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‘Contained’ 2.0? Treasury Sec Yellen Says Banking System Is “Resilient”

‘Contained’ 2.0? Treasury Sec Yellen Says Banking System Is “Resilient”

Remember when Ben Bernanke told the world that the subprime crisis – that would eventually collapse the global financial system – was “contained”?

And don’t forget, Janet Yellen exclaimed proudly that there would never be another financial crisis “in our lifetimes” in 2017, only to see the repo crisis and the reaction to COVID lockdown policies prompt the biggest response by The Fed ever.

Having earlier commented during her appearance before Congress that Treasury was “monitoring” several banks as Silicon Valley Bank failed, the Treasury Department released this statement:

“Today, Secretary of the Treasury Janet L. Yellen convened leaders from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency to discuss developments around Silicon Valley Bank.

Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event.”

Some of them don’t look very “resilient”…

Is “resilient” the new “contained”?

Tyler Durden
Fri, 03/10/2023 – 14:54

US Intel Chief Says China Should Know US Is Willing To Defend Taiwan

US Intel Chief Says China Should Know US Is Willing To Defend Taiwan

Authored by Dave DeCamp via AntiWar.com,

Director of National Intelligence (DNI) Avril Haines said Thursday that China should know the US is willing to go to war over Taiwan, pointing to comments made by President Biden that he would defend the island in the event of a Chinese attack.

Haines made the remarks at a House Intelligence Committee hearing when asked by Rep. Chris Stewart (R-UT) if she thinks the US should change its policy of “strategic ambiguity” over the question of defending Taiwan. “I think it is clear to the Chinese what our position is, based on the president’s comments,” she said.

File image, US intel chiefs: Bloomberg

In September 2022, President Biden was asked if American men and women would be deployed to Taiwan if China attacked, and he replied, “Yes.” Unlike previous times he made the commitment, the White House did not walk it back. Kurt Campbell, Biden’s top Asia official on the National Security Council, said at the time that the president’s comments “speak for themselves.”

For decades, the US policy was not to say one way or another if it would come to Taiwan’s defense. The policy served two purposes: China wouldn’t be sure what the cost of an invasion would be, and Taiwan wouldn’t be emboldened to take any action that would provoke a Chinese attack.

Biden administration officials insist there hasn’t been an official change in US policy on the issue but have made clear, unlike in Ukraine, Biden would directly intervene with troops in a Taiwan conflict to fight China despite the risk of nuclear war.

Journalist Michael Tracey: “They keep announcing war with China is already a foregone conclusion.”

Haines also said at the hearing that “it’s not our assessment that China wants to go to war” over Taiwan. Beijing’s official stance is that it seeks “peaceful reunification” with Taiwan but doesn’t rule out the use of force.

China has been increasing military pressure on Taiwan in direct response to the US stepping up support for the island. Chinese officials have warned if the US doesn’t change its policies in the region, it will lead to “conflict and confrontation.”

Tyler Durden
Fri, 03/10/2023 – 14:46

Wells Fargo Warns Customers Of ‘Incorrect Balances Or Missing Transactions’

Wells Fargo Warns Customers Of ‘Incorrect Balances Or Missing Transactions’

Of all days…

Customers of Wells Fargo, the fourth largest bank in the US by assets, are complaining of missing direct deposit payments and incorrect balances.

The bank has acknowledged the reports which are affecting “some customers,” and is chalking it up to a potential “technical issue.”

“We are working quickly on a resolution and apologize for the inconvenience. Customers’ accounts continue to be secure,” the company added.

According to Downdetector, a spike in reported Wells Fargo outages began just after 5 a.m.

A Wells Fargo customer shared this screenshot of their online banking account in the negative after a direct deposit disappeared from their account on March 10, 2023. (source WFAA)

That’s comforting…

Tyler Durden
Fri, 03/10/2023 – 14:33

CBDCs Could Be “Easily Weaponized” To Spy On US Citizens: Congressman

CBDCs Could Be “Easily Weaponized” To Spy On US Citizens: Congressman

Authored by Brayden Lindrea via CoinTelegraph.com,

Congressman Tom Emmer made the anti-central bank digital currency comments to an audience at the Cato Institute, a libertarian think tank in Washington…

United States Representative Tom Emmer believes the launch of programmable central bank digital currency in the country could strip American citizens of their financial privacy.

Speaking on March 9 at the Cato Institute, a Washington D.C.-based libertarian think tank, Emmer explained that the programmable CBDC would be “easily weaponized” as a spying tool to “choke out politically unpopular activity,” among other things:

“As the federal government seeks to maintain and expand financial control to which it has grown accustomed, the idea of the central bank digital currency has gained traction within the institutions of power in the United States as a government-controlled programmable money that can be easily weaponized into a surveillance tool.”

The Minnesota congressman introduced the CBDC Anti-Surveillance Act on Feb. 22 to halt the progress of the Digital Dollar Project, which has seen considerable developments in how it would be used since the second version of its white paper was released in mid-January.

“Recent actions from the Biden Administration make it clear that they are not only itching to create a digital dollar but they are willing to trade Americans’ right to financial privacy for the surveillance-style CBDC,” he added.

