Investors in a riskier type of Credit Suisse’s bonds had the value of their holdings slashed to zero Sunday after Swiss authorities brokered an emergency takeover of the bank by rival UBS.
On Sunday, the Swiss National Bank (SNB) announced that UBS would buy Credit Suisse for 3 billion Swiss francs ($3.25 billion) — or about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.
But it is the owners of Credit Suisse’s $17 billion worth of “additional tier one” (AT1) bonds who have been left fully in the cold. Swiss authorities said those bondholders would receive absolutely nothing. The move is at odds with the usual hierarchy of losses when a bank fails, with shareholders typically the last in line for any kind of payout.
“The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around 16 billion [Swiss francs],” the Swiss Financial Market Supervisory Authority said in a statement Sunday.
David Benamou, chief investment officer at Axiom Alternative Investments, a French wealth management firm with exposure to AT1 bonds, called the decision “quite surprising, not to say … shocking.”
The European market for such bonds is worth about $250 billion, according to the Financial Times. It could now go into a deep freeze.
AT1 bonds are also known as “contingent convertibles,” or “CoCos”. They were created in the wake of the 2008 financial crisis as a way for failing banks to absorb losses, making a taxpayer-funded bailout less likely.
They are a risky bet — if a lender gets into trouble, this class of bonds can be quickly converted into equity, or written down completely.
Because they are higher-risk, AT1s offer a higher yield than most other bonds issued by borrowers with similar credit ratings, making them popular with institutional investors.
It is not the write-down of Credit Suisse’s AT1 bonds that has rocked investors, but the fact that the bank’s shareholders will receive some compensation when bondholders will not.
Ordinarily, bondholders are higher up the pecking order than shareholders when a banks fails. But because Credit Suisse’s demise has not followed a traditional bankruptcy, analysts told CNN, the same rules don’t apply.
“The hierarchy of claims remains applicable in the EU… there is no way that shareholders can be paid and AT1 holders [are] paid zero,” Benamou said. “The decision taken by the Swiss authorities is really very strange.”
Michael Hewson, chief market analyst at CMC Markets, told CNN: “It appears that in this case, because it was not a bankruptcy situation it was considered that AT1 bondholders and shareholders would both feel the pain.”
EU banking regulators and the Bank of England moved Monday to reassure AT1 investors more broadly that they would take priority over shareholders in the event of future bank crises.
“Common equity instruments [stocks] are the first ones to absorb losses, and only after their full use would additional tier one be required to be written down,” the EU regulators said in a statement. “This approach has been consistently applied in past cases.”
Christine Lagarde, president of the European Central Bank, said in a speech Monday that banks in the eurozone had “a very limited exposure” to Credit Suisse, particularly in relation to AT1 bonds.
“We’re not talking billions, we’re talking millions,” she said.
The Bank of England said that “holders of [AT1s] should expect to be exposed to losses” when a bank fails according to their usual ranking in the capital hierarchy.
The legal basis for the Credit Suisse losses may be contested. Quinn Emanuel Urquhart & Sullivan, a litigation firm headquartered in Los Angeles, said Monday that it had assembled a team of lawyers who were discussing options with Credit Suisse’s AT1 bondholders.
The surprise move by the SNB has rattled Europe’s AT1 bond market, with investors now questioning whether their holdings could be obliterated if another bank collapses.
Joost de Graaf, co-head of European credit at Van Lanschot Kempen, a Dutch wealth management firm, told CNN that his fund did not invest in AT1s because he was “afraid [of] something like this,” where regulators could decide that a bank was no longer viable and write down the bonds’ value.
“For the coming few years, [the AT1] market is going [to go] into some kind of a hibernation probably, where new AT1s will be very hard to place for issuers at acceptable levels,” de Graaf said.
The impact will likely spill over into the wider bond market, he added, with investors demanding higher yields for bonds now seen as riskier.
“For the foreseeable future, [banks’] funding [through bonds] will be more expensive,” de Graaf said.
There are signs that shift may already be happening.
Invesco’s AT1 Capital Bond exchange-traded fund, which tracks AT1 debt, is currently trading down 5.5% compared with last Friday’s close. WisdomTree, another AT1 ETF listed on the London Stock Exchange, fell 7.4% in afternoon trade.
But the real damage is the precedent the write-down may have set, said Benamou of Axiom Alternative Investments.
“No financial analyst had ever believed that AT1 bonds would be brought to zero… given the level of solvency of Credit Suisse… [and] pretty high level of regulatory capital,” he said.
