10 weeks of tumult: How the banking crisis of 2023 has unfolded

May 14, 2023 9:00 PM

The banking crisis that erupted in early March has unfolded at lightning speed.

Three regional bank failures that cost the Federal Deposit Insurance Corp.'s piggy bank an estimated $35 billion. Rising concerns about the outlook for midsize banks. A nascent policy debate over the future of deposit insurance. Burgeoning fears that commercial real estate loans may be the next source of trouble. And much more.

It's all unfolded so fast that it's been hard to keep up. So 10 weeks into the crisis, here's a week-by-week recap of the key events, featuring links to American Banker's extensive coverage.

Adobe Stock, Bloomberg News

March 6-12

The press release that set off the banking crisis came after markets closed on Wednesday, March 8. Hamstrung by a large underwater bond portfolio, Silicon Valley Bank announced it would take a $1.8 billion hit by selling some of its bonds.

The goal was to give the company more cash and flexibility. The result was a steep drop in SVB's stock price as investors woke up to the fragility of the bank's balance sheet.

The bank's depositors — many of them tech companies and venture capitalists — caught on, too. Almost all of SVB's deposits were above the $250,000 limit covered by the FDIC, and many customers pulled their money quickly. Regulators shut down the bank less than 48 hours after the Wednesday press release was sent out.

At the same time, troubles were brewing at two crypto-friendly banks.

The parent company of Silvergate Bank, which began running into problems last year, when cryptocurrency companies pulled deposits after the collapse of the crypto exchange FTX, said it would liquidate the La Jolla, California, bank and repay all depositors.

The larger Signature Bank in New York also had been bleeding deposits amid the "crypto winter," and those outflows accelerated as fears over SVB emerged. Regulators took over Signature on Sunday, March 12.

At Silicon Valley and Signature, regulators covered the banks' mostly uninsured deposits. The Federal Reserve also tried to ease worries about contagion by launching a new facility to help banks with underwater bonds — the same issue that sparked SVB's troubles.

March 13-19

Assigning blame began in week two. President Joe Biden addressed the nation on Monday, March 13, to reassure depositors and to urge regulators to strengthen oversight of mismanaged banks. "Those responsible can be held accountable," Biden said during a morning address.

The market spotlight turned to Silicon Valley Bank's tech-heavy neighbors, including First Republic Bank, PacWest Bancorp and Western Alliance Bancorp. Throughout the week, social media rumors churned in lockstep with stock volatility.

Liquidity became a key concern as the Fed disbursed $12 billion from its emergency funding facility, and Federal Home Loan Bank System advances rose from $90 billion on Monday to $250 billion by Thursday But markets reached an uncertain calm following lifeline extensions to First Republic and Credit Suisse in Europe.

As the week closed, New York Community Bancorp purchased portions of Signature's failed business, while commercial real estate drew attention as another stressed sector to watch.

March 20-26

As questions swirled during week three about what could stop the spread of panic, Citigroup CEO Jane Fraser warned about the risk of deposit runs in the high-speed age of digital banking.

PacWest secured $1.4 billion in a capital raise, but its stock price continued to decline after clients withdrew an additional 20% of the bank's deposits. The firm had already borrowed over $16 billion from three federal liquidity facilities as of March 20.

Bigger expense cuts became a new reality for bank executives, and eight First Republic executives agreed to forfeit their annual bonuses and performance-based incentives for 2023 after the bank's stock price plunged 89% since the start of the year.

As stock markets continued to sit on edge, banks reduced their reliance on the Federal Reserve's discount window. Total borrowings from the Fed's discount window, a last-resort lending facility, and the Fed's new emergency funding facility fell by $800 million from the week before to just under $164 billion.

March 27-April 2

The fourth week of the crisis began with First Citizens BancShares buying a big chunk of Silicon Valley Bank from the FDIC. The deal essentially doubled the Raleigh, North Carolina-based bank's asset size and gave it a larger footprint on the West Coast.

Meanwhile, the policy debate that started almost immediately after Silicon Valley Bank failed was heating up. Former FDIC Chair Jelena McWilliams warned against insuring all deposits, saying that approach would increase moral hazard, hurt market discipline and increase banks' costs.

At the same time, Biden administration officials were calling for stricter oversight of banks. Fed Vice Chair for Supervision Michael Barr said that he anticipated a need for stronger capital and liquidity rules for banks with more than $100 billion of assets. And Treasury Secretary Janet Yellen said the easing of post-crisis rules "may have gone too far."