Emmer suggested that the blockchain-enabled “ownership economy” is “threatening” many bureaucrats in Washington, as it “shifts economic power from centralized institutions back into the hands of the people.”

While the latest Federal Reserve discussion paper explained that it would only issue the CBDC in the context of “broad public and cross-governmental support,” Emmer and many others are concerned with the potential dangers that could ensue:

“It not only tracks transaction level data down to the individual user but also the ability to program the CBDC to choke out politically unpopular activity.”

Emmer also argued that decentralized cryptocurrencies can serve as a solution to the mismanagement of the U.S. monetary system and restore many of the “American values” that led the nation to become an economic powerhouse in the 20th century — privacy, individual sovereignty and free markets.

He added that by even experimenting with CBDCs, the U.S. is going against these values:

“Nothing could be more dangerous than adhering to a manufactured sense of urgency like this and ultimately developing a CBDC that is not open, permissionless and private.”

Tyler Durden
Fri, 03/10/2023 – 12:01

Judge Overturns “Misgendering” Conviction For Street Preacher Reported To Terror Watchdog

Judge Overturns “Misgendering” Conviction For Street Preacher Reported To Terror Watchdog

Authored by Owen Evans via The Epoch Times,

A judge has overturned the conviction of a Christian street preacher who was arrested and reported to Prevent for “misgendering” a member of the public.

Dave McConnell, 42, was appealing a conviction on Thursday at Leeds Crown Court after he was arrested under section 4A of the Public Order Act 1986 for insulting a member of the public in Leeds City Centre on June 8, 2021.

The arrest was made after he “misgendered” someone who self-identified as transgender.

In footage from McConnell’s body-worn camera, Farrah Munir is seen approaching the preacher and asking, “Does God accept the LGBT community?”

In the video, McConnell refers to Munir as “a man” and “this gentleman.”

As the police arrive, a growing crowd chants, “Hate speech, hate speech.”

McConnell is later arrested after a policeman says, “Listen mate, I’m not having that because she’s told you she’s a woman.”

“She asked me, he asked me what do I think,” replies McConnell. At that point, the officer handcuffs him, adding, “OK, you’re under arrest.”

Joint Counter-Terrorism Team

McConnell was convicted of causing harassment, alarm, or distress to Munir at Leeds Magistrates’ Court last year and sentenced to a 12-month community order with 80 hours of unpaid work. Following his conviction and prior to the sentencing hearing, the Probation Service reported McConnell to the Joint Counter-Terrorism Team.

A legal team supported by the Christian Legal Centre sought to overturn the conviction by arguing that the police response was unlawful, disproportionate, and interfered with his rights under Articles 9 and 10 of the European Convention on Human Rights.

McConnell’s appeal was backed by evidence from Sex Matters campaigner Maya Forstater and Toby Young, general secretary for the Free Speech Union.

On Thursday, the judge in the case, Recorder Anthony Hawks, sitting with two magistrates, allowed the preacher’s appeal against his conviction.

At the start of the hearing and before cross-examination, Hawks said of the complainant, “This is a woman—we will have no more debate.”

During proceedings, the arresting officer was asked why he had arrested McConnell after initially suggesting that he just move on. The officer said: “He wanted to argue his rights of free speech. Regardless of what he’d have preached, I think the crowd wouldn’t allow it … the final trigger was when [McConnell] referred to the victim as a man in a dress. I stopped him and told him he’d been told the victim was a female.”

McConnell was asked in court whether he knew that “misgendering” a trans person could be insulting, to which he replied: “I wasn’t misgendering. I was telling the truth.”

He told the court: “I think people could have been offended but that’s not the intention. My intention was to simply stay faithful to my beliefs, stay faithful to God, and to stay faithful to my conscience.

“I wasn’t being transphobic—I was expressing what I believe,” he added.

‘Appalled’

Hawks said that McConnell “misgendering” the complainant did cause the complainant distress but “it is not an offence to insult someone.”

Furthermore, he said that under the Public Order Act “it is not enough to show words were insulting and that [the complainant] was distressed.”

“They must prove that we as a bench are sure that when [McConnell] was using those words that he intended to cause distress,” he said.

“[McConnell] said he had no such intent. He says he goes out preaching the word of God and the last thing he wants to do is upset. He said he was not intending distress, just repeating what he genuinely believed to be the Bible’s teaching.”

The judge concluded that there was no evidence McConnell had intended to harass Munir.

Following the hearing, McConnell said he was “delighted and relieved,” adding: “I am, however, appalled at how I have been treated by the authorities in this matter.

“No other street preacher, professional, or member of the public must go through what I have.

“Misgendering is not a crime and should never be treated as such.”

He added, “How I was treated was totally unreasonable and should concern anyone who cares about Christian freedoms and free speech in this country.”

‘Disturbing Trend’

“This case represents a disturbing trend in our society, which is seeing members of the public and professionals being prosecuted and reported as potential terrorists for refusing to celebrate and approve LGBTQ ideology,” said Andrea Williams, chief executive of the Christian Legal Centre.