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York CNN
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It’s difficult to overstate the influence that Silicon Valley Bank had over the startup world and the ripple effect its collapse this month had on the global tech sector and banking system.
While SVB was largely known as a regional bank to those outside of the tight-knit venture capital sphere, within certain circles it had become an integral part of the community – a bank that managed the idiosyncrasies of the tech world and helped pave the way for the Silicon Valley-based boom that has consumed much of the economy over the past three decades.
SVB’s collapse was the largest bank failure since the 2008 financial crisis: It was the 16th largest bank in the country, holding about $342 billion in client funds and $74 billion in loans.
At the time of its collapse, about half of all US venture-backed technology and life science firms were banking with SVB. In total, it was the bank for about 2,500 venture firms including Andreessen Horowitz, Sequoia Capital, Bain Capital and Insight Partners.
But the influence of SVB went beyond lending and banking – former CEO Gregory Becker sat on the boards of numerous tech advocacy groups in the Bay Area. He chaired the TechNet trade association and the Silicon Valley Leadership Group, was a director of the Federal Reserve Bank of San Francisco and served on the United States Department of Commerce’s Digital Economy Board of Advisors.
There’s no doubt that the failure of Silicon Valley Bank left a large void in tech. The question is how that gap will be filled.
To find out, Before the Bell spoke with Ahmad Thomas, president and CEO of the Silicon Valley Leadership Group. The influential advocacy group is working to convene its hundreds of member companies – including Amazon, Bank of America, BlackRock, Google, Microsoft and Meta – to discuss what happens next.
This interview has been edited for length and clarity.
Before the Bell: What’s the feeling on the ground with tech and VC leadership in Silicon Valley?
Ahmad Thomas: Silicon Valley Bank has been a key part of our fabric here for four decades. SVB was truly a pillar of the community and the innovation economy. The absence of SVB – that void – and coalescing leaders to fill that void is where my energy is focused and that is not a small task.
I would say there was a fairly high level of unease a few days ago, and I believe the swift steps taken by leaders in Washington have helped quell a fair amount of that unease, but looking at Credit Suisse and First Republic just over the last couple of days, clearly we are in a situation that is going to continue to develop in the weeks and months ahead.
So how do you fill it?
We’re working to be a voice around stability, particularly about the fundamentals of the innovation economy. We can acknowledge the void given the absence of Silicon Valley Bank, but I do think we need voices out there to be very clear in highlighting that the fundamentals and the innovation infrastructure remains robust here in Silicon Valley.
This is a moment where I think people need to take a step back, let cooler heads prevail, and understand that there are opportunities both from an investment standpoint, a community engagement standpoint and corporate citizenship standpoint for new leaders in Silicon Valley to step up.
Are you working to advocate for more permanent regulation in DC?
It’s far too early for that. But if there are opportunities to enhance access to capital to entrepreneurs to founders of color or in marginalized communities and if there are opportunities to try and drive innovation and economic growth, we will always be at the table for those conversations.
Do you have any ideas about how long this crisis will continue for? What’s your outlook?
The problem is twofold: A crisis of confidence and the set of economic conditions on the ground. The economic conditions remain volatile for a variety of reasons: The softening economy, inflationary pressures and the interest rate environment. But I think right now we need to focus on stabilizing confidence in the investor community, in our business executive community and in the broader set of stakeholders around the strength of the innovation economy. That is something we need to shore up near term.
From CNN’s Mark Thompson
Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse (CS) in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month.
“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the rescue would “secure financial stability and protect the Swiss economy.”
UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday.
Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.
Credit Suisse had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.
A week after Signature Bank failed, the Federal Deposit Insurance Corporation said it has sold most of its deposits to Flagstar Bank, a subsidiary of New York Community Bank.
On Monday, Signature Bank’s 40 branches will begin operating as Flagstar Bank. Signature customers won’t need to make any changes to do their banking Monday.
New York Community Bank bought substantially all of Signature’s deposits and a total of $38.4 billion worth of the company’s assets. That includes $12.9 billion of Signature’s loans, which New York Community Bank purchased at a steep discount -— it paid just $2.7 billion for them. New York Community Bank also paid the FDIC stock that could be worth up to $300 million.
At the end of last year, Signature had more than $110 billion worth of assets, including $88.6 billion of deposits, showing how the run against the bank two weeks ago led to a massive decline in deposits.
Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.
