk contagion and does anyone really want that and the answer is no so I sort of expected it would end the way that it hasn't maybe

we're kind of rushing the conclusion of the story before we get to the the very beginning but um it ended in a much better place than the weekend started and yet David I don't know that it's over all right we might just be in chapter one of a multi-phase book here of um you know like so a question in my mind that I would love to to get answered is like okay what happened um and then what does it mean going forward but also how did we get here right A Bank Run like uh the second second largest bank run in U.S history like how does that happen so hopefully I know you've done a lot of research on this you put this entire agenda together I'm kind of along for the ride I'm going to be asking you questions man to try to

get up to speed on this yeah I think you touched on the right questions and really just to reiterate them the story opened up with is usdc going to be okay some people thought that the base case for usdc as a result of this news was it goes to zero uh that was the most extreme case uh and we're all as a crypto industry sped run learning about Banking and finance so the the weekend open up with is uscc going to be okay how much funds are lost because of the insolvency of silvergate Bank why did this happen at all what were the forces that created the run on the bank so that is a question that we will ask and also attempt to answer in this show uh the FDIC insures of course a quarter million

deposits but now it's ensuring everything what does that mean for the banking sector and how does that change the banking industry and again like I said is this an attack on crypto so a lot of these questions and more as well uh I think we're gonna gonna tackle here in this episode uh we have uh Ryan and for all the listeners that were not glued to the screens this weekend uh we found this I found this a very short awesome tick tock which I think we will go ahead and play right now just to catch everyone up because it's it's a funny and actually really useful way to uh tell a story of what just happened so Ryan you ready to watch this Tick Tock video let's do it let's do it okay okay yep that's me you're probably wondering how I got here the year is

2019 and I live like a king hey svb looking good Randall investors love me conditions are perfect hey I just got 50 million dollars in funding could I deposit in your bank and companies are getting more funding than ever what's your startup dude it's an app where you rate how hot people's daughters are without them asking I went to Berkeley put it in I'm making some cash let's put 80 million dollars in mortgage-backed securities my interest rates are down we'll get a return to 1.5 percent I like our odds thank you yep life was pretty great as the 20th largest bank in the U.S and nothing was going to ruin that surprise it's 2022 and you would not believe the price of eggs out there once

ah okay people did not like daughter rank money please uh hey let's sell some security hey what are you doing if I tell you you can't freak out okay we are having a tiny liquidity crisis so we're just gonna do a little bit of capital raise a liquidity crisis doctor crisis no no it's not bad my stock is down today why could that be tomorrow that money was for payroll mother okay I won't I won't raise any Capital I've always had a capital because we're exploring a sale

I should be fine [Music] ah come on all right and that's that I thought that was pretty good uh so we're gonna walk through each individual parts of those uh oh everything that was just mentioned there uh and all of the conversations around uh is the money printer back on uh because I think a new form of QE has dropped but first before we get to all these stories we're going to talk about some of these fantastic sponsors that make the show possible Kraken has been a leader in the crypto industry for the last 12 years dedicated to accelerating the global adoption of crypto Kraken puts an emphasis on security transparency and client support which is why over 9 million clients have come to love kraken's products whether you're a

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threatened with runs on their Banks why did this over why are the words banking crises being thrown around out there and I think I found the the best really the simplest explanation of this which was put together by our good friend Jim Bianco and so here's a very long tweet because he's doing the whole long tweet thing but I've pulled out the the basically the gist out of this and the the things that I really want to emphasize here are twofold one this is different than 2008 in mainly two different ways one is because of just the banking sector is different and what is happening today is the Silicon Valley Bank crisis is different than 2008.

we'll talk about that but first I want to start with it's different because we have modern day technology so the the punch line here is that bank runs on the bank can happen 100 times faster than they could have happened in 2008 and that is because of an ad just a growth in the virality of social media Communications somebody can cause a run on the bank on Twitter these days because the information can spread that a bank might be insolvent super incredibly fast not only that but also wire transfers ACA transfers just like time to settlement is overall much faster and so we are what is it 15 years later after 2008 things go much faster these days news spreads much faster news

spreads like wildfire and the ability for mobile banking to allow for people to with uh submit requests to withdraw is almost instantaneous you can line up in a virtual queue to withdraw all of your money out of a bank on social on your mobile device like that and so that's one part of the story and this is what Jim Bianco is saying is like welcome to the world of Mobile Banking gone are the frictions of standing in line with tellers instructed to count money slowly how did 42 billion dollars get withdrawn Friday alone without thousands in line your phone uh and so Jim's message to the bankers and Regulators worldwide is that this should be scary uh the entire 17 trillion dollar deposit base is a hair trigger away expecting instant

liquidity and he's saying banks will never be the same so this is like the external Force we have external Powers external Technologies allowing for Bank runs to happen faster but first like there has to be an actually underlying fundamental structure as to why there would be a run of the bank in the first place and this goes back to the rising interest rates uh the fastest rising interest rates that we have have ever had in our lifetimes probably ever and so Silicon Valley Bank and many many other Banks were still paying half a percent on accounts when treasury bills were yielding these Banks five percent so banks are like taking in tons of profits and so Jim Bianco says initially as rates passed two three four percent the public did not notice it's like oh

uh I don't really care about the yield in my savings account it's been at zero for forever never really like making the connection as interest rates rise they should actually be getting those yields um and so the bankers Jim Bianco claims thought that deposits were well anchored at their bank and not moving regardless of the interest rates paid but at five percent when yields finally or the public could get five percent yields on on treasury bills uh people started to realize that they needed to move their money out of savings accounts and deposits that weren't getting them those yields and move them into funds that they could uh and so Banks started to get squeezed to convert to loans and securities to cash instantly so depositors could leave for better rates and the bleed out from Tech firms started to make struggling happen and

