Analyst says banking crisis is ‘over.’ Is it too soon to invest in bank stocks?

Also, how a bank failure can affect a small business, how to make the most of FDIC deposit insurance and bank stocks for bottom feeders to consider

A Brinks armored truck sits parked in front of the shuttered Silicon Valley Bank headquarters on March 10 in Santa Clara, Calif.

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One week into the U.S. banking storm, following the failures of Silicon Valley Bank on March 10 and Signature Bank of New York on March 12, Odeon Capital Group analyst Dick Bove declared on Thursday that the crisis was “over” and that the industry would “solve its own problems.”

First, let’s review events that led up to Bove’s sigh of relief:

Silicon Valley Bank (which was a subsidiary of SVB Financial Group SIVB ) failed quickly after taking losses when selling securities to raise cash to cover larger-than-expected deposit outflows springing from “elevated cash burn levels” among its customers, including venture-capital firms.

Greg Robb explained how a perfect storm led to SVB’s collapse.

Signature Bank of New York (which was held by Signature Bank Corp. SBNY ) had a diverse business model, but the services to virtual-currency exchanges and related companies it had developed over recent years led to a damaged reputation, especially after the bankruptcy of FTX in November. Its deposit outflow accelerated until state regulators decided to close the bank.

Following Signature Bank’s failure, the Treasury Department, Federal Reserve and FDIC took two extraordinary steps on March 12. First, they said all depositors in the two failed banks would have full access to their money, including uninsured deposits. The regulators also said the Fed had set up a new lending facility that would allow banks to take out new loans secured by their securities holdings at par, or face value. This meant banks needing to shore up liquidity wouldn’t be forced to sell bonds at a loss after rising interest rates had pushed their market values lower.

But those measures didn’t stop a run on deposits at First Republic Bank FRC, -2.32% of San Francisco. Through the fourth quarter, First Republic was one of the few large regional U.S. banks whose interest margins had contracted from a year earlier.

Following the regulators’ actions on March 12, First Republic said its liquidity and capital remained “very strong,” not only because of the Fed’s new lending facility, but because of “continued access to funding through the Federal Home Loan Bank [of San Francisco], and ability to access additional financing through JPMorgan Chase & Co.”

Even after all of that, the run on deposits at First Republic continued. After the bank provided updated information saying its overnight borrowings from the Federal Reserve ranged from $20 billion to $109 billion at an interest rate of 4.75% between March 10 and March 15, Jefferies analyst Ken Usdin estimated “total deposit outflows could have been up to $89B,” in a note to clients on Friday.

But the good news on Thursday was that a group of large banks led by JPMorgan Chase JPM, +0.30% had agreed to deposit $30 billion in First Republic. Many of these same banks had seem a tremendous influx of deposits as people and companies moved their money from regional banks.

Bove wrote in a note to clients late on Thursday that it appeared the U.S. banking industry was “coming together… to fix the industry’s problems,” that there would be enough money available to stop deposit runs at “any meaningfully sized bank,” and that it appeared the federal government was “off the hook.”

In a note on Tuesday, Bove had predicted that Royal Bank of Canada RY, -0.03% would renew its efforts to acquire First Republic.

Usdin also believes “FRC is likely to seek a buyer,” because the bank “could have negative forward earnings as a stand-alone entity.”

More on the latest banking industry and regulatory developments:

How one business owner handled the aftermath of Silicon Valley Bank’s demise

Skift CEO Rafat Ali.


A dire financial event might seem to be far away if you aren’t affected directly, but individuals can face upheaval.

Silicon Valley Bank, by its holding company’s estimate, had $151.5 billion in uninsured deposits as of Dec. 31. Between the bank’s failure on March 10 and the federal regulators’ promise to cover all deposits on March 12, many companies had a lot to worry about. Roku Inc. ROKU, -3.53%, for example, said on March 10 that $487 million, or 26% of its cash, was on deposit at SVB, with most of it uninsured.

Beth Pinsker interviewed Rafat Ali, CEO and founder of Skift, who initially thought his business “was done.” Here’s how Ali and his team scrambled to save their business over the weekend after Silicon Valley Bank’s failure.

Depositors’ fear spreads to Europe
Arnd Wiegmann/Getty Images

Credit Suisse Group AG CS, -1.20% has had its own liquidity problems, which the Swiss National Bank has addressed with a backstop announced on Wednesday. Credit Suisse said it would borrow about $54 billion through the new facility on Thursday.

Read: Credit Suisse shares fall to cap its worst week since 2008 financial crisis

Are your bank deposits safe?

Anyone with bank deposits wants safety as part of the trade-off for a low return.

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Typical savers at U.S. banks are probably comfortable enough that the FDIC’s basic deposit insurance limit is $250,000. But you might also be surprised that according to the FDIC, an estimated 43% of all U.S. deposits were uninsured as of Dec. 31. As we have seen, such a high level of uninsured deposits can mean that a bank (and its shareholders) can land in hot water quickly.

It turns out that depending on how your bank accounts are registered, you can have a lot more than $250,000 insured by the FDIC at a single bank. CD Moriarty shares a strategy for maximizing your insured deposits.

More: Where should you put your cash amid banking fears? Financial advisers offer tough love.

Will the bank mess cause the Fed to stop raising interest rates?

Federal Reserve Chair Jerome Powell will speak again about the central bank’s policies to lower inflation on March 22.

Anna Moneymaker/Getty Images

Rising interest rates are a mixed bag for banks. So far, the rates the industry has been paying for deposits have risen slowly, compared with the pace of increases for loan rates. This is why U.S. banks’ combined net interest margin expanded to 3.37% in the fourth quarter from 2.55% a year earlier, according to the FDIC’s Quarterly Banking Profile.

But as interest rates rise, the market values of bonds decline automatically. This has put pressure on banks’ capital levels. It also led to much of the trouble at Silicon Valley Bank.

So might the Federal Reserve take a break from its interest rate increases after the Federal Open Market Committee meets on March 21-22?

Most economists expect the Fed to raise the federal-funds rate target range by another 25 basis points, following the European Central Bank’s 50 basis-point move on Thursday, Greg Robb reports.

More on the economy and central-bank policies

What’s next for venture capital and startup companies?

The California venture capital community lost an important pillar of support when Silicon Valley Bank failed.

Nathan Vardi explains how Silicon Valley Bank built a strong relationship with venture-capital firms over decades.

Related coverage:

Should you buy bank stocks now?

One approach to selecting bank stocks in a difficult environment for the industry is to “go big,” since the largest banks have such diversified businesses according to Michael Brush.

robyn beck/Agence France-Presse/Getty Images

The KBW Nasdaq Bank Index BKX, +0.32% has fallen 28% in March. This is the type of event that will lead some investors to begin looking for opportunities among the stronger players in a downtrodden sector.

As always, the buyer must beware: It is best to so your own research to form your own opinion about a company’s long-term viability before buying an individual stock.

That said, Michael Brush has four tips for investors looking to buy bank stocks now.

Read on:

A reality check for an investor
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Quentin Fottrell — the Moneyist — answers questions from a reader who purchased a stock based on the recommendation of an analyst working for a large brokerage firm, only to see the share price crash.

A difficult question: ‘My family is dealing with a significant shock’ — My father secretly married his caregiver, who is 40 years his junior. What can we do?

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