Are You Sure Your Bank is Safe?

If you haven’t heard of these 3 bank collapses over the past few days, then you may want to read this article to know how you can make sure your bank accounts are ok:

Silicon Valley Bank

Signature Bank

Silvergate Bank

Notice they all start with the letter ‘S’. Of the 3 bank failures, Silicon Valley Bank gained the most attention. The reason for its failure is quite complex because it involves the loss in value of its bond portfolio. So I asked ChatGPT to explain the relationship between the Federal Reserve raising interest rates so quickly over the past 10 months, and the loss of bond portfolio valuation. Here’s the reply:

Higher interest rates can cause losses in a bond portfolio for a few reasons. First, when interest rates rise, the value of existing bonds with lower interest rates decreases, because investors can buy new bonds with higher interest rates instead. This means that if a bank holds a bond with a lower interest rate, its market value will decrease, resulting in a loss if the bond is sold before maturity.

Second, rising interest rates can also lead to a decrease in demand for bonds, as investors may prefer to invest in other securities that offer higher returns. This can result in a decrease in the market value of bonds, which can also cause losses for the bank.

In the case of Silicon Valley Bank, higher interest rates likely caused losses in its bond portfolio because the bank held bonds with lower interest rates, which decreased in value as interest rates rose. Additionally, if the bank was unable to sell these bonds, it may have also experienced a decrease in the market value of its bond portfolio, resulting in further losses.

ChatGPT

In simpler terms, Silicon Valley Bank (SVB) had, some years prior, bought US bonds when the interest rates were low. Remember those good old days before the Fed went on its inflation fighting strategy, which significantly reduced demand for new mortgages in the housing market? Yeah, well the collateral damage of that move is that those who held bonds at low interest rates were basically upside down like a lot of you who have auto loans that are upside down. In this scenario, it’s smart to just keep the asset until you’re not upside down, when interest rates are more favorable.

But unfortunately, SVB ran into a bank liquidity problem prematurely because a few of its bigger customers, perhaps with their own financial issues, withdrew big amounts that the bank couldn’t easily cash. So SVB scrambled to raise enough money a few different ways. When those failed, they had no choice but to sell those low interest bonds at the worst possible time to try to have enough money to honor those withdrawals.

That last ditch effort failed miserably last week, resulting in the largest bank failure since 2008.

Curiously, just 2 weeks before this catastrophe, the CEO of SVB sold shares in SVB at nearly $250 a share, then immediately bought the same number of shares for less than half that. Is this suspicious? It might very well be because one of the main tasks of a bank is to protect deposits from financial adversity. Savvy bond investors know that if the Fed is about to start hiking interest rates a lot in rapid fashion, then that’s the time to look at bond portfolio diversification. Clearly, that didn’t happen in this case when the Fed started raising rates last May 2022. So the CEO waited nearly 10 months to sell shares but not sell bonds at a smaller loss? I think the Feds will likely investigate this lapse in judgment in the weeks ahead.

What does all of this mean for average bank customers?

If you haven’t checked out my video regarding Wells Fargo and Wendy Williams on our YouTube channel or Instagram page, do check it out now. In it, I’ve been raising questions about the curious move the bank did to freeze Wendy Williams out of her bank account which is in the tens of millions of dollars. Wells Fargo claims Wendy is essentially too mentally incompetent to manage her account, according to numerous news sources and Wendy herself. The bank has no court verified proof of her mental capacity, nor any power of attorney authorizing the freeze.

In my professional opinion, based on years of consulting for large banks, I’ve never heard of a bank doing such a thing without a court order. But keep in mind that after the 2008 Recession, where the Obama administration bailed out big banks. a new law went into effect where the government would no longer bail out banks. They instead gave banks permission to “bail in.”

A bail in is where the bank treats your account as if it’s THEIR asset, not YOURS. Many of you probably didn’t know that. On top of that, I found this barely mentioned government website (U.S. Office of the Comptroller of the Currency) that explains how banks can close your account for any reason without notice to you:

The bank closed my checking account and did not notify me. Is this legal?
Yes. Generally, banks may close accounts, for any reason and without notice. Some reasons could include inactivity or low usage.