this is where in addition uh we have so we have those two impacts we have the discrepancy of yield and people wanting to get more yield because treasury rates are going up then you have people like Senator Warren who uh starts tweeting out with Glee Jim Bianco says about a silvergate going out of business and depositors at svb he says gets the message pick up their phones and starts lining up to withdraw the money out of Silicon Valley Bank uh and so Jim Bianco finishes finishes this in saying the FDIC needs to raise the deposit Insurance ceiling to unlimited as they did in 2008 besides 250 000 is a made-up number anyways so he says make up a bigger number um so this is Jim bianco's autopsy of of

what happened Ryan and so I'll pause there and kind of get your reaction from that yeah I think I think so we're getting right into the why this happened right but can we go over the facts of like what actually happened last week because to me and probably for a lot of people who aren't like glued to their screens this was sort of a whirlwind so we had silvergate bank which is a crypto focused Bank last week that um essentially did they announce uh unwind in solven NC um you know and that that was kind of the first I guess Domino to fall here and I believe that this was a fairly orderly process in that Equity shareholders were going to get wiped in

silvergate but depositors would be made whole and this was kind of announced set in motion I believe was that early last week now David and this is so this is Number One Bank Number One silvergate bank now what you're talking about here is Silicon Valley bank and they had what I guess we would describe as sort of a run on the bank where a whole bunch of depositors wanted to withdraw at the same time and couldn't and froze I'm just like I want to get the facts of uh what happened right first is um yeah what happened late last week uh is my video coming through I think I'm thinking Frozen it is it was frozen for a second but now it's back okay cool I don't see it on my end uh so so yeah

so people did a run on the bank uh and so all people started to understand that Silicon Valley Bank did not have sufficient liquidity and so it turns into a prisoner's dilemma uh and so as soon as some people started to realize they started to withdraw which starts to compound the problem right a classic run on the bank but why was it just Silicon Valley why not the entire banking sector like it wasn't like there was this whole Global scare where all American citizens are like I gotta withdraw why was it specific to Silicon Valley uh well I think because a lot of these banks are doing this uh the classic thing where they do where they uh invest customer deposits into long-dated Securities long-dated treasuries not all

completely but some of it and Silicon Valley Bank was the most egregious in having a mismatch between their short-term liquidity commitments some deposits and how much they were investing into long-term illiquid treasury bills and what depositors in the market just woke up and realized this they were like oh my god um rates are going up uh there was silvergate that had a banking crisis earlier this week we better check on Silicon Valley Bank because we know they they purchased a whole bunch of government government bonds essentially that are now kind of underwater and have decrease in price and so they might not have enough assets to cover late liabilities and if they don't have enough assets to cover liabilities then depositors funds are at stake withdraw

your funds like this this kind of communication is going on and it's phone calls Zoom calls telegram chats social media chatter amplifies it and that precipitates a run on Silicon Valley Bank as well and all of this happened what like Thursday and Friday toward the end of last week yeah that's correct and I don't really think there's any one like Silver Bullet that caused this whole thing I think really the messaging that I'm going getting is that as interest rates increased it would put more stress on the banking sector and that's fine but they did it too fast interest rates went way too fast and eventually that this catches up right you know remember when we had Jim Bianco on last time he was like yeah they're

going to continue to raise rates until something breaks well uh the combination what Jim Bianco saying is the combination of a mismanaged treasury which silicon bank has alleged to have been like very uh egregiously mismanaging their their balance sheet right not enough liquidity to too long investments into two long-term uh long-time Horizons uh treasuries and mortgage-backed securities and so as interest rates increase more and more Banks become under pressure and the first Banks begin to fall and it just so appears that silvergate Silicon Valley Bank and perhaps also Signature Bank are the ones that are furthest out on the risk spectrum and so they have taken uh the the first wave of hits when it comes to

stress in the banking banking sector does that make sense yeah I think it does so so I'm trying to understand like when we get into the so that's what happened there was a run on the bank and and then what did they just freeze they they stopped uh depositors from being able to withdraw their funds so there's an actual freeze on the bank so if you got in early enough you could actually withdraw your funds from Silicon Valley Bank and put it in another larger bank because I I guess that's where everyone is fleeing you you go from the weaker Bank to the stronger Bank um but at some point in time there's an actual freeze where Silicon Valley Bank said no more withdrawals we have to freeze the FDIC has right has come in the feds are here and they are now trying to sort things out and by the way

depositors if you had millions of dollars in Silicon Valley Bank you'll have to wait till Monday for more news this is sort of what happened on Friday right yeah and apparently the FDIC was uh eyeing svb prior to this so they had live data and were monitoring uh the bank prior to the actual shuddering of the of the bank and so they were ready yeah okay and then whose fault is this so so okay so we mentioned a few people right so we've got a few different stakeholders here we've got Powell and the FED they are raising rates very aggressively and very quickly we've got Silicon Valley Bank who has a balance sheet and they are purchasing

they can purchase Securities they can purchase all sorts of things but they have specifically chosen to purchase long-dated Securities and um some mortgage-backed Securities and then you have depositors which are a whole bunch of Silicon Valley Tech companies right but also some mom and pop businesses average every day uh Americans but disproportionately it was kind of like Silicon Valley uh VCS and startups and that sort those were the depositors here so of those three parties we've got like the FED we've got Silicon Valley Executives in management and we've got depositors whose fault is it that Silicon Valley bank is in this situation well I think a lot of people are are pointing fingers right now I

