Raphael Stevens

British Finance Minister Jeremy Hunt will deliver the government’s Budget commitments on Wednesday against a better-than-expected economic backdrop.
Economists expect only modest fiscal easing after a marked improvement in the country’s public finances, as the government keeps its powder dry for now.

U.K. Finance Minister Jeremy Hunt has said Britain should have a “20-year plan” to become the world’s next Silicon Valley.
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LONDON — British Finance Minister Jeremy Hunt will deliver the government’s Budget commitments on Wednesday against a better-than-expected economic backdrop, but economists expect him to stay cautious for now.
In his Autumn Statement in November, Hunt delivered a £55 billion ($66 billion) package of tax rises and spending cuts in a bid to plug a substantial hole in the country’s public finances and restore its fiscal credibility. 

A marked improvement in the country’s fiscal position and a sharp reduction in wholesale natural gas prices since Hunt took office late last year propelled the government to a surprise £5.4 billion budget surplus in January.
Public sector borrowing has also undershot by around £30 billion year-to-date, economists noted this week, in part reflecting higher-than-expected tax receipts. This will lend credence to Hunt’s aims of bringing public sector net borrowing below 3% by 2027/28.

However, the U.K. remains the only G-7 major economy yet to fully recover its lost output during the Covid-19 pandemic, and households continue to battle a cost-of-living crisis due to sky-high food and energy bills.
The U.K. economy flatlined in the final quarter of the year to narrowly avoid entering a technical recession, though suffered a sharp slump in December. New data Friday showed the economy grew by an annual 0.3% in January, exceeding expectations.
The independent Office for Budget Responsibility late last year predicted the sharpest fall in living standards on record amid a five-quarter recession, with GDP contracting by 1.4% in 2023.

Deutsche Bank suggested in a note Wednesday that this will likely be revised up to just a 0.5% contraction, in line with the Bank of England’s forecast for a shallower downturn.
‘Money to play with’ but ‘no frills’ this time
In a research note last week, BNP Paribas Chief European Economist Paul Hollingsworth projected that the U.K.’s borrowing forecasts will be lowered by £10-15 billion at Wednesday’s budget. 
The French bank estimates that the “improved macroeconomic backdrop and better-than-expected performance in public finances” have afforded the chancellor a £25-30 billion windfall.
But although Hunt is likely to have “money to play with” as falling energy prices, lower short-term interest rate expectations and a more resilient global economy indicate stronger growth in the near-term, Hollingsworth suggested the chancellor will “only give away around half of this” while banking the rest for “likely pre-election giveaways.”
With a general election due before the end of 2024, Prime Minister Rishi Sunak’s Conservative Party trails the main opposition Labour party by at least 20 points in most national opinion polls.
“We expect the chancellor to meet his fiscal targets a year earlier than previously forecast, enhancing his fiscal credibility, following a tumultuous 2022 for the exchequer,” Hollingsworth added.
Setting up for the fall
The apparent turn in fortune has also led to increased pressure on Hunt from within his own party to address the country’s tax burden, which sits at a 70-year high.
The Autumn Statement increased business taxes from 19% to 25% for the financial year beginning April 1. Hunt told CNBC last month that taxes for both businesses and individuals will be cut “as soon as we can afford to.”
After the market chaos unleashed by September’s tax-cutting “mini-budget” in the context of high inflation, which ultimately led to former Prime Minister Liz Truss’ resignation, Barclays also expects Hunt to resist calls to spend heavily in this cycle and instead focus on “modest measures to relieve pressures on households.”
The British bank projected a small fiscal easing package totaling around £4 billion in 2022-23, with around £13 billion next year and £7 billion per year thereafter. 
“Measures are likely to include keeping the Energy Price Guarantee unchanged at £2,500 in Q2, freezing fuel duty for another year, and offering more money to government departments to allow pay rises of c.5% in 23-24, rather than the 3.5% currently budgeted,” Barclays Chief European Economist Silvia Ardagna predicted.