Review your deposit account agreement for policies specific to your bank and your account.

If you believe your account was wrongfully closed, you can file a written complaint with the Office of the Comptroller’s (OCC) Customer Assistance Group.

Last Reviewed: April 2021

U.S. Office of the Comptroller of the Currency website

That “for any reason and without notice” phrase is very important. This should be against the law as the public only knows that criminal or terrorist financial activities are grounds for closing accounts. Be sure to follow our YouTube Channel and Instagram page as I will be covering Wells Fargo and Wendy Williams in future videos.

It turns out that Wells Fargo is the 2nd most tech friendly bank behind Silicon Valley Bank. That means those of you with deposits there will want to watch your accounts from now on. Don’t assume “too big to fail” will save you. Be diligent. The Feds teamed up to take over the 3 banks I mentioned earlier, meaning that they will seek big banks to take over part or all of their assets and operations soon. Names mentioned in the press include Wells Fargo, JPMorgan Chase and Goldman Sachs. Bank of America and Citibank are not out of the question, though less likely.

But is this a bailout or bail in? You decide.

The key phrase to watch for this week is that the Feds will “fund” the quasi bailout of the 3 failed banks by way of a “special assessment” on big banks. Before 2020, the Feds would do a 5-point assessment on banks over $50 billion. But since 2020, they doubled that minimum to $100 billion. Did they foresee this series of bank collapses? Who knows. But it’ll be interesting to see how much they assess on big banks, and if the banks are financially sound enough to absorb the assessment, which has a 1-year term. If the banks can’t absorb it, then by March 2024, a bigger banking collapse could trigger a contagion worldwide, it seems.

It ain’t over yet. This drama is gonna unfold for a while. The potential domino effect could come to your bank account.

Side Note: How is it when these big catastrophic events happen, some insiders always get a tip in advance to save themselves as in the case of this CEO interviewed by CNN:

As mentioned, all the big $100 billion+ banks will be levied a “special assessment” to fund this quasi bailout. Given the lack of fractional reserve requirements in recent years, we’re about to find out which banks are exposed as weak. This assessment will likely trigger a damaging domino effect, creating a banking crisis that would lead to a bail in of YOUR deposits in the months ahead. So technically, taxpayers won’t pay for it, but average depositors like us will 🙄 It’s mere semantics as both taxpayers and depositors are one and the same.

The “too big to fail” expression is just Orwellian doublespeak to outwit the public into thinking the Feds will rescue the big banks again, despite rules put in place saying otherwise. Wells Fargo has been controversial in recent years, and that direct deposit “glitch” on Friday, March 10th, was really them tipping their hat on what is to come soon.

We’re gonna be surprised how much we’ve been lied to regarding the health of these big banks. In my opinion, they’re all like SVB, just bigger, so it will take longer to unfold.

So is any bank safe? Don’t take any bank for granted from now on. Gold and silver are looking better and better right now as a safer haven for your money. But for now, I’ve been telling my inner circle of people with deposits and savings in big banks to watch their accounts closely. Smaller regional banks that are not overexposed to crypto and mortgage-backed securities should be ok for now unless they have a few major depositors who, if they withdrew huge amounts, could trigger a liquidity crisis. Definitely stay away from the big ones. Just my opinion but the Fed is relying on the big banks to “help” but will they be able to? 

The events that have been unfolding since the Fed started hiking interest rates last May are following the same sequence of events from the 1920-21 Depression, which followed a series of rapid rate increases by the Fed, on the tail end of the Spanish Flu pandemic and war in Europe (WWI, not unlike the War in Ukraine now). The economy exactly 100 years ago into a deflationary tailspin, making business difficult for many companies. Is history repeating itself?

Strap on your seatbelts, brothas and sistas. You’ve just been forced onto a rollercoaster ride you didn’t ask for.