think it is a collection of all of those things mismanagement by the management of the bank a lot of risky uh startup Ventures making risky startup Venture bets in inside of a zero percent interest rate environment um and then you have Elizabeth Warren who's going after the banking sector causing uh spheres to have to to be had about silvergate which you know starts to permeate into like what are the banks that are very proximate to silvergate in terms of their client base well that's Silicon Valley Bank and also Signature Bank and so it's all of these things right and then it's the virality of social media and the fact that depositors weren't getting sufficient

yield on their deposits and so they withdrew from Silver uh from Silicon Valley Bank to go elsewhere it's all of these things um and so but so I think that's why the claim that this was kind of inevitable um Balaji I know is is really pointing the fingers at the powers that be if you will so he tweets out the FED said uh till December 20 of 2021 that inflation was transitory they let Banks buy bombs with customer deposits then suddenly hyped rates to decadal Heights the bonds they just sold got less valuable overnight anyone who trusted the FED got wrecked and now so do their customers so some some people are definitely just pointing fingers and saying it's the fed's fault uh the fastest hike in

history uh changed the Paradigm of investing way too quickly for banks to be able to respond and so rather than it being a slow transition from one Paradigm to another it was too fast it was too fast What whose fault do you think it is I I like I agree there's some shared blame here and there was the fourth that fourth category that you mentioned of like politicians just causing Bank runs um because they're chasing clout which is just crazy that that can happen uh these days but that seems to be the case but I I guess if I'm assessing those four different groups of who's at fault I feel like the FED has got to Bear the weight of this responsibility like maybe 40 to 60

percent right um decreasing rates to zero increasing them so fast money printer Easy Money era all of these things even allowing like tech companies low cost of capital and sort of bubble style of of um Venture Capital pricing and funding right so they've got a disproportionate view you could also of course blame any clout chasing politicians that were pushing a bank run you also have to blame Silicon Valley Bank don't you their management they didn't have to purchase long-dated Securities in this way I mean they knew they should have known the risks going in given the climate and given what of course the FED

is going to need to raise rates if they were managing risk and other Banks aren't in the situation if they were managing risks appropriately they would have had a different portfolio of assets kind of backing uh their entire Banks you have to wait a lot of the blame there maybe that that's another 40 maybe it's 50 or 60 I I could be persuaded but depositors did they like what's because I know there's been a lot of debate about depositors right it's like some people are like hey uh these Silicon Valley Tech Bros you know they're just Rich fat cats and hang them out to dry don't a lot of people at least on the political side of of Twitter were saying that we the FDIC shouldn't go above 250 000 per account and actually rescue some

of the depositors what blame do you think the positive bailout has been invoked recently right right and I think people have since we are 15 years away from 2008 this we've lost what the word bailout really means um and so this was a big Line in the Sand that was drawn that people were picking aside ons like it has a depositor as a customer of a bank do you uh does the word bailout mean something to you or are you just a client who needs to get your money back and I don't think in 2008 the word bailout ever meant about that was always directed towards the management and shareholders in 2008 shareholders of banks got bailouts in this in what's happening today with sbv and and silvergate and the other Banks

all Equity holders are going to zero they are not getting bailed out customer deposits the only thing that really seems to be changing here is that the ftic insurance number of a quarter million dollars is being temporarily expanded to Infinity as in if you are a customer you are not bearing any risk whatsoever of the bank and this is because the banking sector is at this point a public institution it is a public-private agreement between the fed and the treasury and all the commercial banks that are out there and so if you are a customer of a Bank inside of the United States you'll effectively meaningfully are a customer of a public institution and so if One Bank fails that doesn't mean you the customer lose your money for taking risks no one

really thinks themselves as taking risks when they deposit their money in a bank that and other people were like oh uh I don't like other people on crypto Twitter that I was seeing perhaps like the anti-capitalist left to cast a wide net over these people say like oh these are all just like millionaire billionaire startup people like if they get wiped out it doesn't really matter it started to get politicized but that conversation didn't really go forward anywhere I think people came to consensus that the word bailout specifically means for the management and shareholders of a bank and these people are getting zero they are getting nothing they are getting wiped out while all customers are being made 100 whole yeah and I I look I think that there's

also some recognition that um Silicon Valley Bank if you don't stop it here and you just dismiss that as oh those are those are the tech bro depositors we don't care about them right well next up is going to be your your bank like down the road maybe it's the funds that you keep in in Wells Fargo or Bank of America or something else like the contagion would spread and that was the real concern over the weekend I feel like we're maybe front running a little bit of this because what happened was the bank run on Friday right and then eventually was it announced late yesterday um the Biden Administration announced that they would um make sure make all depositors in Silicon Valley Bank whole do we want to share that side of the story yeah so a

joint statement came out really at the final hour Sunday evening I believe at 6 30 p.m eastern time it could not have been any later because it could have been on Monday morning right I guess so if it was still on Monday morning Asian markets were going to open and and that was going to start to create you know right so you know Finance is a global event right uh and so Asian markets need to needed to be quelled before uh they opened up and so at basically at the final hour they were the idea here is that the treasury FDIC was looking for a buyer to step in to buy silvergate Bank uh but that would happen I mean Silicon Valley Bank not Silvergames Excuse me

yes svb Bank yes uh a buyer did not show up in time I'm sure the assets under Silicon Valley Bank are great uh but the idea here is that they were waiting for a buyer to step in didn't happen fast enough and so at the final hour they issued this joint statement from the Department of Treasury the Federal Reserve and the FDIC so I'll read out a select a few paragraphs here um after receiving a recommendation from the boards of the FDIC and the Federal Reserve and Consulting with the president secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank in a manner that fully protects all depositors depositors will have access to all of their money starting Monday March 13th no associate no losses associated with the resolution of