“Police forces who fly Pride flags from their headquarters are failing to provide Christian preachers with impartial protection. If a person cries ‘offence’ at a street preacher’s words, it’s the street preacher that is punished and taken out. This is deeply illiberal,” she added.

Tyler Durden
Fri, 03/10/2023 – 11:25

Game Over: FDIC Shutters Silicon Valley Bank, Appoints Receiver

Game Over: FDIC Shutters Silicon Valley Bank, Appoints Receiver

Update (1135ET):  Game over for Silicon Valley bank.

  • *FDIC: SVB BANK CLOSED BY CALIFORNIA REGULATOR
  • *FDIC: SVB BANK IS FIRST INSURED INSTITUTION TO FAIL THIS YEAR
  • *FDIC CREATES A DEPOSIT INSURANCE NATIONAL BANK OF SANTA CLARA
  • *FDIC: NAMED FEDERAL DEPOSIT INSURANCE FDIC AS RECEIVER
  • *FDIC CREATES A DEPOSIT INSURANCE NATIONAL BANK OF SANTA CLARA
  • *SILICON VALLEY BANK INSURED DEPOSITORS TO HAVE ACCESS MONDAY

As we noted before, while the FDIC noted that SVIB had $175BN in deposits as of Dec 31, note that some $151.5BN of these are uninsured, which means they get exactly zero although a sizable number of them likely pulled their deposits in the past few days.

And just like that SVB is no more: a historic collapse which in many ways was faster than Lehman, and which has seen SIVB stock plunge from $763 to 0 in 16 months.

Full FDIC statement below:

Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.

All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.

As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.

Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.

The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.

Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.

* * *

Update (1030ET): In a hearing before the US House Ways & Means Committee Friday, Treasury Secretary Janet Yellen said the department is monitoring “a few” banks amid issues at SVB.

“There are recent developments that concern a few banks that I’m monitoring very carefully and when banks experience financial losses, it is and should be a matter of concern,” 

Additionally, Reuters is reporting that SVB told its employees in a memo on Friday that they should work from home until further notice, stating according to a memo seen by the news service:

“SVB is undergoing a series of conversations that have not been concluded yet to determine next steps for the company.”

*  *  *

Update (0900ET): CNBC’s David Faber reports that SVB has sought an adviser to find a buyer after attempts to raise capital have failed. However, Faber added that deposit outflows are outpacing any efforts to find a buyer

Meanwhile, we’ve seen this playbook before…

* * *

Trading in Silicon Valley Bank shares has been halted for news pending after they plunged another 65% overnight after numerous icon VCs recommended clients pull cash from the struggling regional bank

Perhaps more problematically, SVB’s bonds (1.8s of 2031) are collapsing…

Bonds are extending losses after the stock was halted…

The fears of SVB’s collapse is contagiousl dragging down others including Schwab, Western Alliance, and First Republic…

SVB Financial Group Chief Executive Officer Greg Becker held a conference call on Thursday advising clients of SVB-owned Silicon Valley Bank to “stay calm” amid concern about the bank’s financial position, according to a person familiar with the matter.

But a large number of VCs have suggested pulling cash sooner rather than later.

“This is a classic bank run, and when the bank run starts you don’t want to be the last guy there,” Ava Labs President John Wu said in an interview with Bloomberg Television.

However, some VCs said they were standing by the bank.

“It is truly unfortunate that several GPs and companies are making a tough situation for SVB worse by pressing the panic button,” said G Squared founder Larry Aschebrook.

“SVB has supported entrepreneurs and GPs at all stages of their businesses and that partnership should run both ways.”

“We’ll have to see how this story develops but something always breaks hard during or after a Fed hiking cycle,” said Jim Reid, a strategist at Deutsche Bank AG.

“Is this another mini wobble on this front or the start of something bigger?”

Michael ‘Big Short’ Burry also weighed in on Silicon Valley Bank last night.

“It is possible today we found our Enron,” the ‘Big Short’ investor said Thursday in a now-deleted Tweet

The Treasury Department is monitoring Silicon Valley Bank “very carefully,” White House Economic Advisor Bharat Ramamurti tells CNBC.

“I don’t want to say more than that right now, but I want to assure the viewers that this is something we are on top of,” he says, while adding that this is a “highly fluid situation”

Developing…

Tyler Durden
Fri, 03/10/2023 – 11:10

300 Billion Reasons Why SVB Contagion Is Spreading To The Broader Banking System

300 Billion Reasons Why SVB Contagion Is Spreading To The Broader Banking System

Update 12:00pm ET: Silicon Valley Bank has been shuttered by California regulators, who have appointed a receiver (more here).

All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

This will hardly boost depositor confidence in other small banks and, by extension, big ones.

* * *

For those who slept through yesterday, here is what you missed and why the US banking system is suffering its worst crisis since 2020. Silicon Valley Bank, aka SIVB, the 18th largest bank in the US with $212 billion in assets of which $120 billion are securities (of which most or $57.7BN are Held to Maturity (HTM) Mortgage Backed Securities and another $10.5BN are CMO, while $26BN are Available for Sale, more on that later )…

… funded by over $173 billion in deposits (of which $151.5 billion are uninsured), has long been viewed as the bank at the heart of the US startup industry due to its singular focus on venture-capital firms. In many ways it echoes the issues we saw at Silvergate, which banked crypto firms almost exclusively.