A week after Signature Bank failed, the Federal Deposit Insurance Corporation said it has sold most of its deposits to Flagstar Bank, a subsidiary of New York Community Bank.
On Monday, Signature Bank’s 40 branches will begin operating as Flagstar Bank. Signature customers won’t need to make any changes to do their banking Monday.
New York Community Bank bought substantially all of Signature’s deposits and a total of $38.4 billion worth of the company’s assets. That includes $12.9 billion of Signature’s loans, which New York Community Bank purchased at a steep discount -— it paid just $2.7 billion for them. New York Community Bank also paid the FDIC stock that could be worth up to $300 million.
At the end of last year, Signature had more than $110 billion worth of assets, including $88.6 billion of deposits, showing how the run against the bank two weeks ago led to a massive decline in deposits.
Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.
As the banking crisis spreads, banks have grown increasingly wary of taking on risk. That’s likely why New York Community Bank was unwilling to take on all Signature’s assets.
“We are unsurprised the FDIC retained loans as we would expect banks to be cautious on quickly buying loans without liability and loss protections,” said Jaret Seiberg, analyst at TD Cowan. “More broadly, we see it as positive for consumer confidence for the branches to be opening Monday as NYCB branches.”
The FDIC said Sunday it expects to sell off those assets over time, and the total cost to the government will ultimately be about $2.5 billion.
Editor’s Note: Lanhee J. Chen is a regular contributor to CNN Opinion and the David and Diane Steffy fellow in American Public Policy Studies at the Hoover Institution. He was a candidate for California state controller in 2022. He has played senior roles in both Republican and Democratic presidential administrations and has been an adviser to four presidential campaigns, including as policy director of 2012 Mitt Romney-Paul Ryan campaign. The views expressed in this commentary are his own. View more opinion on CNN.
CNN
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When Silicon Valley Bank collapsed this month, analysts and policymakers quickly began considering how to prevent similar failures from happening in the future. While there are changes that lawmakers should consider, when it comes to financial regulation, history shows us that politicians are usually reacting to the last crisis and one step behind the next one.
The 2007-2008 financial crisis led to passage of the sweeping Dodd-Frank Act in 2010, which revamped federal regulation of the financial services sector and placed restrictions on how banks do business. Amid criticism that Dodd-Frank had gone too far in regulating banks, a bipartisan coalition in Congress passed, and then-President Donald Trump signed into law in 2018, some rollbacks of Dodd-Frank’s requirements pertaining to small and midsize financial institutions.
Democrats have largely blamed this rollback of regulations for SVB’s demise. Many Republicans, for their part, have focused their aim on whether the bank’s leadership spent too much time pursuing “woke” policies on diversity and sustainability rather than ensuring depositors were protected.
The fact that there is so little overlap between Republican and Democrat critiques in the wake of SVB’s collapse illuminates the challenging road ahead for bipartisan policy solutions to avert a future similar failure. If the two sides can’t even agree on the principal cause of the bank’s failure, it’s unlikely there will be consensus on the policies needed to shore up the financial system for the future.
But they should. While Democrats generally favor more aggressive oversight of the financial system and Republicans largely argue that the current regulatory scheme is sufficient, the right answer looking ahead is somewhere in between.
In the wake of SVB’s failure, some regulatory interventions have come into focus and could form the basis of policy discussions in the coming weeks and months as Congress considers how to respond to the current banking crisis.
First, SVB’s demise came when a lack of liquidity (or a shortfall of cash on hand) left it unable to pay out depositors when they came looking for their money. The bank had invested a disproportionate amount of assets in long-term debt that was purchased at a time when interest rates were much lower than they are today. When the bank attempted to liquidate this debt over the last few weeks, it was forced to do so at a significant loss. SVB failed to hedge against risk by diversifying its investments.
When depositors tried to withdraw $42 billion in cash from the bank on a single day, SVB’s cash shortfall generated a panic among those who had deposits at the bank and raised concerns about the health of the US banking system more broadly.
Just as individual investors are often advised to diversify their investment strategies to minimize risk, so too might politicians look to requirements that banks ensure that they have proper diversification in how they are investing their assets.
Further, some Republicans and many Democrats are also calling for expanded deposit insurance so that bank deposits over the current federal cap of $250,000 are also insured. Democratic Sen. Elizabeth Warren of Massachusetts, a vocal supporter of increased financial sector regulation, has called for increased deposit insurance that would be paid for by banks. Democratic Rep. Ro Khanna of California is expected soon to introduce legislation that raises or removes the insurance cap entirely, such that deposits of all amounts will be protected.
