By: Shmuel Shayowitz

Last weekend was quite unnerving. Earlier in the week, we learned that the Crypto-focused bank, Silvergate, was shuttering its operations and liquidating its assets. Going into the weekend, we heard that Silicon Valley Bank (“SVB”) collapsed Friday morning and was taken over by federal regulators after facing a sudden bank run and capital crisis. On Sunday, we learned that NYC-based Signature Bank was closed down and taken over by regulators.

I received several calls over the weekend asking my opinion about the impact of the Signature Bank closure from account holders and those who had checks drawn on a Signature Bank account that needed to be deposited (one of them was as much as $50,000). Unfortunately, I was very “close to the action” in 2008-2009 when the financial meltdown caused the previous Top 3 Bank failures of all time. Washington Mutual Bank (“Wamu”) remains the largest bank failure, with assets of $307 when taken over by the FDIC. SVB and Signature are now in the number two and three slots and have a combined total of more than Wamu with $319 billion in assets. Scary numbers for a marketplace that is not in crisis and not even in a recession. (wink wink, nudge nudge)

I confidently told them that regulars invoked a special “systemic risk exception” and that all depositors with money at these banks would be made whole. While they were happy to hear that there is no hardship to them, I was left wondering what the real impact would be of this emergency regulatory “bailout.” Current Treasury Secretary (and former Federal Reserve Chairperson) Janet Yellen spent most of Sunday making the rounds emphatically stating that the federal government will not provide a bailout.

“During the financial crisis, there were investors and owners of systemic large banks that were bailed out,” Yellen said in an interview with “Face the Nation” on Sunday. “And the reforms that have been put in place means that we’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs.” While I understand this was not a “bailout” because the bank and its shareholders were not beneficiaries of this regulatory intervention, I assure you it does not come without consequences.

Ironically, former Congressman Barney Frank, a Signature Bank board member and was instrumental in overhauling the US financial regulation following the global financial crisis. He created many of these regulations under the “Dodd-Frank Act,” which bears his name. Frank believes Signature Bank was singled out. He noted, “we have a solid loan book; we’re the biggest lender in New York City under the low-income housing tax credit.” Many agree with this sentiment. “What happened at Silvergate and SVB was a very traditional bank failure,” said J. Austin Campbell, an adjunct professor at Columbia Business School. “[Signature Bank], unless there was a bigger run on deposits than we know about, is less so. If there’s not some pretty gory details that came out after about the balance sheet, it’s hard to figure out why they were singled out.”

Which brings me to my question – If you don’t bank at Signature, SVB, or Silvergate, should you even care? The answer is yes; this past week has been monumental for the banking sector. I believe we are at a critical and fragile place in the broader financial markets – here and abroad. Many banks, including Credit Suisse, who I predict will be the next bank failure – absent a “bailout” are at risk. The “bank runs” – which triggered these breakdowns are attracting money into larger banks such as JP Morgan, Bank of America, and Citibank – to name a few.

I am worried because, once again, these banks are slowly becoming “too big to fail.” There are too many cracks in the banking system and too many players with conflicts of interest calling the shots, picking winners and losers. Finally, is it any surprise that Federal regulators are being so aggressive with banks who are heavily active in Cryptocurrency – the currency they are trying to kill while creating – and controlling their own? Time will tell.

Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at Shmuel@approvedfunding.com.

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