SIVB stunned markets on Thursday after it announced a series of actions to improve its balance sheet flexibility and capital ratios as rates potentially remain higher-for-longer and private markets remain under pressure. Note: while many had speculated that the bank may be facing a liquidity crisis in a rapidly rising rate environment (most notably the WSJ in late 2022), it took the management team’s confirmation that liquidity has collapsed to spark a bank crisis and a depositor run. The bank said it sold $21 billion of its available for sale (AFS) securities to be reinvested into shorter-duration Treasuries, and publicly announced raising $2.25 bil of equity ($1.75 bil common and $0.5 bil pref) primarily to support its capital ratios given the $1.8 bil after-tax loss it expects to realize on the sale and also partly to help support its credit rating. We now know, courtesy of CNBC reporting, that this equity raise failed and the bank is instead is trying to sell itself to a bigger bank.

Why did SIVB do this? Well, according to Morgan Stanley’s Manan Gosalia, who as of yesterday was the only sellside analyst to have a Sell rating on the company with a $190 price target…

…  the bank did not intend to spark a panic but instead “these actions enhance its balance sheet flexibility as rates move higher. By selling down its existing AFS portfolio, which had a duration of 3.6 years, and reinvesting the proceeds into short-term US Treasurys, SIVB is enhancing its liquidity position and NIM protection as rates continue to rise. The bank is also terming out its funding by adding $15 bil of longer-dated borrowings and hedging to protect against further increases in rates. All in, the bank estimates that it will flip to asset sensitive with each 25 bp increase in rates driving $50-60 mil of higher NII.

In English? The bank had a lot of fixed-rate TSY (and other) exposure that was underwater and carrying an unrealized loss, and having concluded that rates will keep rising, the bank decided to restructure its assets and flip its portfolio from a fixed-rate one (where rate hikes cause even more capital losses) to a short-term one (where they lead to modest NIM gains). Of course, the transition ended up costing the bank billions.

None of this is shocking, and yet the market was clearly surprised. Why?

For the answer we have to go all the way back to the immediate aftermath of the last financial crisis, when in early 2009 US regulators suspended Mark to Market, and instead of having banks hold debt securities on their books at price, they allowed them to split their asset holdings into two components: Available for Sale (or AfS), a bucket which would be marked to market and which could be sold to short up liquidity, and Held to Maturity (or HTM), a (far larger bucket) which allowed the banks to keep debt securities at cost.

This was created to avoid cross-selling contagion if one bank was forced to liquidate securities and infect other holders of the same security. In other words, it was purely a idiosyncratic feature, not one that was meant to offset macro conditions. And understandably so: in a time of raging deflation, and ZIRP and QE, when rates would seemingly never go up, virtually nobody even considered a scenario when it would be the Fed itself that would force rates higher to fight galloping inflation.

Sadly for SIVB, that’s where we are now, and the Fed’s rate hikes have manifested in two ways.

  • First, rising rates afford depositors a completely risk-free way of parking your money at Treasuries without taking on company-specific deposit risk. This is a big issue for SIVB because as noted above it has $170BN in deposits.
  • Second, rising rates force the bank to sweep ever bigger losses on its debt assets under the rug. And yes, while the bank can hide behind the “held at cost” basis afforded by Held to Maturity, the fact that the bank’s HTB book was of relatively moderate duration meant that even if it held to maturity, it would still suffer losses, which is why it proceeded with the previously discussed balance sheet restructuring.

The funny part, of course, is that we knew all of this!

Yes, both SEC and FDIC regulators require banks to disclose not only the value of their HTM assets, but also the fair value of said assets, with the fair value being – as the name implies – the value of the HTM assets if they were to be sold today. The delta between the two is what is known as “net unrealized loss” and it is rapidly emerging as the most important indicator of bank health.

To be sure, until recently nobody cared about net unrealized losses on bank portfolios because, well, there simply weren’t any. But once the rate hikes started and debt prices – for anything from Treasurys, to MBS, to CRE – to started to tumble, the unrealized losses started to climb, and nowhere is this more visible than in Silicon Valley Bank’s own balance sheet, where from virtually no losses a year ago, the number climbed to $16 billion as of Q3.

Now this is a problem because at the same time, its total shareholder equity was $15.8 billion. This means that quietly, all of the bank’s book equity had been wiped out simply by the accumulated – but not marked – losses on SIVB’s HTM portfolio.

In some ways, SIVB was unique: while all US banks parked a chunk of their money in Treasuries and other bonds that dropped in value last year, SVB took it to a different level: its investment portfolio swelled to 57% of its total assets. No other competitor among 74 major US banks had more than 42%.