Silicon Valley Valley Bank will be borne by the taxpayer put a pin in that one because we're going to come back to that one because how is that possible yeah how is that possible uh so the the punchline here is Babe wake up a new form of QE just dropped we'll cover that we are also announcing a similar systemic risk exception for Signature Bank that is also extremely po uh something that we need to to pull in here I'm gonna go find this that actually that section here Signature Bank no one knew that we were worried about Signature Bank it was Silicon Valley Bank that we're worried about and so in this press release they also say hey not only have we seized and paused and taken control over Silicon Valley Bank we are also

doing it for Signature Bank Signature Bank is the other main big crypto banking uh crypto Banker after silvergate bank it's actually like remember we found this out bigger it's ten times bigger 10 times bigger and so signature bank was closed by its state chartering Authority all depositors of this institution will also be made whole and with the resolution of Silicon Valley Bank also no losses will be borne by the taxpayer so two banks are getting seized by the FDIC all depositors being made whole Equity shareholders getting wiped out um they follow up and say shareholders and certain unsecured debtors will not be protected Senior Management has also been removed so this is the there is no bailout line there's no bailout like in

2008. any losses to the deposit any losses to the deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on the bank so that's really the punch line here um all all creditors all uh depositors into these banks are totally fine all Equity shareholders and Risk Takers are totally wiped out um so so treasury stepping in and saying okay we are not going to let this contagion continue we're not going to leave it in question whether deposits uh get protected or not or guaranteed or not we're just going to guarantee all depositors of Silicon Valley bank so that contagion doesn't spread right so stepping in and that's probably a good idea right they're also saying though maybe this is part of what you wanted to

put a pin in that it won't cost the taxpayers anything that's not how bad yeah right okay so the banks didn't solve it there's no money in the bank I run on the bank happen there are securities and treasuries that are worth certain amounts uh and so it's absolutely saying it's worth saying that like the value of what is on the balance sheet of these banks are strong they just can't there's time to maturity right they have to wait for those things to actually discover they may be underwater but they're not underwater like you know Luna Terra underwater like it's not going to Serious where there's nothing there right like most of the stuff is there it's just like this time to maturity thing is the issue uh and so there's there is a lot of but regardless

depositors need to withdraw immediately and so this is where this new form of QE is coming from which we'll talk about later in the show um uh uh and so this is uh tarun chitra who tweeted out I think this is from a Bloomberg terminal saying uh this is a member of the Signature Bank saying that I think if we had been allowed to open tomorrow that we could have continued we have a solid loan book we're the biggest lender in New York City under the low income housing uh credit said former Congressman Barney Frank a signature bank board member known for the Dodd-Frank Act which overhauled U.S financial regulation in the wake of the global financial crisis I think the bank could have been a going concern so a member of Signature Bank said that we

probably were good but they seized us anyways so this is part of where this is this an attack on crypto question comes in so that that's the first question that we're posing again was this a legitimate anti-contagent effort probably was it also an attack on crypto and also since the 250 000 Federal Deposit Insurance number is being completely neglected what's the real number is the real number is infinity now like they're all all deposits are now completely insured across all banks at all times because that's kind of the precedent being set here I think the answer to all those questions seems to be like yes yeah this is what it seems they were stopping the contagion right FDIC limit of 250k

that's the letter of the law it's not actually what's going to happen if there is Bank contagion the threat of Bank contagion then any deposit that you have in a U.S bank account is good it's solid you're good they're going to ensure that up to the whatever amount Infinity amount whatever amount they need to be and then also yes David I'm concerned that this is an attack on crypto if it and I'm wondering and I'm worried about this this hasn't been the case yet that we've seen but um there was the Biden tweet last night and if you read that where he said we're going to uh find those hold those accountable this one yes I'm firmly committed to holding those responsible for this mess fully accountable and continuing our efforts to strengthen

oversight who is accountable for this mess in Biden's mind in the exact in treasury's mind in the fed's mind do you think that they're going to like investigate inside the house like the call is coming from inside the house are they going to like go to Powell and be like hey you caused this maybe a little bit but all that are they also going to look for external actors to kind of smear and who will those actors be the fact that they are preemptively closing Signature Bank is not a good sign for crypto because if you believe who's that uh was that Barney Frank on the board yes that you just read if you believe him he was saying hey signature was fine we were going to

weather this storm not a big deal and they are being targeted for what reason I mean Signature Bank is essentially a crypto bank here yeah yeah and and Nick Carter is responding to this Biden tweet saying I'll crack the case for you Congress and your own Administration for causing the inflation that made the FED hike 500 bits and plunge all banks into insolvency is what is uh responsible for all this so the idea that the abiding Administration is going to go hold those accountable when it was like Elizabeth Warren stoking fears that was one part of this the Federal Reserve raising interest rates super fast that was another part of this like it's part of this whole entire apparatus and the own Administration is here to

blame not that like a different Administration would have done anything different but like raising interest rates way too fast and then Elizabeth Warren being very scary about the crypto banking sector has a lot to do with it right yeah but what I'm saying David is too is I think that they are prepping to throw Crypt they could be prepping to throw crypto under the bus here sure oh I think I think the headlines if you let me read mainstream media are all ready to say yeah the bet on crypto is what failed silvergate and Silicon Valley and signature yeah okay but right now Ryan Banks in this morning of trading started popping circuit breakers left and right so the there's a knife what is that what is