Some Republicans have joined them in addressing the insurance cap. Republican Sen. J.D. Vance of Ohio, for example, has argued that lifting the cap (for example, by ensuring the cap keeps up with inflation) would equalize the playing field between large banks and smaller local and regional ones. Republican Sen. Mitt Romney of Utah has suggested that larger depositors might be insured up to the entire amount of their deposits in exchange for a small fee.
If Congress moves toward increasing or eliminating the deposit insurance cap entirely, it should do so carefully. Depending on how the policy is constructed, such changes could disproportionately benefit wealthier institutional depositors or encourage bad behavior by banks if they know an open-ended bailout is waiting on the other end of risky investment decisions.
Finally, some changes will undoubtedly come through the Federal Reserve, rather than Congress. This is probably a good thing, as these policymakers have some insulation from the political forces that directly affect lawmakers.
The Federal Reserve, for example, will likely examine the extent of both capital and liquidity requirements at banks based on their total assets. A bank’s capital is the difference between its assets and liabilities or, put another way, the resources a bank has to ultimately absorb losses. Liquidity, by comparison, is a measure of the cash and assets a bank has immediately on hand to pay obligations (such as money that depositors might ask for).
America’s central bank may also look at the content of “stress tests” created by the Dodd-Frank Act and designed to regularly assess the health of large financial institutions across the country. For nearly a decade, tests have been benchmarked to a low-interest rate environment, which is not reflective of recent conditions.
But ultimately, the Federal Reserve is not blameless in the collapse of SVB as it created a fertile environment for the bank’s failure by keeping interest rates as low as they were for as long as they were. Lawmakers should do their part to make sure people understand that monetary policy has far-reaching impacts.
While the best way to prevent the next SVB is likely to be viewed by policymakers through partisan-tinted glasses, there are avenues for Democrats and Republicans to work together. But the window to do so is narrow and closing. This time next year, we’ll be in the throes of presidential primary elections, and neither party will be particularly interested in compromise — even if that’s what our financial system needs.
So when you hear the FDIC is taking over, a Treasury portfolio is sinking or a bank was backstopped and bailed out, what exactly does that mean?
Here’s a guide to all the key terms you’ve been hearing.
It’s an acronym for the Federal Deposit Insurance Corporation, an independent government agency that protects depositors in banks. It’s one of the main names as banking failures play out because it can step in and make sure the institutions are operating properly.
When a bank fails, the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
Providing financial support to an institution that would otherwise collapse. Bailouts are associated with government intervention, as it so famously did during the 2008 financial crisis.
It’s important to note that though a government dispatched a rescue mission for SVB and First Republic, they were not bailed out by it.
How easily a company or bank can turn an asset to cash without losing a ton of its value. Liquidity can be used to gauge the ability to pay off short-term loans or other bills. People feel comfortable in liquid markets because it’s generally fast and easy to buy and sell.
The most “liquid” asset, as you can probably guess, is cash.
Deposits are cash you put into your bank account, and withdrawals are money that’s taken out. A bank run is when a rush of clients withdraw money all at once, often due to rumor or panic.
If a bank has a ratio above 100% (like First Republic), then it loans out more money than it has deposits. That’s not a good situation to be in.
Investments backed by the US government – and known to be one of the safest ones out there. They include Treasury Bills, Treasury Bonds and Treasury Notes. However, Treasuries are sensitive to broader economic conditions like inflation and changing interest rates.
The value of SVB’s Treasuries portfolio sank as interest rates rose.
Anything that could be used to generate cash flow. That could be tangible assets like stocks and buildings, or intangible assets like brand recognition.
Inflow is the money going into a business – think from product sales and from smart investments. Outflow is cash leaving the business.
Technically, it’s alternative steps a business takes to meet its goals. That could include strategies like diversifying and product development.
But what does it really mean? The company might be thinking about putting itself up for sale.
A rapid and mass selling of a stock based on an upcoming fear – like rumors of a bank collapse.
Cash or other rewards companies gift to their shareholders.
An action that lets a company keep surviving. For example, Credit Suisse just got a $54 billion lifeline from the Swiss central bank, though that hasn’t entirely quelled investor fears yet. Another bank that benefited from a lifeline is First Republic, when 11 banks deposited $30 billion.
This term is used widely in the financial sector to describe a last-resort financial protection, almost like an insurance policy. It’s a secondary source of funds through either credit support or guaranteed payment for unsubscribed shares.
