PacWest has seen its stock crash 25% and is down 70% since March. The Western Alliance Bancorporation is down 17%. Zions Bancorp, with assets of $81 billion, is down 16%.

Bank of America has fallen by 4%. Wells Fargo is down 4.5%, Barclays in UK is down 3% and even JP Morgan has seen red by 1.5% with the KBW Regional Banking Index down 6%.

Both oil and gas are diving by 4.5%, and stock indexes overall are down by 1.5% across the board in US and Europe.

Bitcoin in contrast is up a bit by 1.3% after falling during the ‘fake’ weekend, while gold has gained another 1.26%, rising above $2,000 an ounce to $2,014.

For today at least, the picture is of a flight to safety and of panic where bank stocks are concerned following the whipping out of shareholders in four bank failures in over a month.

First Republic is the latest to see $20 billion of investors money go to zero. The owners of the bank saw their asset taken from them without consultation or negotiation, sold off to JP Morgan behind closed doors at hugely favorable terms for JP Morgan, and despite owning 84 bank branches one day, owned zero the next.

The management of the bank is being blamed, yet no one can point out to any thing they did which any banker would consider unreasonable. Serving wealthy depositors is reasonable. Giving them loans is too.

As banks operate on the basis of their money being tied up in loans, going under in a bank run is also reasonable as not even JP Morgan or Goldman Sachs can withstand a bank run according to NBER.

So how exactly are investors in banks to account for the risk a bank run might send their investment to zero, and they won’t be able to even pick up any pennies as FDIC will just seize their asset without any fiduciary duty or obligation to them at all.

Across the four banks that have failed, close to $100 billion of investors money has been whipped out. $45 billion in Silicon Valley at its peak, circa $25 billion in both Signature Bank and First Republic and about $6 billion in Silvergate.

These investors played a crucial role in the capital formation and operations of these banks, to not mention the debt securities these banks raised from the market.

And yet the Biden administration has operated with some disdain towards these shareholders, as if they’re not a constituency or actual humans at the other end losing tons of money.

So who will put any more money on these banks when all of them are insolvent in a bank run?

The bailout in 2008, bad as it was, is still better than a two tier system that has JP Morgan rule more and more over our politicians, or Goldman Sachs that has stuffed up the Treasury and has their own former employee as SEC chair.

Both JP Morgan and Goldman Sachs are fine for now however, so no one in Washington DC is saying anything even as the banking sector sees huge losses and regulators have created a selective moral hazard.

No one knows which bank they will bail or not, unless it is JP Morgan or Goldman Sachs which are too big to bail.

No one knows whether in the event the bank is taken over by FDIC, if FDIC has some political agenda that considers shareholders non-existent, or some healthy part of the bank assets not sellable because of an anti-crypto agenda or whatever opinionated agenda.

Let alone the fact in truth no one knows if they’re corrupt, with the chair of FDIC Martin J. Gruenberg not even having a publicly available financial disclosure as required by law.

We could ask, but then it is not publicly available in this digital age. It should be put up. Moreover this guy does not even seem to give any interviews or even speeches while he takes off investors’ assets, like bank branches, and gives them off to… what may well be his buddies, who knows.

It’s not like he is being grilled in any interview to explain his decisions, or giving any speech, and in front of the Senate this is his demeanor:

The European officials have taken a different approach in securing shareholders’ interests, but the US approach raises significant questions for investors.

And if banks become risky for investors, then is any of them really safe? Without access to capital markets or at a very high cost, they all might be vulnerable.

The process moreover raises questions in regards to why the banks were shut down exactly? FDIC could have instead changed management and then could have done what it did in the sale process, but without an actual sale and while keeping the bank running.

Taking First Republic as an example, if the $100 billion loans they borrowed could have just been whipped out, as they were for JP Morgan, then the bank could have kept operating and in a very healthy state.

That would have kept ownership of the bank with the rightful owners, the shareholders, and the cost of bank run could have then required some sort of a levy as insurance, we could call it FDIC, because there isn’t much else you can do fundamentally regarding the banking structure itself.

The current approach instead is to punish shareholders and take their assets, while still suffering the costs anyway, and while leaving another bank to benefit handsomely by getting other people’s assets for practically free.

Politically they say that’s how it should be, shareholders should bear the risk, but how do you bear the risk of a bankrun, or scrutinize that risk, when by design all of them are insolvent in a bank run.

So regulators have handled this very badly, and we should again specify the US ones, the Swiss regulators did a fine job.

But the way US regulators have handled this assures some sort of a sequel as all investments in all banks, especially the ones that don’t have Biden on the phone, need to be repriced.

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• Source: https://www.trustnodes.com/2023/05/02/bank-stocks-dive