this down 74 my God so look at this so here at the top we have JP Morgan Down 1.5 right yeah Goldman Sachs down 1.9 C I think a Citigroup down 3.5 percent those are all the big ones right the big ones are fine because they're too big to fail aren't they yeah uh the and then there's other ones that are down five percent nine percent eight percent sixty five percent 75 26 so what's happening here is there is like a flight here's all the circuit breakers that just got halted on the New York Stock Exchange all in the banking sector uh and so First Republic Bank is the one that's down like 75 and other U.S Regional National Banks are their Equity values

the share share prices are just getting hit brutally well that's because shareholders are getting wiped right now aren't they not not on all of them but people are now realizing that Equity could be they could be if there is indeed a run on the banks because there's no bailouts coming for these Regional Banks and so small to Middle tier banks are getting absolutely pummeled right now because everyone realizes that FDIC Deposit Insurance is uh infinity is infinity and so like it all the the value of risk taking and the equity shares of these Banks is like why would you take that risk uh and so I mean stock price is of again middle sized or small size Regional banks are down

whereas the big banks are kind of totally fine uh here is XLF which is uh the sector for the banking sector the banking financial sector uh and so as you can see this is this is here it is on Tuesday and here it is now we are dead the banking sector as a whole is down 12 which I mean in crypto is kind of but I mean this could be good news for the big Banks right because for the big Banks well because it's consolidation right yeah there's a flight to safety there's consolidation here so here's a David sacks takes from the all in podcast the FED may or may not realize it but it has created a two-tier banking system tier one systemically important banks these are the two big to fail Banks if you have money there say true deposit you can't lose it tier two everyone else if you

have money there's not a true deposit it's an unsecured loan to the bank you could lose it in a bank failure uh and so I think this is what people are worried about is uh is what the president he put that tweet out it looks like he put that tweet out before the uh FDIC came and kind of oh you're right bailed out all depositors this is true so but I do you think it carries that like the tier two is everyone else whose shareholders could get completely white right shareholders are not are taking are all the risk here all the risk they're bearing all the risk depositors or bearing none of it seems like yeah and so here's a tweet from a jake shortbinsky which I think is actually like the great point to focus on as it relates to crypto banking Jake says the

closures of silvergate Silicon Valley Bank and signature create a huge gap in the market for crypto friendly banking there may be banks that can seize this opportunity without taking on the same risks as these the question is if banking Regulators will try and stand in their way so now that these crypto banks are gone the signature is gone right David signature is gone it's gone like so so and this just happened this was news as of yesterday so we didn't know this on Friday that along with svb that Treasury and that FDIC was stepping in to signature and wiping out shareholders again but protecting deposit funds we don't know why they did that but like that is this is the crypto banking sector right

these three Banks yeah so so Jano from blockworks says uh with silvergate and signature gone here are some crypto friendly alternative Banks uh BCB Cross River customers Bank Joel Mercury series Not Perfect Solutions but should get the job done um for how long though is this how the cards fall yeah and for how long like is Liz Warren done or is she coming after these next you know well yeah I uh I think that's the question of where this contagion could spread um wow so A lot's happened uh do you feel like this is contained right now I know we're going to talk about usdc but as far as the the banking sector itself in the U.S are we contained or is you know

are we what can we expect moving forward what have you kind of heard and piece together well I think with this announcement that happened Sunday night that was the containment right it was a complete end uh unquestioned unconditional protection of all deposits of anywhere in any bank account ever at least in this you know acute crisis that we are happening so no one that no one who has money in a bank should be scared and now that Bank Run fears are probably completely over because why would you fear it because they're just sick they're they're pulling out an infinite Insurance Fund for any deposits um the net effect of this is showing up in banking equities right instead instead of people losing money like all

of these small to mid-tier uh Regional banks are taking the losses that's why all these things are red so depositors completely in the green or at least not you know zero which is fine that's what they expected all of that risk and all of that loss is being is being transferred from depositors over to equity holders of these small to Middle tier Regional Banks and then the big Banks were like oh we don't care we weren't totally fine um is it contagion done I yeah right that's the whole point of the whole FDIC statement the contagion is over now it's just there's a complete reshuffling of what it means to be a Bank inside the United States the contagion's over for the depositors it seems like but we don't know how Bank shareholders will fare or the banks themselves will fare

but the market is interpreting this as good news if you are too big to fail Bank yes yeah well at least yeah so like they're being dragged down just by association but if you're a bank and you're only down 1.5 today you're you're that you're doing just fine wow well what else we got coming up David uh we're coming up we're going to talk about usdc actually we'll bang out some uscc stuff right now um so what was at risk was 3.3 billion of the 40 billion of total uscc reserves were at Silicon Valley Bank and so this is when stablecoin started to suffer lost their Peg right so I took the screenshot this morning have you ever seen stable coin charge like this in the bottom right here the closest ones the

closest was like three years ago this time when dive was trading it wasn't usdc right but I was trading off of its um Peg and it went down to like 92 cents or 93 cents yeah but even that was slow it was a slow Peg it was slow rise right and this is usdc usdc always been perfectly redeemable for a dollar fell all the way down to like 98 cents and it was trading out of it's trading down out of a scare that basically its deposits in Silicon Valley Bank wouldn't be redeemable and so you know the issued usdc was unbacked for a period of time is that why it was trading down yeah yeah so it got as low as 88 cents which I think is

irrationally low but uh it got it got there anyways uh and so this was this was really what was at stake and this is why crypto Market sold off so it sold off because usdc was under threat die is basically one to one pegged to usdc and so those two big stable coins went down to 90 cents or so and then also Silicon Valley Bank is the bank for many many startups um you and I we started getting messages from our Angel investment saying hey uh just FYI we were totally fine we didn't bank at Silicon Valley Bank that was best case scenario others would be like oh yeah we totally bank at Silicon Valley Bank uh we're kind of we're praying basically uh so that's what this last weekend was for

like so many startups and so these are these are all crypto bullish and crypto-adjacent people uh and so and so everybody really directly impacted the crypto markets through uscc Jeremy allayer put out this tweet uh yesterday at 7 20 p.m about one hour after the news that the FDIC was going to come and provide Infinity Insurance and he just he just says 100 of uscc reserves are safe and secure and we will complete our transfer of remaining svb cash to bny Mellon so all of circles deposits that back uscc are going from Silicon Valley to their other bank bny Mellon with a closure bigger Bank yep with a closure of Signature Bank we will not be able to process minting and