A system used by the FDIC that lets it take action on a bank crisis that could drag down the entire sector with it. Though it’s pretty rare to enact it, the FDIC used this exception to take over SVB and Signature Bank last week.
This is the Fed’s main way to directly lend money to banks and provide them more liquidity and stability. The loans last up to 90 days. Many banks are utilizing this tool right now because the Fed made it easier to borrow from the discount window in the wake of SVB to avoid further bank runs.
Impromptu protests broke out in Paris and across several French cities Thursday evening following a move by the government to force through reforms of the pension system that will push up the retirement age from 62 to 64.
While the proposed reforms of France’s cherished pensions system were already controversial, it was the manner in which the bill was approved – sidestepping a vote in the country’s lower house, where President Emmanuel Macron’s party crucially lacks an outright majority – that arguably sparked the most anger.
And that fury is widespread in France.
Figures from pollster IFOP show that 83% of young adults (18-24) and 78% of those aged over 35 found the government’s manner of passing the bill “unjustified.” Even among pro-Macron voters – those who voted for him in the first round of last year’s presidential election, before a runoff with his far-right adversary – a majority of 58% disagreed with how the law was passed, regardless of their thoughts about the reforms.
Macron made social reforms, especially of the pensions system, a flagship policy of his 2022 re-election and it’s a subject he has championed for much of his time in office. However, Thursday’s move has so inflamed opposition across the political spectrum, that some are questioning the wisdom of his hunger for reforms.
Prime Minister Elisabeth Borne conceded in an interview Thursday night with TF1 that the government initially aimed to avoid using Article 49.3 of the constitution to crowbar the reforms past the National Assembly. The “collective decision” to do so was taken at a meeting with the president, ministers and allied lawmakers mid-Thursday, she said.
For Macron’s cabinet, the simple answer to the government’s commitment to reforms is money. The current system – relying on the working population to pay for a growing age group of retirees – is no longer fit for purpose, the government says.
Labor minister Olivier Dussopt said that without immediate action the pensions deficit will reach more than $13 billion annually by 2027. Referencing opponents of the reforms, Dussopt told CNN affiliate BFMTV: “Do they imagine that if we pause the reforms, we will pause the deficit?”
When the proposal was unveiled in January, the government said the reforms would balance the deficit in 2030, with a multi-billion dollar surplus to pay for measures allowing those in physically demanding jobs to retire early.
For Budget Minister Gabriel Attal, the calculus is clear. “If we don’t do [the reforms] today, we will have to do much more brutal measures in the future,” he said Friday in an interview with broadcaster France Inter.
“No pensions reform has made the French happy,” Pascal Perrineau, political scientist at Sciences Po university, told CNN on Friday.
“Each time there is opposition from public opinion, then little by little the project passes and basically, public opinion is resigned to it,” he said, adding that the government’s failure was in its inability to sell the project to French people.
They’re not the first to fall at that hurdle. Pensions reform has long been a thorny issue in France. In 1995, weeks-long mass protests forced the government of the day to abandon plans to reform public sector pensions. In 2010, millions took to the streets to oppose raising the retirement age by two years to 62 and in 2014 further reforms were met with wide protests.
For many in France, the pensions system, as with social support more generally, is viewed as the bedrock of the state’s responsibilities and relationship with its citizens.
The post-World War II social system enshrined rights to a state-funded pension and healthcare, which have been jealously guarded since, in a country where the state has long played a proactive role in ensuring a certain standard of living.
France has one of the lowest retirement ages in the industrialized world, spending more than most other countries on pensions at nearly 14% of economic output, according to the Organisation for Economic Cooperation and Development.
But as social discontent mounts over the surging cost of living, protesters at several strikes have repeated a common mantra to CNN: They are taxed heavily and want to preserve a right to a dignified old age.
Macron is still early in his second term, having been re-elected in 2022, and still has four years to serve as the country’s leader. Despite any popular anger, his position is safe for now.
However, Thursday’s use of Article 49.3 only reinforces past criticisms that he is out of touch with popular feeling and ambivalent to the will of the French public.
Politicians to the far left and far right of Macron’s center-right party were quick to jump on his government’s move to skirt a parliamentary vote.
“After the slap that the Prime Minister just gave the French people, by imposing a reform which they do not want, I think that Elisabeth Borne should go,” tweeted far-right politician Marine Le Pen on Thursday.
The leader of France’s far-left, Jean-Luc Melenchon was also quick to hammer the government, blasting the reforms as having “no parliamentary legitimacy” and calling for nationwide spontaneous strike action.