In November, Hunt set out plans to raise the government’s energy price cap for a typical household from April 1 to £3,000 per annum from its current level of £2,500.
Deutsche Bank Senior Economist Sanjay Raja suggested Hunt will deliver a “no frills” budget focused on the cost-of-living crisis and public services. He agreed that fuel duty will remain frozen and suggested energy subsidies for households and businesses will be maintained for the next three months.
Like BNP Paribas, Deutsche expects public sector pay to be upped by 5% in a bid to break the deadlock in pay negotiations between the government and multiple unions.
The country has been beset by widespread industrial action from rail and postal workers, nurses, doctors, teachers, lawyers and civil servants over the past six months.
“Looking to the future, we expect the Chancellor to hint at some further fiscal loosening later this year. Under the current fiscal rules, and updated projections, we think that the Chancellor will have roughly GBP 13bn in headroom to get underlying debt-to-GDP down in 2027/28 – a slim margin by historical standards, but an improvement relative to last year’s forecast nonetheless,” Raja said.
“This, we think, could give way to a more generous Autumn Statement later this year with some modest tax cuts and spending giveaways likely.”

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“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.
The firm expects the latest measures to “provide substantial liquidity to banks facing deposit outflows” and boost confidence among depositors.

Goldman Sachs logo displayed on a smartphone.
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Goldman Sachs no longer sees a case for the Federal Reserve to deliver a rate hike at its meeting next week, citing “recent stress” in the financial sector.
Earlier Sunday, U.S. regulators announced measures to stem contagion fears following the collapse of Silicon Valley Bank. Regulators also closed Signature Bank, citing systemic risk.

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19 hours ago

“In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.
The firm had previously expected the Federal Reserve to hike rates by 25 basis points. Last month, the rate-setting Federal Open Market Committee boosted the federal funds rate by a quarter percentage point to a target range of 4.5% to 4.75%, the highest since October 2007.

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Goldman Sachs economists said the package of relief measures announced Sunday stops short of similar moves made during the 2008 financial crisis. The Treasury designated SVB and Signature as systemic risks, while the Fed created a new Bank Term Funding Program to backstop institutions hit by market instability following the SVB failure.
“Both of these steps are likely to increase confidence among depositors, though they stop short of an FDIC guarantee of uninsured accounts as was implemented in 2008,” they wrote.
“Given the actions announced today, we do not expect near-term actions in Congress to provide guarantees,” the economists wrote, adding that they expect the latest measures to “provide substantial liquidity to banks facing deposit outflows.”

Goldman Sachs added that they still expect to see 25 basis point hikes in May, June and July, reiterating their terminal rate expectation of 5.25% to 5.5%.
— CNBC’s Michael Bloom, Jeff Cox contributed to this post

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WHEN ONE bank collapses, the panicked question is often “who’s next?” Other financial institutions can end up exposed because of connections to the collapsed institution, because they employ similar business models or simply because investor sentiment sours. Depositors face losses if their funds are too large to be covered by deposit-insurance schemes. These were precisely the concerns provoked by the demise of Silicon Valley Bank (SVB), America’s 16th-biggest lender, after a failed attempt to raise capital and a run on its deposits on March 10th. Over the weekend rumours spread across social media about potential problems at a handful of other regional lenders. It was easy to imagine nervous corporate treasurers deciding to shift their deposits to the biggest banks, just in case. But on March 12th a joint response by America’s Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) helped take concerns about depositors off the table, while revealing another banking casualty. Their action had two prongs. The first was to fully repay depositors in SVB and Signature Bank, a New York-based lender with $110bn in assets which was shuttered by state authorities on Sunday. Signature was closed to protect consumers and the financial system “in light of market events” and after “collaborating closely with other state and federal regulators”, the authorities said. In neither case will taxpayers have to foot the bill. Equity holders and many bondholders in both banks will be wiped out; the FDIC’s deposit-insurance fund, into which all American banks pay, will bear any residual costs. Depositors in both banks will have full access to their money on Monday morning. The second was to set up a new lending facility, called the bank term funding programme, at the Fed. This will allow banks to pledge Treasuries, mortgage-backed securities (MBSs) and other qualifying assets as collateral. Banks will be eligible for loans that are equal in value to the face value of the securities they pledge. The borrowing rate on that cash will be fixed at the “one-year overnight index swap”, a market interest rate, plus 0.1%. These are generous terms. Treasuries and MBSs often trade below their par value, especially when interest rates rise. The rate that is being offered to banks closely tracks that of the Fed funds; 0.1% is not much of a penalty for accessing the facility. The actions taken by the Treasury and the Fed raise several questions. The first is whether anyone will buy SVB or Signature. Things necessarily moved at high speed over the weekend, says a senior Treasury official, because it was important to reassure depositors on Monday morning. For another bank to make a bid for SVB would require extensive due diligence, which is tough to complete over a single weekend. A deal for SVB or Signature could come in the coming days or weeks. (On March 13th HSBC, Europe’s biggest bank, said it would buy the British arm of SVB for £1, or $1.21.) More importantly, people will also ask whether these actions are tantamount to a government bail-out. That is not straightforward to answer. Officials can fully repay depositors by wiping out bond- and equity-holders, and potentially by levying a fee on banks. That suggests that other banks, rather than taxpayers, might bear the cost of the misdeeds of SVB and Signature. Yet even as it also winds down two lenders, it is clear that the role of the state in backstopping the banking system has expanded, given the generous terms at which banks can exchange high-quality assets for cash. The critical role of a central bank, wrote Walter Bagehot, a former editor of The Economist, in 1873, is to act as the lender of last resort for the banking system—and in doing so to lend freely, against good collateral, at a penalty rate. That allows a central bank to stabilise the financial system, preventing an illiquid lender from causing the demise of otherwise solvent institutions. The Fed already has a lending facility, called the discount window, in which banks can borrow against their collateral at fair value. The new programme not only protects banks against liquidity issues, it insulates them from interest-rate risk. That probably would have saved SVB, which had loaded up on that risk. But it may also encourage more of that recklessness in others. ■Editor’s note: This piece has been updated to include HSBC’s purchase. We have also clarified the nature of the loans that banks are eligible to receive. More

