Yahoo Finance Senior Writer Ethan Wolff-Mann joins the Live show to discuss the U.S. banking crisis and what led to it, which companies were most impacted by the SVB collapse, and the expectations for the Fed.
Video Transcript
BRAD SMITH: The understanding of what will happen or is happening to the US banking system may take some time to untangle. But over the last few days, a clearer narrative has begun to come together on what has happened so far in this crisis. You can read all about this in today's Morning Brief over at the Yahoo Finance home page. But for a deeper dive, let's welcome in the writer of the Morning Brief this morning, Ethan Wolff-Mann. Ethan, great to have you here with us today. All right, so help us dive further into your thesis here.
ETHAN WOLFF-MANN: Well, I think it's really helpful for any time there's something that seems, or at least, sounds complicated, to look at some charts. I think the data tell an interesting story here. And kind of going through this, I selected 10 charts that I think makes this clear for folks who maybe don't spend as much time looking at financial markets or banks or banking because it's boring to a lot of people. And sort of starting from the fact that, OK, this really began when the Fed started raising rates and how that started to affect things, and sort of, I keep coming back to this idea of a floodplain. As the rates rise, certain structures are exposed and maybe don't have the structural integrity you'd like to see and essentially get soaked, which is what happened.
And so, looking at a few things I think were really helpful, looking at how deposits grew in Silicon Valley Bank is really interesting. As you can see, things kind of went crazy. They were used to having things pretty calm. Look at the mid 2000 teens, and then really in the past two years, after the early COVID situation, they were just rolling in deposits as we had this tech boom. And they got a little over their skis, obviously. We heard on the Morning Brief earlier that Julie wrote how they had-- actually, I thought it was Morning Brief, but Julie wrote an article about how the risk in these bonds, when you have a safe space to put treasuries, those may be really safe, which they are.
We had a lot of people on Twitter talking about how, oh, no, bonds aren't safe. The Treasury, the US government thing, the thing that we all thought was safe wasn't safe. The credit risk is 100% fine. Clearly, we've learned that with all of the backstopping. But obviously, when you have a duration with these bonds or treasuries, or I think they're mortgage-backed securities, are going to become-- are going to mature a long time from now. That creates this duration risk. So these folks put all of the money-- I think there's another chart in here. We have the rates going up, and then the yield for the 10-year, let's say, also going up. So that price of the bonds went down, again, not for any credit reason, but for this duration risk.
And when a bank loses a lot of money, it ideally should have a lot of deposits. And that was something that it didn't have. As we saw in that earlier chart, when those deposits were really up from the past little tech boom, when this recent little tech snafu we've had over the past-- I don't know-- since November, let's say, the tech industry has been getting hammered. All of a sudden, these Silicon Valley companies which use Silicon Valley Bank were like, all right, well, we're going to be needing that cash. We're going to be taking that out.
And I think it's really helpful to see exactly how they couldn't see that coming and see those projections. I mean, it's so clear in hindsight that this was going to be a thing. But we understand how they got it wrong and had to use the discount window and things like that for all these other banks. I don't think Silicon Valley used that, but another really interesting chart, which we came to, was companies that were exposed and why some banks are different than other banks.
This is something that I think we don't think about that much, especially now, because as you walk into any bank, you see that FDIC insurance limit. Very lucky and good for you if you have more than that in your bank accounts. And obviously, a lot of these companies do, and they're over that insurance limit. And so that allows this level of exposure. And that was something that when you have these niche-- we were just talking regional banks on the show. When you have these regional or niche banks, they may have a lot of this exposure.
And that's something that-- I don't know-- until this week, I wasn't really thinking much about. And all of these-- some of the banks that have the most exposure are the ones that we've been seeing getting rocked to the markets, like First Republic and stuff. And so you wonder about all these other companies that whether they're going to get their money back and whether that's going to spark more contagion, but things seem to have calmed down.
BRAD SMITH: Ethan, our viewers can see the rest of the charts in the Morning Brief. Thanks so much for joining us to break down some of the most pressing ones that help make the case here.