Redemption through Signet and we'll be relying on settlements through bny Mellon additionally we bring on a new transaction banking partner we'll Auto automated minting and Redemption potentially as soon as tomorrow that's today and we are committing to building a robust and automated uscc settlement and Reserve operations with the highest quality and transparency so uscc getting completely off completely solvent just picking new Banks now were you ever worried about uscc like this weekend how worried were you I think the worst the worst case scenario that I envisioned was that their deposits go to zero and all uscc just takes a haircut so like one uscc becomes worth like 93 cents or something like that I think that was the worst case scenario other people were like dooming that it's going to zero and that never really made any

sense to me what about you yeah I agree that never made sense to me and but even like the it only being worth 90 cents did it make sense to me unless unless the FED decided to not guarantee depositors at Silicon Valley Bank and and also not just that that wouldn't have been enough and also go and Target crypto or go and or the crypto banking sector like signature for example was also underwater in the same way that Silicon Valley Bank was so it felt like a there were even a lot of steps necessary to make usdc only worth like 90 cents potentially I do feel like the market responded irrationally about that

and I I thought all weekend I was kind of a little I was more relaxed about this because it seemed obvious to me that treasury would have to step in and stop this contagion of the source you you just can't have a bank run on a top 20 Bank in the U.S right in this in this climate where you have interest rates you know above five percent and you have a lot a lot of other banks that are looking at um Silicon Valley Bank and being like Oh God and then to the the fact that that you mentioned Jim tweeting earlier was like now we're in uh web 2 banking essentially so you can just deposit on a dime that's what everyone was preparing to do on Monday morning yeah yeah that's right and I think if you do this math

3.3 billion of the total 40 billion of uscc reserves were under threat at svb so that is 8.25 cents on the dollar for one uscc so if that went to zero you would have a 92 and a half cents or 91.5 cents uscc but again remember remember svb it's not like they didn't have nothing there like they were had plenty of total they had like 90 of 90 or something right and so like the idea of uscc losing even you know close to 10 cents was never getting David crypto is just jittery man they're like oh does like crypto learned a lot about reactionary yeah crypto learned a lot about banking I think last week I mean we just live in 2022 we live

through a stable coin called uh you know usdt the Luna Terra ecosystem that dropped to zero right right we saw FTX which was like a crypto bank that had nothing uh backing its deposits and so I think people in crypto sort of extrapolated that to the U.S banking system we're like oh usdc could drop to zero yeah and now usdc to USC conversions are completely online and operational uh and this is coinbase tweeting this out uh so uscc crisis inside of two and a half days completely fine and I wouldn't even call it a crisis in the first place okay so coming up next we got to talk about the markets because crypto is up big uh and also we

have to unpack uh we've got 10-year the 10-year treasury falling down below the 200-day moving average down to three and a half percent we'll talk about how that's actually kind of a solution to the problem that created it in the first place I will talk about uh is this an attack on crypto and what are people saying all about that and really the punchline here is that is this the pivot is this the pivot moment so we're gonna get to all those details and more as soon as we get to some of these fantastic sponsors that make the show possible uniswap is the largest on-chain Marketplace for self-custody digital assets uniswap is of course a decentralized exchange but you know this because you've been listening to bankless but did you know that the uniswap web app has a shiny new Fiat on-ramp now you could go directly from

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and support on your journey West I'll see you in the Discord we are back and as of this morning the 10-year yield has fallen below 3.5 percent 3.5 and so yields are coming down which is I actually ironically a huge solution to what is causing this Bank Run in the first place this Bank banking crisis is that yields got too hot and these uh treasuries and asset-backed securities that all of these Banks bought because interest rates went up the value of these things went down so yields are going down to 3.5 percent uh the FED fund Futures is now showing a 60 odds 60 chance of zero bips increase in the next

uh the in uh raising the interest rates so now there's a six the market is pricing and sixty percent chance that we do not increase yields that's up that's up from 35 it looks like in the last uh you know yes 12 hours or so right and so Ryan the market is saying the FED is done something broke so many people that all the macro people that we've had on over the last year have said the FED is going to raise interest rates until something breaks something broke I think something broke yeah you can't you can't just keep raising interest rates until you have Bank runs across the country right so this is has to affect their policy moving forward yes that's exactly right and so uh people are not and this

is I think part of the story why crypto is absolutely ripping today ether's almost at 1700 Bitcoin is at almost twenty five thousand dollars two thousand twenty four thousand three hundred fifty um and so the market is starting to price in a Fed pivot um not only that but we have a new form of QE and so this is Caitlyn long who said who's saying the big four U.S banks just got a 210 billion dollar fed bailout how fed's new uh Bank insurance program this is the new insurance program that they K that they come up with to help uh ensure the depositors that new facility is allowing Banks to borrow against the negative collateral value shown on this graph at par instead of the actual market value so that time to maturity