Phew, that was close. Too close. There was so much fear engendered by the events of the last 72 hours since Silicon Valley Bank collapsed that we’ll have investors who want to sell no matter what. That posture is ill-advised. The fact is the Federal Reserve and other U.S. regulators did everything a rational bull could hope for, and a little more than that, to mitigate contagion from the SVB failure. Let’s cut to the chase: What the Fed and Treasury did Sunday evening was take a huge chunk of risk — and losses — off the table by promising to make SVB depositors whole (and those of smaller Signature Bank in New York, which was shuttered Sunday). It was a move I pushed for earlier in the day on Sunday. If the Fed had not acted the way it did, I am convinced we would have been in a recession by Friday. You can’t just wipe out a bank and about $170 billion in SVB deposits and expect to see business as normal in the country. Anyone, I mean anyone, who had more than $250,000 in an account with a bank would, Monday, have sent that money to JPMorgan , which has the best balance sheet. Period. So, while there were plenty of people I heard Sunday evening and will hear Monday who will talk about moral hazard, the unintended consequences of doing nothing is to throw a huge number of people out of work because of the errors of one bank. That’s just wrong. It is what the Fed was set up to stop. What it means for markets I want to go into the markets first before I go into what happened. The actions Sunday evening were, per se, bullish versus what was going on since last Tuesday when Fed Chairman Jerome Powell said things were still running too hot. After this weekend’s events, he has to question that. If he’s prudent, Powell should say we have to wait and see and may not even raise interest rates by 25 basis points at the Fed’s policy meeting later this month. If he feels the 25 was already a done deal, so be it. But it would be a little hasty not to wait and see who has been hurt already by what’s occurred. We had some real flight to quality on the long end of the bond market’s yield curve that is now being undone and rates on the short end are going down — all of which is in keeping with the events of Sunday evening. But let’s put it right out there: We just got a reprieve from a massive wipeout of deposits and companies. We are less likely to have a rate hike. We are very oversold in the stock market. There were many shorts in the market Friday betting against the policymakers. Bad bet. What investors should do So, one word comes to mind: buy. Now, we don’t like buying up and we’re restricted on many names in the Club portfolio. But, if you were concerned, say, about a big series of rate hikes so you sold the stock of Caterpillar on some weird downgrade to sell last week, you are getting your chance. I mention CAT because it had the most egregious decline in the whole portfolio If you sold the stock of Morgan Stanley you have to wonder why you did it. The bank is in great shape. If you sold shares of Wells Fargo , well, I don’t know what to say. Some say WFC’s numbers have to be cut because it will be in a bidding war for deposits. Oh please, it’s got more deposits than it needs. We will have a full list Monday — but I can tell you that I am eying anything that got hit since Tuesday as something that should be bought. You have to be more cyclical than we would otherwise be because the actions to save the SVB depositors are also going to make the Fed move slower, if at all. The Fed can’t move too quickly anymore because there are other banks and brokers that do indeed look a little like SVB when it comes to their bond portfolios, not their depositors, and they have to take some medicine. If the Fed moves too quickly, the medicine won’t have time to have an impact. Yes, the other banks that invested as stupidly on the curve as SVB did will live to play another day, like it or not. Fortunately, almost no one had the horrendous mismatch that SVB had — very few retail depositors and very many long bonds that they were under water on. They shouldn’t have been allowed to do that. Almost everyone in the media wants to dwell on moral hazard and blame. There’s plenty of time for that. You don’t come to me for moralizing for heaven’s sake. With the biggest risk of a recession — bank failures — off the table, we can all find things to buy. I would let the early-bird buyers take things up. Then let the bears who need the market lower try to take it down, and the sellers who want 5% on cash bolt, too. At that point, we can buy, unless something opens up down in the morning that we like. Debate: Bank bailout or not Was it a bailout? Depends on who you ask. If you are a shareholder of the bank or a holder of its corporate bonds and preferred, nope. You just lost everything. If you are a depositor, let’s just say you aren’t going to be so foolish as to concentrate your deposits going forward. Earn a little less. If you are a sightseer? You just missed a crash that would have engulfed you for certain. We live to play again. One more note The closing of Signature by New York authorities was surprising. The bank was only said to have about 15% of its assets in crypto. But it did have a very low retail share of deposits, like SVB, so perhaps that may have had something to do with it. Either way, what a warning if you don’t have a broader deposit base and you have a lot of crypto or borrowing against crypto. (Jim Cramer’s Charitable Trust is long CAT, MS, WFC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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Phew, that was close. Too close. More

