Everyone loves Fridays. Unless you're a banker, banking regulator, lawyer or journalist in the middle of a financial crisis.
That's because when banks fail, they have a tendency to do so on Friday. See here, courtesy of a tweet from the Kobeissi Letter, a market commentator:
- Friday, March 14, 2008: Bear Stearns hit by liquidity crisis.
- Friday, Sept. 12, 2008: Last trading day before Lehman Brothers declares bankruptcy.
- Friday, Sept. 26, 2008: Washington Mutual seized by regulators marking largest bank collapse in US history. [My edit: Technically, regulators swooped in after the market close on Thursday evening, and WaMu filed for bankruptcy on Friday.]
- Friday, March 10, 2023: Silicon Valley Bank seized by regulators, the second biggest bank failure in US history.
- Friday, March 10, 2023: Signature Bank sees $10 billion in withdrawals; seized by regulators two days later.
- Friday, March 17, 2023: UBS bids for Credit Suisse to avoid its collapse.
So, *Seinfeld voice* what is the deal with Fridays?
The short answer: They're a lot less messy.
Here's the deal: Regulators would prefer not to freak customers out and spread panic. When a bank begins to wobble, regulatory authorities usually have enough lead time to plan a takeover and time it to go down when most folks are relaxing over the weekend.
"Back in the day, most banks were not open over the weekend, so if they were closed COB on a Friday, it gave the FDIC 60 hours to turn it around for reopening," said David Barr, a spokesman for the Federal Deposit Insurance Corporation, the agency that supervises bank takeovers.
It's amusingly similar to how movies and TV make it seem.
"A team of 45 – 60 people would enter with printers, computers, copiers, boxes, etc.," Barr said. "Now, we have a much more streamlined team onsite with the bulk of the work being done from home or the office."
Teams often pull all-nighters to settle a failed bank's accounts and figure out what assets can be liquidated. The ultimate goal is to get the institution cleaned up and ready to reopen on Monday morning, ideally under new ownership.
"That involves discarding any material with the old bank's name on it—like posters, cashiers' checks, and marquee signs—and putting the new bank's paperwork, advertisements, and employees in place," Slate wrote during the 2008 banking crisis.
Of course, Barr notes, a bank failure can happen any day of the week, especially when problems arise suddenly.
For example, back in 1999, First National Bank of Keystone was closed on a Wednesday. "There was massive fraud and half the bank's assets were missing," Barr said. "So, it was closed on a Wednesday and the FDIC was issuing checks for a payout the following Tuesday" — Monday was Labor Day, and all banks were closed. "That was very unusual."
Similarly, Silicon Valley Bank's unraveling happened at a head-spinning pace nearly three weeks ago. Supercharged by social media panic, depositors yanked $42 billion on Thursday the 9th. By Friday morning, SVB expected to face a run of $100 billion. "They did not have the collateral sufficient to support discount window letting," the Fed's vice chair for supervision told Congress this week.
Rather than wait until the end of the day, California regulators intervene around midday on Friday, March 10, putting the bank into FDIC receivership.
By Sunday night, regulators had invoked the "systemic risk exception" for Silicon Valley Bank and a Signature Bank, allowing the FDIC to guarantee all deposits, even those above the $250,000 cap. That made all customer funds available through the FDIC-operated bridge bank come Monday morning.
As I type this, it's Thursday evening. Friday eve. Markets are closed. The East Coast is winding down for the day. It seems we've managed to avoid a bank failure this week, a sign that the worst of the turmoil is behind us. (I'd cheers to that, if I weren't so superstitious and shell-shocked.)
RELATED: On tonight's Nightcap show, Ellevest CEO Sallie Krawcheck digs into the role of remote work and how it played a role in SVB's collapse.
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