For sure, popular anger over pension reforms will only complicate Macron’s intentions to introduce further reforms of the education and health sector – projects that were frozen by the Covid-19 pandemic – political scientist Perrineau told CNN.
The current controversy could ultimately force Macron to negotiate more on future reforms, Perrineau warns – though he notes the French President is not known for compromise.
His tendency to be “a little imperious, a little impatient” can make political negotiations harder, Perrineau said.
That, he adds, is “perhaps the limit of Macronism.”
The massive amount of customer withdrawals that led to the collapse of Silicon Valley Bank had all the hallmarks of an old-fashioned bank run, but with a new twist befitting the primary industry the bank served: much of it unfolded online.
Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing. The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups.
In the day leading up to the bank’s collapse, multiple prominent venture capitalists took to Twitter in particular, and used their large platforms to raise alarms about the situation, sometimes typing in all caps. Some investors urged startups to rethink where they kept their cash. Founders and CEOs then shared tweets about the concerning situation at the bank in private Slack channels, according to The Wall Street Journal.
On the other side of a screen, startup leaders raced to withdraw funds online – so many, in fact, that some told CNN the online system appeared to go down. Still, the end result was a modern race to withdraw funds, which House Financial Services Chair Patrick McHenry later described in a statement as ” the first Twitter-fueled bank run.”
“Even back in the ancient days, way before we had any form of modern communication, this stuff tended to be rumors that moved really fast. The reason it would happen is people would walk down the street and observe people standing outside of banks,” Andrew Metrick, Janet L. Yellen Professor of Finance and Management at the Yale School of Management, told CNN. “Now we don’t have that, but we have Twitter.”
The experience of the bank run was also far removed from prior eras when a large number of customers would physically show up at a bank to withdraw funds (though some did line up outside Silicon Valley Bank locations, too.) Now, many could do so online or through mobile devices.
“What made the Silicon Valley Bank run unique was (1) the ease with which its customers could execute withdrawals and (2) the speed with which news of Silicon Valley Bank’s impending demise spread,” Ben Thompson, an analyst who tracks the tech industry, wrote in a post on Monday. “It was the speed, fueled by zero distribution costs for both rumors and withdrawals, that was so destabilizing.”
Silicon Valley Bank was arguably uniquely susceptible to those factors given its tech-focused customer base. Moreover, its clients, many of whom were venture-backed businesses, were far more likely than the average consumer to keep more than the standard maximum FDIC insured amount of $250,000 in their accounts.
“The FDIC covers 250K, but am I going to recover my whole 8 figures?” one startup founder told CNN last week, after the bank had collapsed. Other large tech companies kept even larger sums with the bank. That likely made the bank’s customers even more susceptible to the panic spreading online.
Some prominent tech figures, including Mark Suster, a partner at venture capital firm Upfront Ventures, urged those in the VC community to “speak out publicly to quell the panic” around Silicon Valley Bank last week and cautioned against creating “mass hysteria.”
“Classic ‘runs on the bank’ hurt our entire system,” he wrote in a lengthy Twitter thread on Thursday. “People are making public jokes about this. It’s not a joke, this is serious stuff. Please treat it as such.”
His calls for calm weren’t enough. The next day, the US Federal Deposit Insurance Corporation stepped in and took control of the bank, which only added to the viral panic on Twitter.
“YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW,” Jason Calacanis, a tech investor, wrote on Twitter Sunday. “THAT IS THE PROPER REACTION.”
Hours later, the Biden administration stepped in and guaranteed the bank’s customers would have access to all their money starting Monday.
Shares in Chinese search giant Baidu rebounded sharply a day after it unveiled ERNIE Bot, its answer to the ChatGPT craze.
Its stock soared 14.3% on Friday in Hong Kong, making it the biggest winner in the Hang Seng Index
(HSI). They also gained 3.8% in New York during US trade Thursday.
A day earlier, Baidu
(BIDU) was the biggest loser of the same index. Its Hong Kong shares fell 6.4% after a public demonstration of its bot failed to impress investors. Since February, more than 650 companies had joined the ERNIE ecosystem, CEO Robin Li said during the presentation.
The reversal came after the company said more than 30,000 businesses had signed up to test out its chatbot service within two hours of its demonstration.
“The high degree of enterprise interest is positive, and we expect Baidu to continue to capture China’s enterprise demand for generative AI,” Esme Pau, Macquarie’s head of China and Hong Kong internet and digital assets, told CNN.