And here lies the rub: if it was only SIVB that has an “unrealized loss” problem then there would be no contagion, and the rest of the banking sector would be safe and sound. Unfortunately, as explained, the reason why SIVB’s HTM book blew up is because of surging rates, which is also why SIVB proceeded  to liquidate its Available for Sale securities (at $26BN these are far less than the $91.3BN in HTM book). And it’s also why every other bank is now suffering under the pressure of massive “net unrealized losses.”

Presenting Exhibit A: net unrealized losses for the Big 4 banks.

Just like SVB, the unrealized loss issue emerged only in 2022 when rates exploded and prices of debt securities tumbled. What stands out here is that while all banks have substantial exposure – the total is $250BN as of Dec 31, 22 – Bank of America has the most exposure at just under $110 billion.

And another problem: these amounts may not sound like a lot, but when expressed in terms of book shareholder value for any given bank, they are staggering. The next chart shows what the net unrealized losses is when expressed as a function of total equity. Yes, SIVB is by far the worst with all of its book value wiped out by the unrealized loss, but other banks are hardly doing much better, to wit: Bank of America’s unrealized loss (i.e., the market-value gap between its HTB book and fair value) represents 43% of combined total equity; at State Street it is 27%; at Wells it is 25%, at US Bancorp it is 24% and so on…

Incidentally, for those asking, here is Bank of America’s commercial credit exposure by industry.

Extending this analysis to all 15 of the 24 KBW index members, the “fair value” gaps were equivalent to 10% of their equity or more. And cumulatively for all 24 banks, the $300 billion difference between the bonds’ book value and market value represented 22% of their $1.39 trillion of combined total equity!

Still think there won’t be contagion?

To be sure, some do: take Morgan Stanley’s Manan Gosalia (who as noted above was the sole SIVB sell rating before yesterday’s implosion), who this morning said that “the funding pressures facing SIVB are highly idiosyncratic and should not be viewed as a read-across to other regional banks.” He continues:

SIVB primarily banks technology, life science, and healthcare companies and is an integral part of the VC ecosystem. Falling VC funding activity and elevated cash burn are idiosyncratic pressures for SIVB’s clients, driving a decline in total client funds and on-balance-sheet deposits for SIVB. That said, we have always believed that SIVB has more than enough liquidity to fund deposit outflows related to venture capital client cash burn. SIVB has $15B in cash, $25B in newly repositioned short-dated securities, $73B in off-balance-sheet sweep accounts and repo funds that can be brought on balance sheet, and $65B in borrowing capacity (FHLB and Repo). This totals to ~$180B in available liquidity, relative to $165B of on-balance-sheet deposits. Our Underweight rating on the stock reflects that some of these sources of liquidity (particularly sweep accounts and wholesale borrowings) are expensive in a higher-for-longer rate environment, and represent a drag to earnings until the VC funding environment improves.

There is more in the full note (which is a must read for anyone involved in this situation and is available to pro subs), but Gosalia’s thesis is that while “the stock reactions across the group show that investors are worried about liquidity across the banking space” he does not “believe there is a liquidity crunch facing the banking industry, and most banks in our coverage have ample access to liquidity. As we have said before, the headwind for the banking industry is that the cost of liquidity is high and rising, which we have been tracking with our bi-weekly deposit tracker. This is a headwind for net interest margins, revenue and EPS.” (again, more in the full note available to pro subs).

Perhaps he is right (one can’t forget that Manan is just a little conflicted, being employed by – well – a bank. But what we would counter with is that while he may well be right and contragion risk is modest for big banks, which thanks to the Fed’s massive post-covid QE are still drowning in reserves and have trillions in excess liquidity, the same can not be said for small banks.  And the reason for that, as we explained in “Why Small Banks Are In Big Trouble: As Hedge Funds Pile Into The New “Big Short”, The Next ‘Credit Event’ Emerges is that not only do small banks have much more exposure to commercial real estate, and especially the office sector, but as TS Lombard showed, they are – unlike their bigger peers – now reserve constrained.

Which boils down to the following: if depositor confidence in the regional/small bank sector is now shot  – and after both Silvergate and SIVB it very well may be – we will see a small (to medium if not larger) deposit run among the regionals which could prove devastating for these reserve-constrained banks which will need to scramble to raise capital a la SIVB in what eventually transforms into a death spiral for the sector, especially if depositors take one look at what is going on with regional bank prices – which have been in freefall in the past two days – and extrapolate what may come next – there’s a reason why banking is the ultimate confidence game.

There is one way to short-circuit this process and it, of course, involves the Fed which would need to step in the way it did in September 2019 when it was the big banks – namely JPMorgan – that were reserve-constrained, and forced the Fed to launch “Not QE” (but only after the US repo market suffered some historic rollercoaster moves). Ironically, even if the Fed does somehow whisper words of reassurance, the question is why would depositors park their money at “suddenly” risky banks when they can just buy a 6M T-Bill and get the same return with zero risk.

Yes, the Fed may have no choice but to cut rates if it wishes to save the (regional) banking system. But then again, the Fed is still stuck fighting runaway inflation, which means that Powell is now trapped, and as we tweeted previously, Powell is now trapped: More hikes: regional banks collapse; Less hikes: inflation target must be raised.

