Jsme teprve na počátku bankovní krize? | Truth Over News

Hello and welcome to the news. Silicon Valley Bank on 10th of March 2023 went bankrupt in an incredibly fast way and became the second biggest bankrupt bank in the history of the USA. American banking system then caught a panic. Although almost everyone knows about the bankruptcy of S.V., not everyone knows exactly why it went bankrupt. Many of the sudden bankruptcy of the bank are accused of environmental, social and legal score or ESG, or so-called capitalism of interested parties. However, these are actually only symptoms of bad financial management of the bank and not a basic reason. The bankruptcy of S.V.B. reveals a huge risk that the entire American banking system faces and a large part of the blame lies on Biden's administrative, congressional and federal reserve system. S.V.B. went bankrupt primarily because it mismanaged its annual risk and return risk when it tried to achieve revenues by means of high-duration and long-term investments and assets. These investments were carried out in an effort to increase the net profit margin of the bank and thus increase the price of its shares and shareholding options. The bank carried out these investments during the period of massive growth of investors and assets and during the period when its investment base was formed by companies of risk capital and technological start-ups. The accounts of these clients were much larger than those of the average bank and most of them significantly exceeded the limits of the federal reserve system. As a result, S.V.B. faced a huge risk of choosing investments from customers with a high fluctuation in accounts and significantly exceeding liquidity limits. All this created an ideal combination for the so-called bankruptcy of the bank, which is a situation of a loss of trust in the bank and a mass selection of client investments. The situation of the bank would be set by the sudden and unexpected movement of interest rates and this is where Biden, the Congress and the Fed enter the story. From zero at the beginning of the financial year up to the current 4.5% is the growth of the interest rate, which the United States has not experienced for a long time. The Fed raised interest rates in response to the inflation caused by the headless tax programs of President Biden, which was approved by the Congress. Unexpected rapid growth of interest rates, however, can cause hell in the balance sheets of banks, because higher interest rates reduce exports of securities with a fixed interest rate, which are among the bank's assets. As we will see, this increase in interest rates influenced and threatened all aspects of the US banking system. The prices of these securities with a fixed interest rate are not directly proportional to interest rates. With the growth of interest rates, the prices of securities with a fixed interest rate, such as pens, are increasing. And the higher the interest rate has a portfolio with a fixed output, the greater the interest rate influence. The interest rate is an expression of the sensitivity of the price of a pen to the change of interest rates. In general, the higher the interest rate, the higher the price of a pen will fall with the growth of interest rates. For example, if interest rates increased by 1%, a pen or a pen fund with an average five-year payment would probably lose about 5% of its value. The SVB portfolio in particular had a six-year history and annual interest rates increased by 4.5% in 2022. and annual interest rates increased by 4.5%. The SVB portfolio in particular had a six-year history Its total assets increased from 115 billion in 2020 to 211 billion in 2021. That's a huge 83% in a single year. Total deposits in the bank increased from 102 to 189 billion. Simply put, the bank makes money by using the client's deposits to provide trust along with investments in designated securities. Trust and investments ensure the bank such an output level that is higher than its expenses, i.e. what it pays its clients for their deposits. The difference between what the bank makes and what it pays The higher the spread, the more money the bank makes. And now it comes. The SVB asset growth was so explosive that it could not provide trust quickly enough. And so it was forced to invest more and more of its assets in low-end government securities, specifically from 49 billion in 2020 to 128 billion in 2021. The securities the bank invested in are quite safe in terms of return for normal circumstances. But, and that's a big but, these securities are very sensitive to asset growth and because these securities are considered very safe, they would not bring the bank large asset deposits. That would have a negative impact on the pure asset margin or spread of the bank. And that would negatively affect the value of the bank's shares along with the local and exchange rates of the management. The SVB management thought it had an easy solution to this. They simply increased the rate of their investments with long-term value-added securities that would provide the bank with higher profit margins. In general, it is true that long-term value-added securities provide a higher profit margin than short-term value-added securities. However, this strategy is connected with a very high risk, which we have already talked about, with the risk of profit. If the value-added securities suddenly move up the value of long-term value-added securities will suffer more on the price. The longer the duration of the portfolio, the greater the damage it can cause. And the SVB portfolio had a long duration. But the bank still had almost 15 billion in cash and a potential 27 billion from the sale of securities that were not part of the long-term investment portfolio. So there is nothing to be afraid of, right? But, as it turned out, there was something to be afraid of. The FED's portfolio, i.e. the long-term portfolio for which banks borrow from the remains of reserve banks, actually increased from 0% in February 2022 to 4.5% in February 2023. Just before the rise of the FED in 2021, the SVB bought a pile of securities with a solid output. Specifically, from 16.6 billion in December 2020 this fixed asset increased by 98 billion at the end of 2021. That's an increase of 490%. Let us now realize that these