A PNC Bank branch in New York, on Wednesday, Jan. 18, 2023.
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PNC Financial Group decided against bidding on Silicon Valley Bank as regulators struggled to find a buyer for the failed bank’s assets over the weekend, according to a source familiar with the matter.
The Pittsburgh, Penn.-based bank sent an initial notice of interest to the Federal Deposit Insurance Corp. for a deal for SVB and held brief and preliminary discussions with the agency, the source said.

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However, after conducting initial due diligence, PNC informed the FDIC on Saturday that it decided not to move forward, the source said.
The FDIC was conducting an auction for SVB this weekend, with final bids due Sunday, according to a report from Bloomberg News. The regulators shuttered SVB on Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis — and the second-largest ever.
On Sunday evening, the Federal Reserve, FDIC and Treasury Department announced a plan to guarantee the uninsured depositors at SVB get their money back. The move suggests that other potential buyers also passed on buying SVB.

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The money to fully reimburse depositors of the collapsed Silicon Valley Bank and the shuttered Signature Bank will be furnished by other banks, not taxpayers, Treasury officials said.
The Deposit Insurance Fund, which will cover the deposits, is funded with quarterly fees assessed on financial institutions and interest on government bonds.
Using the DIF to shore up depositors is seen by the Biden administration as a way to avoid reigniting the public anger sparked by the 2008 taxpayer-funded Wall Street bailouts.

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WASHINGTON — Plans announced Sunday to fully reimburse deposits made in the collapsed Silicon Valley Bank and the shuttered Signature Bank will rely on Wall Street and large financial institutions — not taxpayers — to foot the bill, Treasury officials said.
“For the banks that were put into receivership, the FDIC will use funds from the Deposit Insurance Fund to ensure that all of its depositors are made whole,” said a senior Treasury Department official, who spoke to reporters Sunday about the plan on the condition of anonymity.

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“The Deposit Insurance Fund is bearing the risk,” the official emphasized. “This is not funds from the taxpayer.”
The Deposit Insurance Fund is part of the FDIC and funded by quarterly fees assessed on FDIC-insured financial institutions, as well as interest on funds invested in government bonds.
The DIF currently has over $100 billion in it, a sum the Treasury official said was “more than fully sufficient” to cover SVB and Signature depositors.
The Biden administration is deeply aware of the public anger sparked by taxpayer-funded bailouts of major Wall Street banks during the 2008 financial crisis, and using the DIF to shore up depositors is seen as a way to avoid repeating the same process.
To that end, federal officials strongly pushed back on the idea that the plans for SVB and Signature constituted a “bailout.”

