Strangely, the Silicon Valley Bank collapse could boost all US bank stocks. To explain, I think the federal government is guaranteeing all bank deposits regardless of size.
Many people thought Silicon Valley Bank’s failure could cause a tech industry collapse because the Federal Deposit Insurance Corporation (FDIC) only insures bank deposits to $250,000. Frighteningly, many tech companies had far more in uninsured Silicon Valley Bank accounts.
For example, the streaming video service Roku (ROKU) had $487 million or 26% of its cash in a Silicon Valley Bank checking account. Similarly, stablecoin operator Circle kept $3.3 billion of its cash reserves in Silicon Valley Bank. Circle operates the popular stablecoin USD Coin (USDC) which could collapse without US Dollars to cover its payments. This led to fears Silicon Valley Bank’s failure could cause a stablecoin market collapse.
The FDIC enters the Banking Business
The FDIC transferred all of Silicon Valley Bank’s accounts to a full service-FDIC operated “bridge bank,” The San Jose Mercury-News reports.
Therefore, the FDIC now insures all US bank accounts of size. Hence, all of Silicon Valley Bank depositors’ money was available on Monday 13 March 2023, The Washington Post reports. Moreover, the FDIC is “backstopping” all accounts at a second institution, Signature Bank of New York.
Hence, the FDIC is now in the banking business because it is operating the remains of Silicon Valley Bank and Signature Bank. Europeans will say, the FDIC has nationalized Silicon Valley Bank and Signature Bank.
I think the FDIC’s action adds a layer of safety and profitability to the banking system. To explain, the FDIC is now insuring all commercial and institutional bank accounts against risk of loss regardless of size.
Does the FDIC’s New Insurance make US banks a Value Investment?
Plus, I think the FDIC’s action makes US bank stocks a better value investment.
To elaborate, bank investors will get their money back because Uncle Sam will always cover their losses. Hence, the FDIC is making bank stocks the equivalent of US Treasury bonds or T-bills.
To explain, treasuries, or T-bills, are a safe investment because the federal government can always print more or increase taxes to get the funds to cover them. Now, the federal government is extending the same risk protection to commercial bank deposits.
Are Bank Stocks a Bargain?
Many people will wonder if all the bank stocks investors are dumping are now a bargain.
For example, JPMorgan Chase’s (JPM) share price fell from $142.82 on 6 March 2023 to $130.75 on 16 March 2023. Chase is still the same stock with nine $1 quarterly dividends between 28 April 2023 and 4 April 2024.
Moreover, JPMorgan Chase reported $1.337 trillion in cash and short-term investments on 31 December 2022. JPMorgan also reported $3.336 trillion in total assets, $47.409 billion in quarterly revenues, a quarterly gross profit of $34.547 billion, and a quarterly operating income of $13.237 billion on 31 December 2022.
Plus, the federal government has assumed many of JPMorgan’s risks. In particular, the FDIC now insures all JPMorgan Chase deposits. JPMorgan Chase had $2.253 trillion in total deposits in 2021, MX estimates. I think JPMorgan could cut insurance costs.
Are Bank Stocks now a Better Investment?
Hence, JPMorgan no longer faces enormous bank deposit risks because of the backstop. To explain, I think it is now politically impossible for the FDIC not to insure all of JPMorgan Chase’s deposits. No politician will face the risk of hundreds of thousands of businesses and rich people being unable to access their funds.
I think the federal government just turned monster banks into a recession and crash-proof value investment by backstopping Silicon Valley Bank’s accounts. Investors have little to fear because the FDIC will guarantee all deposits and take over the bank and keep it running, no matter what happens.
Nor is it just monster banks such as JPMorgan Chase (JPM) that can benefit from the FDIC’s insurance. I think the FDIC will have to extend the new deposit insurance to all banks regardless of size.
Are Bank Stocks Gaining Value?
I think this will benefit lesser institutions such as BNYMellon (BK). BNYMellon’s share price fell from $51.14 on 6 March 2023 to $44.40 on 16 March 2023. Yet, BNYMellon’s is business is growing.
For example, Circle will deposit $5.4 billion in The Bank of New York Mellon (BK) after the Silicon Valley Bank collapse. Hence, BNYMellon is attracting more business as its stock price fell.
I think BNYMellon still offers enormous value. For instance, it had $148.06 billion in cash and short-term investments and $405.783 billion in total assets on 31 December 2022. Plus, they have scheduled eight 37₵ BNYMellon quarterly dividends between 11 May 2023 and 11 February 2025.
Thus, BNYMellon could have more value and a growing business. Yet its share value is falling because of Silicon Valley Bank hysteria.