The Banking Crisis Explained with John Maxfield

<p>Banking is just a sleepy, boring industry, right? Ha! Not if you&#39;ve read the headlines lately. </p> <p>The failures of Silicon Valley Bank and Signature Bank (the third-largest bank failure in U.S. history) turned the financial world upside down almost overnight. Is the entire financial industry about to collapse?  </p> <p>Veteran banking analyst and writer John Maxfield doesn&#39;t think so. Maxfield is the executive director of the Wilmers Integrity Prize, named after Robert Wilmers, the longtime CEO of MMT Bank. He was formerly the editor-in-chief of Bank Director magazine. </p> <p>For the <a href="https://www.youtube.com/watch?v=UZV142Lh7Lg">second time</a> in a year, Maxfield joined 7investing lead advisor Matthew Cochrane to walk listeners through what happened at the above banks that led to their insolvency and subsequent takeover by the FDIC. Maxfield explains that the ground for the error was laid in early 2020, when Silicon Valley Bank was overtaken by a deluge of deposits flooding in from the government&#39;s response to the coronavirus pandemic. The bank&#39;s deposits more than tripled over the next two years, climbing to $189 billion by the end of 2022. </p> <p>Silicon Valley Bank treated this windfall as regular deposits and invested the money into long-duration assets, simultaneously betting that the deposits would be sticky and that interest rates would remain low for years. Neither would prove true. As interest rates rose, these assets declined in value precipitously. As it became apparent that SVB&#39;s paper losses were enough to make the bank insolvent, venture capitalists advised the startups in their portfolios to withdraw their money, leading to a bank run and a lightning-quick collapse. </p> <p>Maxfield advises when the banking equilibrium becomes unstable, it implodes exponentially, not linearly. Meaning banking panics can get magnified as more banks fall and panic spreads. This helps explain why First Republic Bank (NYSE:FRC), a &quot;good&quot; bank by all accounts, got caught u