April 3-9

During week five, JPMorgan Chase CEO Jamie Dimon told shareholders in his annual letter that the banking crisis was "not over yet," as market volatility continued and fears of a recession lingered.

While Dimon did not absolve Silicon Valley Bank's management, he criticized U.S. regulators for allowing the bank to accumulate risks that were "hiding in plain sight."

The stock prices of regional banks continued to sag, though less out of panic, which had seemed to drive price declines in March, and more as a result of concerns that profits in the sector would be lower for the foreseeable future.

On Capitol Hill, momentum formed around punishing executives at the failed banks by clawing back their compensation. Backers of a bipartisan bill sought to empower regulators to reclaim all or part of an executive's previous five years of compensation following a bank failure.

April 10-16

During week six of the crisis, economists at big banks predicted credit tightening over the next six months. In a quarterly survey, which followed Fed interest rate hikes and the turmoil of March, the economists forecast the weakest credit market conditions since the height of the pandemic in 2020.

Consumer Financial Protection Bureau Director Rohit Chopra said that regulators should consider the possibility of growth restrictions on banks that could be automatically triggered. He also floated the idea of caps on uninsured deposits. Silicon Valley Bank had grown very rapidly before its demise, and nearly 94% of its deposits were uninsured.

FDIC Vice Chair Travis Hill, a Republican, pushed back against the Biden administration's strong focus on regulatory changes, arguing that deregulation didn't cause Silicon Valley Bank's failure.

April 17-23

During week seven, Securities and Exchange Commission Chair Gary Gensler linked cryptocurrencies to the ongoing banking crisis, as he asked Congress for more resources to police the crypto market. The failure of Silicon Valley Bank and the decision by Silvergate Bank to wind down its operations had both been connected at least partly to a loss of deposits from crypto industry clients.

Senate Banking Committee Chair Sherrod Brown, D-Ohio, pressed the Federal Housing Finance Agency to analyze whether SVB and other troubled institutions had used the Federal Home Loan Bank System as a lender of last resort.

"The FHLBank System was created to provide liquidity to sound institutions to facilitate lending," Brown wrote. "It was not structured to be a lender of last resort — or of next-to-last resort — for struggling institutions."

April 24-30

The next bank failure loomed as week eight kicked off. First Republic had hung on for over a month, but its earnings report on Monday, April 24, sparked a new wave of panic. The San Francisco bank reported steep deposit outflows during the first quarter.

First Republic's stock tanked, and as the week dragged on, its fate was sealed. The only questions left were whether a last-minute rescue could be arranged, whether big banks would buy the bank out of receivership or whether its failure would be more messy.

Regulators also released their postmortems outlining what went wrong in their oversight of Silicon Valley Bank and Signature Bank. Barr, the Fed's regulatory head, offered what he described as an "unflinching look," showing weaknesses in supervision and regulation. The FDIC, meanwhile, blamed Signature's management for risky strategies and for failing to heed regulators' warnings.

May 1-7

At the start of week nine, First Republic was seized by the FDIC and sold to JPMorgan Chase. The nation's largest bank, which entered into an agreement with the FDIC to share losses and potential gains on the loans it acquired, said the deal would boost its efforts to expand in wealth management. The cost to the Deposit Insurance Fund was estimated at $13 billion.

In a report on the future of deposit insurance, the FDIC showed a preference for raising insurance coverage only for business accounts — as opposed to maintaining the status quo or offering unlimited insurance.

As regional bank stocks continued to suffer price declines, industry groups expressed concern about the actions of short sellers. And one of the banks that had reported deposit outflows, PacWest, was reportedly considering a range of strategic options, including a sale.

May 8-14

During week 10, Federal Reserve Bank of New York President John Williams warned about the risks to the banking sector from commercial real estate loans. His remarks focused on office buildings, where vacancy rates have climbed. Williams indicated that the impact on banks is likely to be gradual, since troubled real estate assets don't get repriced until they are sold or refinanced.

The FDIC voted 3-2 to issue a proposed rule that would lean mostly on big banks to replenish the Deposit Insurance Fund. Under the rule, banks with more than $50 billion of assets would pay more than 95% of the special assessment fee on uninsured deposits.

And Fed Gov. Michelle Bowman offered a counternarrative to the one advanced in the Fed's self-assessment about what went wrong at Silicon Valley Bank. Bowman said in a speech that recent bank failures should not be used to justify higher capital requirements.