“The banks’ equity and bond holders are being wiped out,” said the official at Treasury. “They took a risk as owners of the securities, they will take the losses.”
“The firms are not being bailed out … depositors are being protected.”
Already Sunday night, there were early signs that Biden’s plan to use the DIF to help SVB and Signature depositors was meeting the demands of at least one critic of the 2008 bailouts.
Sen. Bernie Sanders, I-Vt., insisted that “If there is a bailout of Silicon Valley Bank, it must be 100 percent financed by Wall Street and large financial institutions.”
Sanders blamed SVB’s collapse on successful Republican efforts to relax banking regulations, signed into law by former President Donald Trump in 2018.
On Sunday, California Democratic Rep. Katie Porter said she was writing legislation to reverse the 2018 bill.
On Sunday afternoon, Treasury approved of plans that would unwind both SVB and Signature Bank, based in New York, “in a manner that fully protects all depositors.”
The dramatic moves come just days after SVB, a key financing hub for tech companies, reported that it was struggling, triggering a run on the bank’s deposits. Signature was closed by the government on Sunday.
The SVB failure was the nation’s largest collapse of a financial institution since Washington Mutual went under in 2008.

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Regulators approved plans Sunday to backstop both depositors and financial institutions associated with Silicon Valley Bank.
Officials will unwind both SVB and Signature Bank, ensuring that depositors will have full access to their funds on Monday.
The Federal Reserve stepped in with a separate facility that will provide loans up to one year for institutions affected by the bank failures.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” leading regulators said in a joint statement.

A man walks by the headquarters of Silicon Valley Bank on March 10, 2023 in Santa Clara, California.
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Banking regulators devised a plan Sunday to backstop depositors with money at Silicon Valley Bank, a critical step in stemming a feared systemic panic brought on by the collapse of the tech-focused institution.
Depositors at both failed SVB and Signature Bank in New York, which was shuttered Sunday over similar systemic contagion fears, will have full access to their deposits as part of multiple moves that officials approved over the weekend. Signature had been a popular funding source for cryptocurrency companies.

Those with money at the bank will have full access starting Monday.
The Treasury Department designated both SVB and Signature as systemic risks, giving it authority to unwind both institutions in a way that it said “fully protects all depositors.” The FDIC’s deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits.
Along with that move, the Federal Reserve also said it is creating a new Bank Term Funding Program (BTFB) aimed at safeguarding institutions affected by the market instability of the SVB failure.
A joint statement from the various regulators involved said there would be no bailouts and no taxpayer costs associated with any of the new plans. Shareholders and some unsecured creditors will not be protected and will lose all of their investments.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” said a joint statement from Federal Reserve Board Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg.

The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasurys, agency debt and mortgage-backed securities.
“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement. “The Federal Reserve is prepared to address any liquidity pressures that may arise.”
The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for any potential losses from the funding program. A senior Fed official said the Treasury program likely won’t be needed and will exist only as a safeguard.
The same official expressed confidence the various moves would shore up confidence in the financial system, providing funding guarantees and liquidity considered essential during financial crises.
Along with the facility, the Fed said it will ease conditions at its discount window, which will use the same conditions as the BTFP. However, the new facility offers more favorable terms, with a longer duration of loans of one year vs. 90 days. Also, securities will be valued at par value rather than the market value assessed at the discount window.
The haircut, or reduction in principal, issue is critical as there are estimated to be some $600 billion in unrealized losses that institutions possess in held-to-maturity Treasurys and mortgage-backed securities.
“This should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age,” Paul Ashworth, chief North America economist at Capital Economics, said in a client note. “But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”
Markets reacted positively to the developments, with futures tied to the Dow Jones Industrial Average leaping more than 300 points in early trading. Cryptocurrency prices also rallied strongly, with bitcoin up more than 7%.
The rescue plans rekindled memories of the financial crisis, but Yellen said Sunday morning that there would be no SVB bailout.
“We’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs,” Yellen said on CBS’ “Face the Nation.”
President Joe Biden praised Sunday’s initiatives but indicated there would be consequences from the crisis.
“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again,” Biden said.
The SVB failure was the nation’s largest collapse of a financial institution since Washington Mutual went under in 2008.
The dramatic moves come just days after SVB, a key financing hub for tech companies, reported that it was struggling, triggering a run on the bank’s deposits.
Authorities had spent the weekend looking for a larger institution to buy SVB, but came up short. PNC was one interested buyer but backed out, a source told CNBC’s Sara Eisen.
A senior Treasury official said Sunday evening that a sale is still possible for Silicon Valley Bank. The initiatives Sunday were done to head off further potential problems.
The scenario harkened back to the Sept. 15, 2008 collapse of investment banking giant Lehman Brothers, which also found itself insolvent and in search of a buyer. The government also was unsuccessful in that case following a weekend of wrangling, triggering the worst of the Global Financial Crisis.