banks are allowed to borrow against their assets at the time of maturity not the time not the value that they currently are that just happened yesterday that just happened yesterday I want everyone to know this so part of that press release wasn't just that um depositors at Silicon Valley Bank and signature would be safe and so are all depositors in the U.S system but they also kind of like snuck this in right which is which is basically that um these Securities would be valued not at their market value not what they can be sold for in the secondary Market but at their par value right that's just that's as if you bought a house for say a

hundred thousand dollars or something right and the market dropped it's now worth sixty thousand dollars but for whatever reason the U.S banking system decided to say uh whatever the market price isn't right sixty thousand dollars right we'll we'll give you a loan based on a home equity loan based on the hundred thousand dollars that's what they're doing the hundred thousand dollars plus all of the rental income you could be getting over the next 10 years right that that's what the par value is essentially and so that is a huge uh QE measure to the entire U.S banking system I haven't fully wrapped my head around what this what this means but that was kind of snuck in there and they're doing this so that um another Silicon Valley Bank doesn't pop up right right exactly they're doing this because

people need liquidity and so they are offering liquidity to the highly capitalized Banks and in a way that allows basically this is a form of QE this is a sneaky form of printing money that isn't actually the money printer uh so this is why I led this section this tweet with like babe wake up a new form of QE just dropped they love new forms of QE money printing that doesn't actually appear like money printing this is taking Equity values of assets that don't exist and allowing people to borrow against them it is a new form of money creation it's basically so that all the other Silicon Valley Bank situations where they purchase too many long-dated Securities right and now they're kind of underwater it's so that that doesn't

happen again that's right because Silicon Valley Bank could just like rinse wash repeat for every weekend Bank in the U.S who who did this kind of maneuver and there are probably many of them and so this kind of but but it is how are they going to pay for this money supply that's essentially it yes okay so we have uh treasury yields coming down uh which means risk taking can go up right we have the FED funds Futures now showing 60 odds of not increasing right after the FED said like Hey we're totally gonna increase by the way but and not even a little bit by a lot now remember that was last week the FED last week said oh yeah we're going to increase it by more than 25 bips um today the the market is pricing in 60 odds they're not doing anything uh we

have this new form of QE coming so what does crypto do what's crypto do Ryan Bitcoin is up 12 ether is up nine percent BNB is up eight percent crypto is green across the board and this is one of the first times Ryan that I've actually seen crypto price action be related to the actual point of crypto in the first place which is self-custed Bearer asset instruments crypto is being priced by its fundamentals it's so good to see yeah I mean not only just did we just say that uh usdc is is safe which is obviously good for for crypto if that had not have been safe Not only would have been terrible for the U.S banking system would have been terrible for usdc

and I think crypto would have gotten hit uh on top of that we also um have seen that the FED pivot is in full motion and then we've also seen this is the thing that crypto is built to uh prevent is Bank runs contagion this is what Ethan Bitcoin do very well where D5 you can see kind of all of the assets that that back um that that back any kind of Len lending or borrowing asset on chain you can see all that you have full transparency you can't get these types of Bank runs in crypto so the use case has just been proved out even even more so Ryan here is uh where we finish the weekly roll up last Thursday there's the candle that happened right after we

recorded the weekly roll-up ether went down as low as 17 down 17 since we recorded last Thursday but it's actually ending the week uh ending the weekend excuse me up two and a half percent wow that's ether here's Bitcoin Bitcoins actually up even better uh so Bitcoin is doing the same thing Bitcoin is up about through four percent since uh we recorded last Thursday uh here's the uscc price look at that nuts that is absolutely crazy zoom out zoom out what do you mean just keep zooming out I want to see it's like look at this that's a silly chart that's very very silly uh so USC gets as low as man as low as 88 cents and now it's back up

it's actually over a dollar oh no it's not point point nine nine nine cents for one usdc wow Joe weisenthal tweets up Bitcoin is up about 10 last 24 hours one of the cleanest divergences for other risk assets that I can recall uh and I just love this one man look Bitcoin up nine percent ether up six percent Bank down nine percent East West Bancorp down 16 Financial Corp down 18 Banks down crypto assets up you'll love to see it not only this though uncorrelated CZ has said that he is going to convert the 1 billion Industry Recovery initiative funds from buse into Bitcoin and BNB and eth uh and so

cz's Market dumping b s b u s d for crypto assets well this is great do you remember that there were okay so another byproduct of this that we'll be talking about I'm sure in the weeks to come is uh there was a threat at one point in time that centralized stable coins like usdc would essentially eat the money use case of crypto so why do you need Bitcoin why do you need eth if you have a stable coin on chain right all the monetary premium will kind of leak into stablecoin assets this is showing why that can't be the case and why that won't be the case and why Bitcoin and ether and crypto native assets that aren't dependent on any external uh banking system why they will always be

core monetary units of of crypto and this is providing more strength to them and less strength to the the stablecoin use case are you ready for a meme yeah corporate needs to find the differences between this picture and this picture one picture on the left is all of the uh banking stock circuit breakers popping off because they are down bad and then Bitcoin absolutely mooning and apparently according to nlw these are the same pictures I just love it when bankless assets Moon while Banks get hammered not that this is I'm not happy about that in the banking sector this is a fault of or so many other things but this has been not effective that right and so Ryan I think this brings us to the last part of this

