After the fall of the three banks Silicon Valley Bank (SVB), Signature Bank, and then Signature Bank, is it going to happen again? Pacific Western Bank (PAC) seems to be experiencing some of the same problems the other failures had, as money becomes more difficult to be had.
Things seem to be starting to snowball; the banks fail, making it harder to borrow money. The interest rate rises, the Central Bank reacts to this by raising the official interest rate, and the banks find it harder and harder to access capital.
The PAC Bank, which also did considerable business in California, is teetering. Its depositors are going away to larger banks, as its assets were tied to interest rates on long range investments. Like in the 2008 crisis, when interest rates spiked, leaving holders of variable rate mortgages subject to a double digit interest rate practically overnight, the speculation on long term loans like mortgages has to be having an effect on the mid sized bank.
As money becomes more difficult to be had,
“Another midsize bank faced a crisis of confidence on Thursday, as Pacific Western Bank said that it had lost nearly 10 percent of its deposits over the last week, sparking a renewed plunge in its already depressed share price.
“The deposit flight, which amounts to billions of dollars, was detailed in a regulatory filing that suggested new trouble at the Los Angeles-based lender. The bank’s stock fell 23 percent, a much steeper decline than other banks that have been the focus of investors’ worries after the recent collapses of Silicon Valley Bank, Signature Bank and First Republic Bank.
“PacWest, with $44 billion in assets and branches primarily in California, grew fast as a lender in the technology world, a similarity to some of the fallen banks that has proved unfortunate of late. In its regulatory filing Thursday, PacWest said that the seizure and sale of First Republic at the beginning of May “heightened market and customer fears of additional bank failures, including PacWest.”
“On May 3, the bank confirmed that it was looking to sell itself or raise more money, a sign of weakness in its business that sent its shares down sharply. Around that time, the bank said that it had “not experienced out-of-the-ordinary deposit flows.”
New York Times May 11 2023
The shares are connected to the ability of the bank to use credit to consolidate capital. Banks are sort of like objects with gravity for capital, they exert a pull from all other capital around them to consolidate into a large mass. The bank holds capital, the deposits are even used as capital, lent out at an interest rate so the bank makes a profit from its deposits.
That is part of the reason it is important when viewing a bank to look at their deposits. It is part of their capital, and if deposits start to wane, the bank cannot make a profit as easy.
The last three failures were tied to a run on the deposits of the banks, resulting in the state having to repay the depositors, who held more than the previous level of $250,000 that was insured by the Central Bank. The latter rule went to the wayside when the banks failed, even though the average deposit size of an average person was $7,000.
So the millionaires got bailed out with the banks. SVC’s assets were sold to JPMorgan for a little more than 13 billion dollars, a bank previous to failure holding 200 billion dollars or more in assets. This sale was accomplished with the aid of the state, the Central Bank overseeing the transaction.
The larger banks were forced by the Central Bank to come up with about $30 billion to help bail out First Republic bank, to no avail. The bank went under, now in the process of its assets being sold at bargain basement prices to another big bank presumably, like SVB did with JPMorgan. That was a sizable amount of capital, 30 billion dollars worth. Where did it go? It was like a bucket with a hole in the bottom, the Central Bank plan just kept pouring more water into it.
If PAC fails it will be another bailout, bringing into question how the Central Bank can keep coming up with these massive sums of capital. The national debt rate is in question, the Congress divided about raising it again. The banks seem to be where a trillion dollars went in 2008, this time they are in hundreds of billions. How will they pay? By speculating on commodities that are not yet produced, fictitious capital, raising the debt ceiling, trading the tax money.
The Western Alliance Bank so far has yet to fall, although it is facing deposit problems like the three other bank failures. Once there is a question of safety of deposits, investments move from small bank to big bank. The big banks were “too big to fail”, and investors know they will not lose everything if a big bank starts to fail. The Central Bank will bail them out.
But every bailout seems to raise the national debt further, now at biblical proportions. Will there be commodities produced that will be able to pay off the debt? It is pure speculation; all we know is capitalists sure think so. If they did not you would never see the national debt rise.
So far there has been no effort seen to get the big banks to bail out PAC like they did First Republic. Perhaps the big bankers are learning their lessons, and conversely the Central Bank. Clearly the interest rates rose as a reaction to the tightening of credit, with the possibility of bank failure the cause of rising interest rates by the Central Bank.
You can probably expect the national debt to keep rising, as the Central Bank keeps selling more and more bonds to bail out the banks. The proceeds will come from profit, diverted from the pot for taxes by the bourgeoisie. It remains to be seen if this is simply a credit problem; if it is being a costly one.
Nicholas Jay Boyes
Milwaukee Wisconsin
American Constitutional Democratic Republic
5 13 2023
edit 9 20 2025
Ecological Era 