securities had an average duration of more than 5 years. And I would like to remind you that every 1% increase will cause about a 5% decline in their value. The bank also decided to add risk capital to its portfolio. And even though its volume was much smaller, it was also more concentrated and much more unstable. However, the story does not end there. For starters, note that the value of the long-term investment portfolio of the SVB was 98 billion. And on the contrary, only 27.2 billion in securities that are listed in the current market value. So the majority of the SVB portfolio, more than 75% of its investment portfolio, was listed in the balance sheet in the listed account value, but not in the current market value of securities. On page 67 of the Financial Statement of the Commission for the Control of Securities it is quite clear. Securities classified as HTM are accounted for in the purchasing price without changes in the actual value. The decrease in the value of the assets, which are to be held until their expiration, is called an unfulfilled loss. Despite the fact that the value of the portfolio of long-term securities with a fixed output is lower, as a result of the increase in the market value of securities, securities usually do not have to be sold, they are intended to be held until their expiration. The loss of value is therefore unfulfilled. The loss would not have to occur under normal circumstances, because the SVB did not intend to sell this part of its portfolio. However, the value of the portfolio became something else than normal. Let's refer to the statement of the SVB. To find an unfulfilled loss of its long-term portfolio, on page 129 we see that in December 2021 the bank had an unfulfilled loss of more than $1 billion. In other words, the portfolio of SVB, held until its expiration, had a real market value of 97.2 billion by the end of 2021 compared to an account value of 98.2 billion. That's not so bad, is it? And at that time, the bank still had a lot of ready-made and liquidated securities. However, the interest rates were actually zero at the time and the dramatic increase should have come later. Before we continue, it is worth taking a quick look at the investors of SVB. As we mentioned at the beginning, the bank was concerned with companies with risk capital and technological startups. Its clients were large, rich and sophisticated, so the base of investors was much more concentrated than that of an average bank. Likewise, the size of their accounts was important, which was high above the limit of 250,000 federal securities and such deposits were largely unsecured. In December 2020, the total deposits amounted to about 102 billion. A year later, in December 2021, the total deposits amounted to 189 billion, i.e. an 85% increase. Of these 189 billion deposits, 166 billion were unsecured, i.e. 88% of the client deposits of the bank were unsecured. Another problem was that 126 billion of these client deposits were unsecured in the period of growing interest rates. Now let's move to February 24, 2023. Just that day, SVB issued a statement at the Committee of Valued Papers for the period ending on December 31, 2022. It contains relatively bad news. The statement showed almost the same value as in 2021, but the value of long-term valued papers fell by 9 billion USD in return and the total deposits fell by 16 billion to 173 billion. What's worse, the structure of these deposits has changed dramatically. Unsecured deposits now amount to only 80 billion compared to 126 billion in the previous year. The clients did not want to justify their deposits and also redirected them to us. This obviously caused concern, because the bank borrowed almost 17 billion USD apparently to cover these accelerating withdrawals. But really bad news appeared on the page 125 of the bank's statement. The SVB portfolio, held in debt, which now amounted to only 91 billion compared to 98 billion a year earlier, suffered huge unfulfilled losses in the return of more than 15 billion USD. So in the accounting books of the SVB it was worth 91 billion, but at that time it was worth only 76 billion. Investors and investors did not justify their deposits. Less than two weeks later, the SVB announced that it had exhausted its liquid portfolio, in which it had 26 billion a few months ago. At the same time, it announced that it intends to acquire another 2 billion USD for the sale of priority shares. Cash was gone and the bank faced a huge liquidity crisis. The following day, the price of the SVB shares fell by almost 70% and the ability of the bank to acquire sufficient liquidity And the next day, on March 10, the Federal Reserve took over the bank. The Silicon Valley Bank became the second largest bankrupt bank in the history of the USA. Only two days later, the New York Signature Bank This bank, which began to accept deposits in cryptocurrencies, was the third largest bankrupt bank in the United States. Frightening consequences of this story are still to come. The chairman of the Federal Reserve, Martin Grunberg, in his speech on 28 June admitted that the total unrealized losses of securities with a long-term payment make the USA 620 billion. Then he noted that in the last 28 months no bank has fallen, which is 3 months less than the record of 31 months since 2007. Grunberg made his remarks only 4 days after the SVB statement was published and only 10 days before the Federal Reserve took over the SVB. Because the market reacted strongly, at that time we thought that Grunberg's guess of the unrealized losses of the banking system is underestimated. Unfortunately, we were probably right. The study published on 13 March examined the unrealized losses that banks probably have. This study found that the actual unrealized losses make 780 billion and not 620, as the Federal Reserve guessed. However, the authors went into even more detail and correctly indicated that with the growth of securities they also lose credibility, so the total unrealized losses by December 2022 made them 1.7 billion. In a freezing warning, they stated that the losses from the increase of securities are comparable to the total capital of the entire banking system. So we haven't gotten out of the banking crisis yet. But in fact, we can be the first to start. Thank you for watching.