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Update: Banking regulators devised a plan Sunday evening to backstop depositors with money at Silicon Valley Bank, along with Signature Bank in New York — a key step to avoid a crisis stemming from the collapse of the tech-focused bank. Fears of contagion to banks with similar profiles to Silicon Valley Bank has brought together several government agencies to find a buyer for the troubled institution, which on Friday became the second-biggest bank collapse in U.S. history. At the very least, the Federal Deposit Insurance Corporation, the Federal Reserve, the Treasury and President Joe Biden are seeking some sort of safety net that will extend deposit insurance to all the individuals and companies with funds at Silicon Valley Bank. This safety net is incredibly important because of the $173 billion of deposits at the bank, only $4.8 billion of which are fully insured. We have plenty of time to go over why Silicon Valley Bank — parent company SVB Financial (SIVB) —became such a nightmare, but will briefly explain some of that here. What matters, however, is that if the government doesn’t come out with a plan, the stock market will have a very rough time Monday. What I intend to say Sunday evening is that the risks are high but the government understands that if a full guarantee of deposits is offered, through a note provided by the Fed, this crisis is over Monday and it will be a remarkable opportunity to buy. Similarly, if the government can find a buyer for the SVB, similar to the Washington Mutual collapse in 2008, then the crisis will also be averted. That’s because the actual loan book and deposits on hand will apparently cover any depositors’ losses. In the WAMU case, the government seized the bank, put it in receivership and then sold the assets and liabilities to another large bank, JPMorgan (JPM). A similar auction is going on right now. We might not know the results until Sunday evening, but the government wants any auction solved Sunday so it doesn’t spill over into Monday. The government did not understand the dire nature of the situation Friday because things just happened too darned fast. But the policymakers, as well as California Governor Gavin Newsom and President Biden, have since been made aware and understand the gravity of the situation. What could go awry? If someone from these constituencies says we’re not going to bail out any more banks because we need to maintain a hard line. That stance, if it prevails — and I can’t rule it out if an auction fails — would make Monday very difficult to fathom because of the contagion already occurring at several banks. I hesitate to use a word like “crash” because it is loaded and inspires a level of fear that is not helpful. Earlier, I mentioned First Republic Bank (FRC). But since we first published this story, First Republic pledged 100% deposit backing. Bank officials said they have $60 billion for the effort. There will be big signs on branch windows Monday morning saying they are open for business (much better than the lines around the block), and they will be offering small payroll loans for anyone from Silicon Valley Bank. Let’s go over the who, what, where, how, and why of this moment. The who is Silicon Valley Bank. It is not like most banks. It is a merchant bank — top 20 in size — with a storied 40-year career as the banker to start-ups and venture capital. It is considered to be iconic and powerful. It has weathered multiple bouts with trouble in the U.S., and tech in particular, and come out whole. The what is the possibility that deposits will be pulled out at many banks. Certainly anything above $250,000 is problematic because of the fear that anything north of that amount will not be protected by the FDIC. Most of the deposits fleeing would most likely go to one of the biggest banks, causing further concentration than we already have in this country. JPMorgan, which has the best balance sheet of the big banks, would be the biggest winner. Politicians are worried about that concentration as much as they fear looking like they are bailing out a smaller bank. The where is mostly concentrated in Silicon Valley because this bank was unique. It supported thousands upon thousands of start-ups, but it seems to have demanded that the users of this support have all of their money deposited at the bank. So there is a very high concentration of uninsured deposits. Remember only a fraction of the $173 billion in deposits is guaranteed, a real outlier in the system. As you can imagine, a start-up that gets SVB’s help would put all of its assets with SVB at risk — and those deposits would far exceed the $250,000 protection per account. Silicon Valley Bank was not likely to support your company if it did not receive all of your deposits. How did this happen? Simple: When the Fed pushed a great deal of liquidity into the system in 2020 to avoid a Covid-related crash, deposits soared at SVB. Unlike most other banks, which bought short-term, lower-yielding government bonds, this bank chose to invest in government bonds that had a longer maturity. The bank wanted to pick up extra yield. Why