The SVB & Signature Bank crashes are connected ultimately to the overriding principle around free money, incredibly loose- & now very tight monetary policy, and things breaking: Anton Eser, 10Xinvestments on MoneywebNOW. Download the podcast
SIMON BROWN: I’m chatting with Anton Eser, chief Investment officer at 10X Investments. Anton, I appreciate the time. Silicon Valley Bank, or SVB, is a bank I don’t think anyone outside of Silicon Valley had heard of this time last week. We’ve really seen a classic bank run here, and I think, perhaps importantly, this isn’t crookery; it’s not toxic assets. This is management who mismanaged.
ANTON ESER: Yes, that’s right. In the end, if you are thinking about the confidence perspective, if you are a deposit holder, you’re not really taking much in the way of upside risk. If there’s any sniff of risk or mismanagement or losses you can very easily move your money out of that bank to the one down the road or to a bigger bank, which is what happened at SVB.
The same thing happened, Simon, with Signature Bank, which is actually the third-largest default that we’ve had in US banks. That actually also happened during the course of last week. So it’s not completely isolated. This is the third bank failure now we’ve had in the US in the last couple of weeks.
But the thing which is clearly going on here is that this is all a function of what’s happened with the most substantial and dramatic increase we’ve seen in interest rates in the US in nearly 40 years. And when that happens, especially after 15 years of close to zero rates, apart from a couple of years, we should expect things to break. In the end we can’t be certain where those things will happen.
So that’s really what SVB and Sovereign Bank are all about. It’s effectively what Signature Bank is all about. It’s effectively about that change in monetary policy which we’ve been seeing in the last 15 months. Last year it was liquidity. That was what happened last year with financial assets.
ANTON ESER: That’s right. In some ways this could be positive for the bigger banks. I was surprised to see that in the US there are over 4 000 commercial banks, so there are a number of smaller versions of SVB and Signature Bank out there. So what you would expect if you’re a deposit holder [is] I’m sure they are feeling more confident because they’re insured. But why hold your money with a small regional bank when you can move it to JP Morgan or Citi.
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