conversation which was was this an attack on crypto was what we should have we should Define with is it are you talking about the Signature Bank portion of this or like the Silver Gate portion of this or what portion of this uh because it's not all an attack on crypto I almost feel like it's in the cap cap of like Camp of um an opportunistic attack on crypto if you will I think that's right I think that's right but it's worth pointing out that January and February were marked by operation choke point right they were coming to dbank crypto and then fast forward to March the crypto banks are taken are seized by the FDIC like it was an opportunity to attack but attack nonetheless so that's really how the this 2023 started and now

we're 13 days into March and our three biggest crypto Banks got seized so like how what's the net effect of that well like crypto Banks or crypto is now being debanked it's being debanked in the US right which slows down the Fiat inflows crypto and which is a bad thing in the short run but I wonder if it's not a good thing in the long run David I mean there are elements of Have We Become too dependent on the U.S banking system this really shows the strength of ethereum and Bitcoin like they can debank U.S citizens for a period of time but you can't debank crypto right crypto is the bank the capital will find a way to leak back into crypto like it always does and crypto will continue to grow and grow and grow over the long run you really

can't debank crypto and I don't think that um those trying to uh I guess uh choke off crypto in the US fully understand this yeah I I think that's right but I think also at the same time we're going to be hearing this narrative like we already are seeing the headlines of Bank fails because of crypto Bank fails because of crypto those headlines are left and right and so Brian Quinn 10 quinten's tweeted out so the Federal Reserve hikes uh Heights rates by 400 basis points in 12 months that's four percent sending all asset prices into a tailspin inverts the yield curve the most since 1980 causing large Regional Banks like keycorp to raise alarm bells on funding costs and crypto is the problem and so he's saying like why crypto

should not be the problem this is this is uh a result of all of these endogenous factors that have nothing to do with crypto right um here's Nick Carter saying dear God Barney Frank openly admits that signature was arbitrarily shuttered despite no insolvency because Regulators wanted to kill off the last major Pro crypto Bank Colossus Scandal this is linked in a CNBC article this is linked to NAC NBC article let me see if I can find this um I think part of what happened was that Regulators wanted to send a very strong anti-crypto message which is why

silvergate was taken taken down they're just saying that the the quiet part out loud in public for in public Fashions right and so this is your tweet from this last weekend silvergate svb Signature Bank these are Banks Banks had to be shuttered not crypto and so the narrative here is that they're going to try and blame crypto and we have to remind them that it was actually banks that failed not crypto that failed be happy to this is where the battle for hearts and Minds come in because I think there's going to be a narrative battle in the coming weeks and months between those that want to blame crypto for this and uh we who want to show that crypto was the thing that was standing uh at the end of this it was the banking system uh that has failed not not crypto but I think we're

I think this is going to be a narrative battle for hearts and minds and a fight for mainstream what like the mainstream narrative what does the average uh American citizen actually believe at the end of this yeah here's miles Jennings who's uh the legal counsel at uh a16c uh the FED shooting the absolute hell out of the U.S banking system and then turns to the camera and asks why would crypto do this I love that well that's where we are right now David is uh anything else you want to say in summary and closing that's all I got man that's all I got what a weekend guys we hope this helped get you up to speed David what are we doing tomorrow we're

bringing David and I are not banking Financial system experts uh we know a thing or two when we can piece a story together and we know how it intersects with crypto but we are bringing on someone who does tomorrow for state of the nation who's coming on tomorrow David and what do we do we are bringing on um apologies in advance RAM for butchering your last name Ram ALU Walia uh who is a capital markets banking sector expert at least far more than we are who also uh very much understands the crypto world as well uh and I the agenda that I made for that show Ryan is already obsolete so I'm gonna have to make another another one tonight uh but as the events continue to unfold for the rest of the day today uh the market doesn't close for another 20 more minutes or an hour 20 more minutes I

don't know um Chad Marcus um but all of those all the things that happen today are and all of the news of that's going to be projected out the next following months or so we're going to talk about that all throughout the state of the nation tomorrow there we go the contagion seems to be stopped for now usdc is fine crypto held up during the weekend as it always does it was a crazy weekend a lot of uncertainty for a lot of folks seems to be mainly resolved but I can't help but uh ask myself ask the question of is this all over have we seen the last of the crypto of the of the banking contagion I should say um we'll see it does seem like a Fed pivots on the way but will that be enough or will we see some other cracks

form before the end of all this we'll have to see yeah I think the last thing I'll just say is like yo if you are the crypto class of 2021 and 2022 man you guys haven't heard about Stripes you guys have experienced a lot yeah for your first run yeah I there there was a time where I thought oh clap you never you'll never match class of 2018 2019 and the hell that we lived through but like I don't oh this this is a pretty bad one this is pretty bad and you're seeing it all and hopefully getting a crash course on how our money system works as a result which is only a good thing moving forward David you're doing uh you're getting off of this in the next 50 minutes and you are doing a Twitter spaces for uh the

Brian Armstrong bankless collectible right what's coming up there that's exactly right yeah so uh we are always Monday mints uh mint the podcast nft that goes with every Monday podcast that space is starting in 17 minutes are you gonna are you gonna be there I I don't think I can make it I gotta go do something else go talk to somebody about something else not to be yeah but uh we just had a killer episode with Brian Armstrong so if you guys are completely done with all of this Banking and contagion talk I want to talk about some crypto things and all the cool things that coinbase is doing uh that Twitter space is starting in 17 minutes yes and it's your opportunity to Mint and collect the Brian Armstrong nft podcast guys we'll land it this way with risks and disclaimers we usually say crypto is

risky I don't think that fits this episode the U.S Bank system is risky all right banks are risky you could lose what you put in hopefully it's FDI and FDIC insured but we are headed west this is the frontier it's not for everyone but we're glad you're with us on the bank list Journey thanks a lot foreign