So will Powell let America’s small, regional banks risk failure as a result of his rate hikes (an outcome the likes of JPMorgan would find quite beneficial as it will make them even bigger), or will the Fed chair step in the way he did in 2019 even if it means gambling with runaway inflation? The right answer to that question could make some traders extremely rich.

Tyler Durden
Fri, 03/10/2023 – 11:08

Turley: Did The ‘QAnon Shaman’ Get Shafted On Sentencing? New Footage Raises Questions Over The Chansley Case

Turley: Did The ‘QAnon Shaman’ Get Shafted On Sentencing? New Footage Raises Questions Over The Chansley Case

Authored by Jonathan Turley,

If there is one image from Jan. 6th that will remain indelible with the day, it is the “QAnon Shaman.” Bare chested and wearing an animal headdress, horns and red-white-and-blue face paint, Jake Angeli Chansley is to the Capitol riot what Rosie the Riveter was to World War II. Howling and “chanting an unintelligible mantra” on the Senate floor, he is the embodiment of the unhinged rage that led to one of the most disgraceful attacks on our constitutional process in history.

However, the newly released Fox footage from that day raises serious questions over the prosecution and punishment of Chansley.

The videotapes aired on Tucker Carlson this week show Chansley being escorted by officers through the Capitol. Two officers appear to not only guide him to the floor but actually appear to be trying to open locked doors for him. At one point, Chansley is shown walking unimpeded through a large number of armed officers with his four-foot flag-draped spear and horned Viking helmet on his way to the Senate floor.

It is otherworldly footage. While I admit that I approach these stories from the perspective of a long-standing criminal defense attorney, I would be outraged if I was unable to see such evidence before a plea or sentencing. At no point in the videotapes does Chansley appear violent or threatening. Indeed, he appears to thank the officers for their guidance and assistance. On the Senate floor, Chansley actually gave a prayer to thank the officers agreed “to allow us into the building.”

Before addressing the legal implications of this footage, one thing should be clear. The public should have been given access to this footage long ago and the Jan. 6th Committee withheld important evidence on what occurred inside the Capitol on that day.

While it is understandable that many would object to Carlson being given an exclusive in the initial release, many in the media are denouncing the release of the footage to the public at all. The press and pundits are now opposing greater transparency in resisting any contradiction of the narrative put forward by the Jan. 6th Committee. Indeed, MSNBC’s Jason Johnson angrily objected that this is “federal evidence” — ignoring that it is evidence that was denied to criminal defendants.

This is not just material that the public should be able to see, it was potential evidence in criminal cases like that of the QAnon Shaman.

When the footage aired, I wrote a column raising the question of whether this evidence was known to or shared with Chansley’s defense.

After all, he was portrayed as a violent offender by the Justice Department at his sentencing.

It now appears that the answer is no. I spoke with Chansley’s new counsel, Bill Shipley, and confirmed that defense counsel did not have this material.

In the hearing, federal prosecutor Kimberly Paschall played videos showing Chansley yelling along with the crowd and insisted “that is not peaceful.”

That portrayal of Chansley would have been more difficult to maintain if the Court was allowed to see images of Chansley casually walking through a door of the Capitol with hundreds of other protesters and then being escorted by officers through the Capitol. At no point is he violent and at no point is he shown destroying evidence. Instead, he dutifully follows the officers who facilitate his going eventually to the unoccupied Senate floor.

We all knew that Chansley was treated more harshly because of his visibility. It was his costume, not his conduct, that seemed to drive the sentencing. In the hearing, Judge Royce Lamberth noted, “He made himself the image of the riot, didn’t he? For good or bad, he made himself the very image of this whole event.”

Lamberth hit Chansley with a heavy 41-month sentence for “obstructing a federal proceeding.”

However, the QAnon Shaman was led through the Capitol by officers. Defense counsel could have noted that his “obstruction” in going to an unoccupied Senate floor was facilitated by officers. While the police were clearly trying to deescalate the situation after the Capitol was breached, this is evidence of how Chansley came to the Senate. Indeed, his interaction with officers could have impacted how he viewed the gravity of his conduct. It certainly would have been material to the court in sentencing the conduct.

In his rambling sentencing statement to the court, Chansley apologized for “a lot of bad juju that I never meant to create.”

I have great respect for Judge Lamberth, who has always shown an admirable resistance to public pressure in high profile cases. I cannot imagine that Lamberth would not have found this footage material and frankly alarming.

At first blush, this would appear a clear “Brady violation” when a prosecutor fails to provide a defendant with any evidence that is favorable or exculpatory to his case. Like most things in Chansley’s life, it is a bit more complex than it would seem.

  • First, Chansley quickly pleaded guilty to the charge. This may have been due in part to the draconian treatment that he received by the Justice Department, which insisted on keeping him in solitary confinement with no apparent justification. The result is that he moved rapidly to sentencing without significant discovery in his case.

  • Second, the footage was in the possession of the legislative branch so the Justice Department could claim that it was not required to produce it. Indeed, the prosecution may have been entirely unaware of the footage.

  • Third, Chansley waived an appeal of the plea agreement and is now weeks away from release. The case is practically closed.

