Banks, Customers, Regulators Wary After SVB Collapse

The Pasadena branch of Silicon Valley Bank (SVB) on Colorado Boulevard sat shuttered and empty last weekends, the blinds drawn shut. Two security guards sat in the deserted lobby, on either side of the front doors, hours after the bank collapsed and was taken over by Federal regulators last Friday. A notice regarding FDIC insurance was posted on the inside window of the front door.

According to the Associated Press, and The Wall Street Journal, a trust owned by SVB CEO Greg Becker sold SVB shares worth more than $3.5 million less than two weeks before the bank’s collapse. Although the sales were scheduled on Jan. 26 and executed on Feb. 27—using an SEC rule allowing management to pre-set to avoid accusations of insider trading, the timing may prompt concern from regulators.

The bank disclosed those losses that led to its failure 10 days after the trades, said The Wall Street Journal.

The U.S. Justice Department has opened an investigation into the bank, which was taken over by federal regulators on Friday, after a run on deposits by customers, according to The New York Times, who cited two people familiar with the matter.

The Securities and Exchange Commission (SEC) and the Federal Reserve are both looking into the bank’s failure.

As the California Association of Realtors said this week, “The takeover of Silicon Valley Bank by Federal Regulators last week has ushered in new economic uncertainty to the forecast that has spooked investors and cast doubts about what the Federal Reserve will do at its upcoming meeting, with markets anticipating a less aggressive posture amidst a potentially softer economic backdrop.

Caleb Silver, editor in chief of Investopedia, a financial media website, said this week that bank customers should watch the stock price of their bank and keep an eye on the quarterly and annual reports. Silver also recommends creating a Google alert for your bank in case there are news stories about it. “You want to make sure you pay close attention to the way your bank is behaving,” Silver said.

This uncertainty about broader exposure has fueled a rally in the bond market as investors flee to safety, said CAR, and that has already begun to lower yields, while mortgage rates have started to drop after being above 7% in recent weeks.

Still, labor market data suggests that the economy is still running hotter than the Fed would like it to, said CAR, and its upcoming inflation report will play a large role in whatever action they decide to take later this month.

Meanwhile the California housing inventory has dropped, as the pace of new listings has dropped more than half. As sales activity has slowed in recent months, the pace of homes being listed for sale continues to slow as well and the dearth of new inventory and supply continues to get tighter, said CAR, adding that the number of new listings being added to the MLS each week has been falling by double-digits this whole year and total active inventory has begun to follow suit.

In related news, CAR reported that California mortgage delinquencies remain low: Despite a modest uptick in the 4th quarter, mortgage delinquencies remain very low in the Golden State. California finished the year with just 2.5% of mortgages behind on their payments.

That was up from 2.2% in the third quarter, but remains well-below the historical average of 4.2% between 1972 and 2000.

California now has the 3rd lowest delinquency rate of any state in the nation, said CAR, which, taken together with homeowner equity that remains near an all-time high level and most homeowners locked into the lowest rate mortgages of all time, should prevent a flood of inventory from hitting the market and precipitating much larger price declines.

Recent market data shows that the recent reduction in rates during January and February helped the market to level off in terms of sales and competitiveness.