She said the company’s shares were bouncing back Friday as some users, including analysts, shared positive feedback of their own experiences trying out ERNIE, which suggested the bot had more advanced capabilities.
During the presentation, Baidu showed how its chatbot could generate a company newsletter, come up with a corporate slogan and solve a math riddle.
But its stock slumped on Thursday because the demo was “pre-recorded, and not live, which makes investors skeptical about the robustness of the ERNIE Bot,” according to Pau.
Baidu’s demonstration also came just days after the launch of GPT-4, which “raised the bar for ERNIE,” she added.
GPT-4 is the latest version of the artificial intelligence technology behind ChatGPT. The service has impressed users this week with its ability to simplify coding, rapidly create a website from a simple sketch and pass exams with high marks.
Pau noted that Baidu’s shares were already “down modestly” before showing off its software on Thursday, highlighting pressure from investors who had raised expectations following the GPT-4 launch.
“ERNIE also does not have the [same] multilingual capability as GPT-4, and has yet to improve for English queries,” she said. “Also, the ERNIE launch did not provide sufficient quantifiable metrics compared to the GPT-4 launch earlier this week.”
Like ChatGPT, ERNIE is based on a language model, which is trained on vast troves of data online in order to generate compelling responses to user prompts.
Li said Baidu’s expectations for ERNIE were “close to ChatGPT, or even GPT-4.”
But he acknowledged the software was “not perfect yet,” adding it was being launched first to enterprise users. The service is not yet available to the public.
Baidu announced its chatbot last month. Some critics say the service will add fuel to an existing US-China rivalry in emerging technologies.
Li tried to shake off that comparison during the launch, saying the bot “is not a tool for the confrontation between China and the United States in science and technology, but a product of generations of Baidu technicians chasing the dream of changing the world with technology.”
“It is a brand new platform for us to serve hundreds of millions of users and empower thousands of industries,” he said.
Baidu says its service stands out because of its advanced grasp of Chinese queries, as well as its ability to generate different types of responses.
“ERNIE Bot can produce text, images, audio and video given a text prompt, and is even capable of delivering voice in several local dialects such as the Sichuan dialect,” the company said in a statement.
Baidu isn’t the only Chinese firm working on such technology. Last month, Alibaba
(BABA)announced plans to launch its own ChatGPT-style tool, adding to the list of tech giants jumping on the chatbot bandwagon.
So far, Baidu has a first mover advantage in the space in China, according to analysts.
“Our view is ERNIE is three to six months ahead of its potential contenders,” said Pau.
— CNN’s Mengchen Zhang contributed to this report.
First Republic Bank, facing a crisis of confidence from investors and customers, is set to receive a $30 billion lifeline from a group of America’s largest banks.
“This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system,” the Treasury Department said in a statement Thursday.
The major banks include JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and Truist.
The $30 billion infusion will give the struggling San Francisco lender much-needed cash to meet customer withdrawals and buttress confidence in the US banking system during a tumultuous moment for lenders.
A First Republic spokesman declined to comment.
In a statement, the banks said their action “reflects their confidence in First Republic and in banks of all sizes,” adding that “regional, midsize and small banks are critical to the health and functioning of our financial system.”
First Republic’s shares, which were halted several times for volatility Thursday, ended the day up more than 10%.
The bank’s problems underscored continued worries about the banking system in the aftermath of the collapse of Silicon Valley Bank and Signature Bank.
Both Fitch Ratings and S&P Global Ratings downgraded First Republic Bank’s credit rating on Wednesday over concerns that depositors could pull their cash.
Many regional banks, including First Republic, have large amounts of uninsured deposits above the $250,000 FDIC limit. Although not close to SVB’s massive percentage of uninsured deposits (94% of its total), First Republic has a sizable 68% of total deposits that are uninsured, according to S&P Global.
That led many customers to exit the bank and put their money elsewhere, creating a problem for First Republic: It has to borrow money or sell assets to pay customers their deposits in cash.
To make money, banks use a portion of customers’ deposits to give out loans to other customers. But First Republic has an unusually large 111% liability-to-deposit ratio, S&P Global says. That means the bank has lent out more money than it has in deposits from customers, making it a particularly risky bet for investors.
Treasury Secretary Janet Yellen on Thursday met privately in Washington with JPMorgan CEO Jamie Dimon before 11 banks agreed to deposit $30 billion in First Republic Bank to stabilize the teetering lender, according to two people familiar with the matter.
