Financial regulation has a credibility problem. Actually, it's got two credibility problems.
It's not credible any more to think that financial regulators will shut down troubled institutions until they are forced to do so. And it's no longer credible that financial regulators will allow depositors to incur losses. Both are really problematic.
When President Biden announced the rescue of Silicon Valley Bank depositors, he emphasized that "investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works." Unfortunately, that's not how US law works.
Silicon Valley Bank's holding company, SVB Financial Group, filed for Chapter 11 bankruptcy this morning...in the Southern District of New York. Who knew that Park Avenue South was in the heart of Silicon Valley?
Following the failure of Silicon Valley Bank, a lot of other regionals have experienced depositor runs and serious pressure on their stock prices. But there's actually a lot of variation among regionals, and the solutions to SVB's problems don't necessarily fit the other regionals' problems, as the case of First Republic Bank shows.
If the bank is a Fed member, doesn't it take its USTs to the discount window instead of selling them for big losses? Does this suggest that all large banks (however defined) should be Fed members, regardless of their charter status?
Silicon Valley Bank seems to have had large amounts of uninsured deposits from businesses and high net worth individuals. And those uninsured deposits are likely to be impaired in the receivership, meaning that they will not get paid 100 cents on the dollar whenever they do get paid.
You gotta feel for BlockFi customers. First, they find themselves creditors in BlockFi's bankruptcy. And now they've found out that BlockFi had a large, uninsured deposit...at Silicon Valley Bank. Yup, it seems that BlockFi had $227 million in a money market deposit account at SVB. (The UST refers to it as a "money market mutual fund," but that cannot be right, or it wouldn't be at SVB or have any insurance.
[by Dalié Jiménez and Jonathan Glater]
In the wake of the Third Circuit's LTL Management decision many commentators wrote off the Texas Two-Step as dead. Turns out it's not, it's just playing out in a different key with a new filing in SDTX. On Feb. 13, Tehum Care Services, Inc. filed for bankruptcy in the Southern District of Texas. The Tehum story starts with a Delaware corporation called Corizon Health, Inc., which provided prison health care services. Corizon faced substantial exposure (perhaps $88 million) on professional liability claims.
With Tara Twomey's selection as the new head of the Executive Office of U.S. Trustee, the National Consumer Bankruptcy Rights Center (NCBRC) is seeking a new director. The NCBRC helps shape consumer bankruptcy law, as it did for many years under Twomey's leadership. This is an opportunity for someone else to do the same.