It is not clear, however, if Judge Lamberth will find the failure to disclose this evidence troubling and worthy of inquiry. None of this means that Chansley should not have been given jail time. Indeed, it is appropriate to sentence rioters to greater than average time due to the assault on our constitutional process.

Yet, it is hard to believe that Judge Lamberth would have given 41 months to a nonviolent, first offender who was led through the Capitol by police officers to the floor.

This was a Navy veteran who pleaded guilty to the crime.

The role of Congress in withholding this footage is disgraceful and wrong. The Congress and the January 6th Committee knew of this footage and its relevance to a pending criminal case. Yet, they refused to make it public. Instead, the January 6th Committee hired a former ABC producer to put on a made-for-television production of highly edited images for public consumption. Countervailing evidence or images were consistently excluded and witnesses appeared as virtual props to support high-quality video packages.

Even The New York Times admitted the narrative was meant to “recast the midterm message” and “give [Democrats] a platform for making a broader case about why they deserve to stay in power.”

The image of the QAnon Shaman being escorted through the Capitol by police officers is hardly the image that they wanted to show the public. So Committee members and counsel buried footage that was clearly relevant to literally hundreds of people facing criminal sentencing across the country. They did this while repeatedly referencing those cases in hearings as upholding the rule of law.

I hold little sympathy for Chansley or the others arrested on that day. I was highly critical of President Donald Trump’s remarks before the riot.

However, it is hard to see this withheld evidence and not conclude that the Qanon Shaman got the shaft on his sentencing.

Tyler Durden
Fri, 03/10/2023 – 10:52

Watch: Fauci Defends Gain-of-Function, Mocks Lab Leak Censorship

Watch: Fauci Defends Gain-of-Function, Mocks Lab Leak Censorship

Authored by Steve Watson via Summit News,

In a remarkable interview Thursday, Anthony Fauci had the gall to defend dangerous gain of function research, which in all likelihood was the direct cause of the COVID pandemic, and mocked the idea that a lab leak is being covered up.

Screenshot

Appearing on Fox News, Fauci told anchor Neil Cavuto “If you shut off all gain of function research. Did you get the flu shot this year, Neil? If you did, and you got it from an influenza vaccine, that was gain-of-function that made that influenza vaccine. That’s what people don’t understand.”

Fauci twice suggested that he should be “taken out of this,” reasoning that “I’m a charged person,” and went on to argue the case for gain of function research, which makes pathogens more deadly.

The whole scientific community feels that you have to have some degree of being able to manipulate organisms,” Fauci claimed, adding “When you do it, you have to do it carefully and under very controlled conditions.

All the while, Fauci was again careful not to define exactly what gain of function is, having previously changed the definition to cover his own culpability.

When asked if the research serves any value, Fauci stated “It depends on what your definition of gain of function is,” going on to say “Look at a whole array of virologists and scientists who do research that is absolutely critical for the health of the country. Some of that involves manipulating organisms. You want to call it gain of function. It really is not, in many respects, but it needs to be very well-regulated.”

Fauci also mocked the idea that discussion of a potential Wuhan coronavirus lab leak was dismissed and suppressed, after Jim Jordan, the chairman of the House Judiciary Committee, suggested that Fauci bribed scientists into silence on the matter with a $9 million grant.

Jordan was referring to testimony earlier this month by Dr. Marty Makary, a professor at Johns Hopkins, who charged that two scientists who believed that COVID-19 leaked from a lab changed their minds after receiving the $9 million grant from Fauci.

“I almost have to laugh at that, Neil. That’s totally bizarre,” Fauci responded, going on to explain “First of all, I wasn’t leaning totally strongly one way or the other. I’ve always kept an open mind. As the data evolved and evolutionary virologists looked at the data, it looked more likely it was a natural occurrence from an animal reservoir.”

“I have always kept a completely open mind that it could be one or the other. Quite frankly, the evidence weighs more likely towards one, namely a natural occurrence,” Fauci claimed.

“The other absolutely preposterous thing that Jim Jordan said was that we gave the investigators $9 million bribe to change their mind. Is he kidding me?” Fauci further stated.

He continued, “They put in a grant about a year and a half before this all happened. The grant was reviewed by a peer review and put before an independent council and approved before the meeting even took place.”

“So to assume that they were getting a $9 million grant because of the fact that we tried to get them to change their mind is beyond ludicrous. Beyond ludicrous,” Fauci asserted.

Earlier this week, Senator Rand Paul accused Fauci, along with other scientists working with him at the National Institutes Of Health of engaging in an “elaborate cover-up” of the lab origin of the coronavirus pandemic in order to hide their own involvement.

Tyler Durden
Fri, 03/10/2023 – 09:41

Archrivals Iran & Saudi Arabia Restore Ties In China-Brokered Deal

Archrivals Iran & Saudi Arabia Restore Ties In China-Brokered Deal

Iran and Saudi Arabia announced that the two longtime rivals and enemies are restoring diplomatic relations following years of tensions, which involved each side charging the other with state-sponsored terrorism. Crucially, China helped see the deal through and hosted meetings of the two sides in Beijing.

