Governments Will Always Protect Banks & Housing

The collapse of SVB, the 15th largest regional bank in the US, sent shockwaves through the financial industry in March 2023. The bank announced on Wednesday that it was attempting to raise $2.25 billion and complete a $21 billion asset sale to overcome the difficult situation it found itself in after rates accelerated by 450 basis points over nine months. However, by Thursday afternoon, reports emerged that there was a $42 billion bank run on deposits, leading to the bank's negative balance of $958 million and a 60% drop in the stock price by the end of the day.

The collapse of SVB highlighted several key issues in the financial industry, including what feels like the age of institutional negligence creating a conversation around the re-emergence of personal responsibility, and that there should be major consequences for actions that are taken by people in these positions. For instance, the CEO of SVB sold $3.5 million worth of personal shares one week before the collapse, and in the last two years, there were nearly $84 million worth of insider share sales.

One of the significant impacts of the collapse of SVB was the sharp fall in bond yields. The 5-year government bond fell from 3.57% to 2.89% in just three days! The largest drop in 27 years - more than the pandemic and the 08’ GFC causing markets to price in two rate cuts instead of one rate increase by summer. The collapse of SVB had significant implications for the financial industry and the economy, and it highlighted the importance of taking personal responsibility for one's financial well-being and keeping  the majority of savings in hard assets that produce consistent cash flow.

The collapse of SVB is not an isolated incident in the financial industry. According to the FDIC, between 2001 and 2023, the US experienced 562 bank failures, which is an average of one every two weeks. This indicates a lack of accountability and responsibility in the financial industry, and it raises concerns about the stability and security of the banking system. By contrast, Canada has not experienced any bank failures with assets over $1 billion. This is a testament to the country's stable banking system and regulations that prioritize accountability and responsibility. The absence of bank failures in Canada is noteworthy and provides an example for other countries to follow in establishing stable and secure financial systems.

The issue of bailouts is not limited to the financial industry. The COVID-19 pandemic has also led to a significant increase in government bailouts for homeowners and businesses. For instance, the B.C. government provided a $479 million bailout to TransLink to help the transit system deal with the impact of the pandemic. The funding kept fares stable for transit users and avoided service cuts.

The collapse of SVB also had implications for the housing market in Canada. Canadian home prices fell $130,000 since their peak, and the housing market recorded the fewest number of new listings for the month of February since 2003, with a 20-year low on a national basis. National home sales hit their lowest levels for the month of February since 2009, and house prices have fallen $130,000 on average from peak to trough. Check out the conversation in this weeks podcast and get the local numbers for Vancouver.

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