the regulators allowed that is a mystery. It was ill-advised and, in hindsight, the regulators should have made it so its portfolio was more balanced. But the result was a bank that didn’t have enough short-term paper in its coffers to redeem when depositors wanted their money. It didn’t help that some venture capitalists hastened a run on the bank because the FDIC actually had a plan in place to save the bank. However, the run happened too quickly for any plan to work, leaving a solvent bank to become insolvent overnight. And, the why is it left the bank having to take severe losses on a portfolio of bonds that were actually of good quality but were way underwater because every time the Fed raised rates it got clobbered. The irony is that the Fed creates great liquidity, SVB’s deposits grow by about 250%, it invests in longer-dated assets — but then the Fed crushes the yield of those longer-dated assets and SVB is a casualty simply because of how far out it bought government bonds, not because it had a credit problem. The rest of the bank’s bonds went unsold before it was seized. How do we get out of this morass? There’s a simple way: The U.S. government creates a note that backstops the entire deposit base. There would then be no run and the crisis would be averted. That would be incredibly clean and very bullish. Will they do it? It’s against current doctrine, which says banks should not be bailed out. But it also makes the most sense as all common and preferred shareholders would not be bailed out. If the Fed does this plan, taxpayers would not (theoretically) be at risk and the doctrine isn’t disobeyed. We move on quickly and the Fed most likely stops hiking. A less simple way is to find a buyer who agrees to take the assets and liabilities of the bankrupt entity and any depositor withdrawals in excess of what the newco (new bank) can handle are backed by the Fed or the Federal Home Loan Bank Board. The issue here is that any buyer would not pay full price so there would be a real moral hazard. The assets and the loan book most likely exceed the deposits, so the winning entity would make a killing and that’s just unseemly. A punitive option is to simply let things play out, which in that case will be very difficult to avoid a severe decline in the stock market because of other runs beyond SVB. Perhaps more important, it could cause the failure of numerous entities to make payroll and the collapse of a substantial number of start-ups and even venture capital firms. It would amount to a severe hit to the U.S. economy. What do I think will happen? We will know soon enough, but given what we have learned from 2008 it would be nuts to let the so-called free market handle this. An elegant solution is available, the note from the Fed. In order to make it so there is no run, the note must guarantee 100% of the deposits. Anything less than that would mean there would be runs at other banks. Why not? You simply journal your deposits to JPMorgan. I now understand that the discount window will be wide open to any bank under pressure. But at the same time, there will be a pullout at all banks that are not large unless there are 100% guarantees for SVB depositors. Again, there is some very good news here: If you add up the bonds that the bank holds and the loans that it has made, often to very qualified institutions, they more than cover all deposits so it is not technically a bailout. I cannot see why the government doesn’t do that and I will push for that Sunday evening. If they don’t do it, it will look like it wants to punish the rich venture capitalists. But it will end up punishing everyone. Remember, the bad news is that there is always someone in the room who says, “Nope, it is time for some punishment.” In that case, we will all be punished. I will do my best Sunday evening to say that’s a suboptimal solution. But I am just one voice among many. Stay tuned for more. If I have more before the special, I will communicate it directly to you. Back to work. “CNBC Special: America’s Banking Crisis” airs Sunday at 7 p.m. ET, where Jim and other experts will discuss the ramifications of Silicon Valley Bank’s demise on the economy and the stock market. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust is long.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A Brinks armored truck sits parked in front of the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images

Update: Banking regulators devised a plan Sunday evening to backstop depositors with money at Silicon Valley Bank, along with Signature Bank in New York — a key step to avoid a crisis stemming from the collapse of the tech-focused bank.
Fears of contagion to banks with similar profiles to Silicon Valley Bank has brought together several government agencies to find a buyer for the troubled institution, which on Friday became the second-biggest bank collapse in U.S. history. At the very least, the Federal Deposit Insurance Corporation, the Federal Reserve, the Treasury and President Joe Biden are seeking some sort of safety net that will extend deposit insurance to all the individuals and companies with funds at Silicon Valley Bank. More