NBC describes that “The deal, which will see the two countries reopen embassies in each other’s capitals, was sealed during a meeting in China — a boost to Beijing’s efforts to rival the United States as a broker on the global stage.” Indeed this is the message China is quick to emphasize:

SAUDI ARABIA, IRAN TALK IN BEIJING IS VICTORY OF PEACE: WANG YI

A joint communique confirming the restoration of relations from was issued by Riyadh, Tehran, and Beijing – and was first published in state-run Saudi Press Agency (SPA). The statement emphasizes “a shared desire to resolve the disagreements between them through dialogue and diplomacy, and in light of their brotherly ties.”

It spells out that the next step is for foreign ministers from both countries to “meet to implement this, arrange for the return of their ambassadors, and discuss means of enhancing bilateral relations.”

Representing the Iranian side in the Beijing talks was Ali Shamkhani, a close adviser to Iran’s supreme leader Ayatollah Ali Khameni. On the other side was Saudi Arabia’s Minister of State Musaad bin Mohammed Al-Aiban, with the two engaging in intense negotiations.

Not only has the regional rivalry, which intensified most during the decade of the proxy war in Syria which began in 2011, been set amid a centuries-long divide over correct interpretation of Islam (Shia Iran vs. Sunni Saudi Arabia), but it has also spilled over in places like Yemen, scene of another grinding proxy war which pit Shia rebels against a Saudi-backed government. 

The Saudis and Iranians also clash in supporting rival political factions inside Lebanon, with Tehran being the Shia paramilitary group Hezbollah’s biggest backer. For these reasons, accusations of supporting terrorism have been frequently hurled back-and-forth over the years. Iranian state media, for example, has long charged the Saudis with being a prime covert backer of the Islamic State (ISIS) in their drive to overthrow President Assad in Syria. 

The detente is also a surprise given the warming relations between Saudi Arabia and Israel, based on attempts to bring Riyadh into the Abraham Accords. Very likely, this new agreement which was helped along by China will delay any possibility of the Saudis and Israelis establishing official relations on an accelerated timeline.

* * *

Below is the official joint communique:

Riyadh, March 10, 2023, SPA — In response to the noble initiative of His Excellency President Xi Jinping, President of the People’s Republic of China, of China’s support for developing good neighborly relations between the Kingdom of Saudi Arabia and the Islamic Republic of Iran;

And based on the agreement between His Excellency President Xi Jinping and the leaderships in the Kingdom of Saudi Arabia, and the Islamic Republic of Iran, whereby the People’s Republic of China would host and sponsor talks between the Kingdom of Saudi Arabia and the Islamic Republic of Iran;
Proceeding from their shared desire to resolve the disagreements between them through dialogue and diplomacy, and in light of their brotherly ties;

Adhering to the principles and objectives of Charters of the United Nations and the Organization of Islamic Cooperation (OIC), and International conventions and norms;

The delegations from the two countries held talks during the period 6-10 March 2023 in Beijing – the delegation of the Kingdom of Saudi Arabia headed by His Excellency Dr. Musaad bin Mohammed Al-Aiban, Minister of State, Member of the Council of Ministers, and National Security Advisor, and the delegation of the Islamic Republic of Iran headed by His Excellency Admiral Ali Shamkhani, Secretary of the Supreme National Security Council of the Islamic Republic of Iran.

The Saudi and Iranian sides expressed their appreciation and gratitude to the Republic of Iraq and the Sultanate of Oman for hosting rounds of dialogue that took place between both sides during the years 2021-2022. The two sides also expressed their appreciation and gratitude to the leadership and government of the People’s Republic of China for hosting and sponsoring the talks, and the efforts it placed towards its success.

The three countries announce that an agreement has been reached between the Kingdom of Saudi Arabia and the Islamic Republic of Iran, that includes an agreement to resume diplomatic relations between them and re-open their embassies and missions within a period not exceeding two months, and the agreement includes their affirmation of the respect for the sovereignty of states and the non-interference in internal affairs of states. They also agreed that the ministers of foreign affairs of both countries shall meet to implement this, arrange for the return of their ambassadors, and discuss means of enhancing bilateral relations. They also agreed to implement the Security Cooperation Agreement between them, which was signed on 22/1/1422 (H), corresponding to 17/4/2001, and the General Agreement for Cooperation in the Fields of Economy, Trade, Investment, Technology, Science, Culture, Sports, and Youth, which was signed on 2/2/1419 (H), corresponding to 27/5/1998.

The three countries expressed their keenness to exert all efforts towards enhancing regional and international peace and security.

Issued in Beijing on 10 March 2023.
For the Islamic Republic of Iran
Ali Shamkhani
For the Kingdom of Saudi Arabia
Musaad bin Mohammed Al-Aiban
Minister of State, Member of the Council of Ministers, and National Security Advisor
For the People’s Republic of China
Wang Yi
Member of the Political Bureau of the Communist Party of China (CPC) Central Committee and Director of the Foreign Affairs Commission of the CPC Central Committee
–SPA

Tyler Durden
Fri, 03/10/2023 – 09:16