I don’t see the shutdown of SVB by regulators or the self-liquidation of Silvergate as indicators of widespread contagion but there are some characteristics of troubled banks that we ought to be aware of:
(1) Low loan-to-deposits (inefficient balance sheet management) (my friends at ModernFi can assist here)
(2) Large securities portfolios with % movements in 2022 from AFS to HTM
(3a) Declining profitability trends – especially if driven by mark-to-market impacts of securities
OR
(3b) Continuing steady profitability with LITTLE TO NO mark-to-market impacts running through the P&L
(4) Thin and declining capitalization (Tier 1 Capital Ratios – risk adjusted and otherwise) (capital is king)
(5) Squeezed cash/liquid balances (cash is also king!)
These last 2 are saved for last but are absolutely critical.
If you are running a bank and need some outside sets of eyes,
if you are on the board of directors of a bank and interested in an independent view,
if you have or are considering long or short positions on a bank,
if you are a customer of a bank and you are curious whether your bank is at risk,
Reach out this weekend. I have fielded multiple calls all day today and would be happy to give a quick and dirty view of your bank.
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