by Dr. Joseph Mercola, Mercola:
STORY AT-A-GLANCE
- Three large banks failed in a single week in March 2023, and the ripple effect could easily take down the entire banking system. The cascading bank failures began March 8 with the shut down and liquidation of the crypto bank Silvergate Capital. It had invested deposits in Treasury bonds, which lost value as interest rates were hiked to stem inflation
- March 10, Silicon Valley Bank (SVB) failed. It too was invested in government bonds, which again became a problem when customers began making large fear-based withdrawals. This was the second largest bank failure in U.S. history, and the largest since the financial crisis in 2008
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- Spooked by the failure of Silicon Valley Bank, Signature Bank customers withdrew more than $10 billion in the days that followed, resulting in the shutdown of Signature Bank on March 12
- Government regulators have promised to make customers of the two banks “whole” by insuring all funds, not just the first $250,000. Only select “too big to fail” banks will be eligible for this kind of special treatment. Small local banks will not be eligible
- The most likely outcome of this bailout system is a consolidation of banks until we’re left with just a small number of mega-banks. This consolidation, in turn, will facilitate the rollout of a central bank digital currency (CBDC), as the banking industry will be a tight-knit monopoly
Three large banks failed in a single week in March 2023, and the ripple effect could easily take down the entire banking system, although government officials insist the banking sector “remains strong” and that the problems faced by these banks “do not appear to be widespread.”1
Cascading Domino of Bank Failures
The cascading bank failures began March 8 with the shut down and liquidation of the crypto bank Silvergate Capital.2 As reported by Government Executive:3
“During 2022, Silvergate’s deposit base grew dramatically, almost doubling its assets to $210 billion. But the bank did not have either the administrative capacity or market demand to lend out all of the money, as banks normally do.
So, it invested the excess deposits in Treasury bonds and mortgage investment products. But the bond purchases became a problem as the Federal Reserve began to raise interest rates to address inflation.”
Two days later, March 10, Silicon Valley Bank (SVB) — the 16th largest bank in the U.S.4 — failed. It too was invested in government bonds, which again became a problem when customers began making large fear-based withdrawals. This was the second largest bank failure in U.S. history, and the largest since the financial crisis in 2008.
Allegedly “spooked” by the failure of Silicon Valley Bank, Signature Bank customers then withdrew more than $10 billion, resulting in the shutdown of Signature Bank on March 12, making it the third-largest bank failure in history.5,6
The Federal Deposit Insurance Corp. (FDIC) took control of Silicon Valley Bank and Signature, and government regulators have promised to make all customers “whole” by insuring all funds, not just the first $250,000. In other words, government is bailing out the banking system yet again, on the taxpayers’ dime.
Within a week, Signature was bought up by Flagstar Bank, a subsidiary of New York Community Bancorp (one of the largest banks in the U.S.).7 According to the FDIC, anyone who had deposits at Signature Bank will automatically become a client of Flagstar Bank, except for crypto banking clients, as Signature’s digital banking business was not included in Flagstar’s bid.8
The FDIC is also left holding $11 billion-worth of “toxic waste debt” in the form of commercial real estate loans for rent-regulated buildings, as this debt portfolio was also rejected by Flagstar.9 The FDIC is still looking for a buyer for Silicon Valley Bank.
Is the US Banking System Really Sound?
President Joe Biden’s comments shortly after the three bank failures was that “Americans can have confidence that the banking system is safe” and that “Your deposits will be there when you need them.” Treasury Secretary Janet Yellen also insists the U.S. banking system “remains sound.”10
Should we believe them? Probably not. Within days of those statements, the contagion had already spread to Credit Suisse, the largest bank in Switzerland. After government initially stepped in to cover some of the losses, the Swiss banking giant was sold to the UBS Group.11 The acquisition was announced March 19.
It’s hard to believe the ripple effects of bank failures of this magnitude can really be stopped. The question is, should we even try? As reported by Government Executive,12 government has no obligation to step in and bail these banks out under current banking regulations.
What’s more, the biased bailout system now being put into place will virtually guarantee further bank consolidations and the widespread rollout of a central bank digital currency (CBDC). As reported by Newsweek March 16, 2023:13
“During a Senate Finance Committee hearing, Yellen was grilled by Oklahoma GOP Senator James Lankford over the Biden administration’s handling of the banking crisis, which saw the federal government offer a multibillion-dollar bailout to Silicon Valley Bank (SVB) after a bank run left it without enough cash to back up hundreds of millions of dollars of its clients’ deposits. Most of those deposits were not insured.
To address the crisis, U.S. bank regulators announced a plan last weekend to fully insure all deposits at SVB as well as the crypto-friendly Signature Bank.
This would cover all deposits above the Federal Deposit Insurance Corp.’s insured limit of $250,000. Federal officials said the plan would be paid for by a special fee levied on all FDIC institutions.
While all banks would be required to pay for the plan, Yellen said under questioning Thursday that it would not apply to every bank. She said the federal government would extend the privilege only to troubled banks whose failure would have a profound impact on the U.S. financial system.
Uninsured deposits, Yellen said, would be covered only if a ‘failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences,’ which would be decided by a supermajority of the FDIC’s board members, Yellen, and the President …
In further questioning, Lankford asked Yellen whether that policy’s implication would be that small banks would become less appealing to depositors with accounts exceeding the FDIC’s $250,000 insurance threshold …
Amid the sharp increase in bank mergers over the past decade, Lankford expressed concern that the trend could only accelerate under current policy, causing the U.S. banking system to become less resilient.
“I’m concerned you’re … encouraging anyone who has a large deposit at a community bank to [hear], ‘We’re not going to make you whole, but if you go to one of our preferred banks, we will make you whole,'” Lankford told Yellen. Yellen replied, ‘That’s certainly not something that we’re encouraging.'”
And yet that’s exactly what this policy will be encouraging. Actions speak louder than words, and in this case, the outcome of this policy is quite clear, regardless of what Yellen is saying.
To recap, the FDIC will only insure deposits up to $250,000 if your money is in a small bank, but if your money is in a big bank, uninsured deposits over that amount will be covered as well, should the bank fail.
