Details leading up to the recent bank failures are starting to emerge. For example, on February 28, 2023, Moody’s told Silicon Valley Bank that it was considering lowering the rating on SVB’s debt by one or two notches. Three days later, on March 3, SVB called the Goldman Sachs bond trading desk, asking the brokerage to assist them in selling $24 billion of debt securities sitting on their balance sheet. On March 8, Goldman bought the bonds for $21.45 billion and began to sell them on March 9. Later that day, after the market close, SVB announced publicly both the bond sale to Goldman and a proposed stock offering to raise capital for the bank. That was the beginning of the end. Before the close of the day on March 10, the FDIC had put SVB into receivership.
Oh, and another piece of the timeline. In the 24 hour period between March 8 (the bond sale date, see above) and March 9 (public announcement date), SVB bank depositors, many of whom are incredibly sophisticated and well-connected, had withdrawn a massive $45 billion from the bank. Hmm.
It’s curious to some that the bank run somehow started before SVB’s public announcements on March 9. It’s almost as if a number of very lucky folk knew a great deal about what was going on before Joe Public did. And the same depositors who withdrew their funds had contractual agreements, which required them to keep their deposits at the bank or face severe penalties. Somehow, these depositors were so desperate to yank their deposits that they willingly violated those agreements and sustained the penalties. I am not sure what information these depositors learned that caused them to act so hastily without regard to their agreement and breach consequences. Call me cynical but I am also guessing that a number of those in the know were probably selling a boatload of SVB stock between February 28 and the evening of March 9. I can only hope that the appropriate authorities have already issued a wide swath of preservation letters and/or subpoenas to those involved, including the usual suspects.
On another note, kudos go out to Commissioner Crenshaw for her belated statement of concern about retail investors being unable to exercise options they purchased on SVB and Signature Bank stock (see https://www.sec.gov/news/statement/crenshaw-statement-retail-options-031723). It’s not clear though why the other Commissioners don’t share her concern publicly and perhaps more importantly why Division of Market Regulation or the SEC Chairman didn’t immediately call the brokerage firms on the carpet to find out what is going on with those options. After all, the SEC’s primary mission is to protect investors, both big and small.
The SEC in Action 