The meeting served as a culmination of what had been a series of conversations over the last two days between Yellen and other US officials and leaders from some of the country’s largest banks as they sought a private sector lifeline for the battered California bank.
Yellen had driven the effort from the government side, while Dimon led the effort to organize the bank executives that would eventually get behind the dramatic infusion of deposits.
Yellen first conceived of the idea of the largest US banks coming together to direct deposits toward First Republic, according to a separate source familiar with the matter. The move was seen as critical to stabilizing the bank’s deposit base – but also a critical signal to financial markets about both the bank and the US financial system.
The Federal Reserve created a loan system designed to prevent regional banks from failing after SVB collapsed. The facility will allow banks to give the Fed their Treasury bonds as collateral for one-year loans. In return, the Fed will give banks the value that the banks paid for the Treasuries, which have plunged in the past year as the Fed has hiked interest rates.
That extraordinary federal intervention appears to have been insufficient to keep investors satisfied.
First Republic on Sunday announced a deal with JPMorgan to gain fast access to cash if needed, and the bank then said it had $70 billion in unused assets that it could quickly use to pay customers’ withdrawals if needed.
Effie Schnacky was wheezy and lethargic instead of being her normal, rambunctious self one February afternoon. When her parents checked her blood oxygen level, it was hovering around 80% – dangerously low for the 7-year-old.
Her mother, Jaimie, rushed Effie, who has asthma, to a local emergency room in Hudson, Wisconsin. She was quickly diagnosed with pneumonia. After a couple of hours on oxygen, steroids and nebulizer treatments with little improvement, a physician told Schnacky that her daughter needed to be transferred to a children’s hospital to receive a higher level of care.
The physical and mental burnout that occurred during the height of the Covid-19 pandemic has not gone away for overworked health care workers. Shortages of doctors and technicians are growing, experts say, but especially in skilled nursing. That, plus a shortage of people to train new nurses and the rising costs of hiring are leaving hospitals with unstaffed pediatric beds.
But a host of reasons building since well before the pandemic are also contributing. Children may be the future, but we aren’t investing in their health care in that way. With Medicaid reimbursing doctors at a lower rate for children, hospitals in tough situations sometimes put adults in those pediatric beds for financial reasons. And since 2019, children with mental health crises are increasingly staying in emergency departments for sometimes weeks to months, filling beds that children with other illnesses may need.
“There might or might not be a bed open right when you need one. I so naively just thought there was plenty,” Schnacky told CNN.
The number of pediatric beds decreasing has been an issue for at least a decade, said Dr. Daniel Rauch, chair of the Committee on Hospital Care for the American Academy of Pediatrics.
By 2018, almost a quarter of children in America had to travel farther for pediatric beds as compared to 2009, according to a 2021 paper in the journal Pediatrics by lead author Dr. Anna Cushing, co-authored by Rauch.
“This was predictable,” said Rauch, who has studied the issue for more than 10 years. “This isn’t shocking to people who’ve been looking at the data of the loss in bed capacity.”
The number of children needing care was shrinking before the Covid-19 pandemic – a credit to improvements in pediatric care. There were about 200,000 fewer pediatric discharges in 2019 than there were in 2017, according to data from the US Department of Health and Human Services.
“In pediatrics, we have been improving the ability we have to take care of kids with chronic conditions, like sickle cell and cystic fibrosis, and we’ve also been preventing previously very common problems like pneumonia and meningitis with vaccination programs,” said Dr. Matthew Davis, the pediatrics department chair at Ann & Robert H. Lurie Children’s Hospital of Chicago.
Pediatrics is also seasonal, with a typical drop in patients in the summer and a sharp uptick in the winter during respiratory virus season. When the pandemic hit, schools and day cares closed, which slowed the transmission of Covid and other infectious diseases in children, Davis said. Less demand meant there was less need for beds. Hospitals overwhelmed with Covid cases in adults switched pediatric beds to beds for grownups.
Only 37% of hospitals in the US nowoffer pediatric services, down from 42% about a decade ago, according to the American Hospital Association.
While pediatric hospital beds exist at local facilities, the only pediatric emergency department in Baltimore County is Greater Baltimore Medical Center in Towson, Maryland, according to Dr. Theresa Nguyen, the center’s chair of pediatrics. All the others in the county, which has almost 850,000 residents, closed in recent years, she said.
The nearby MedStar Franklin Square Medical Center consolidated its pediatric ER with the main ER in 2018, citing a 40% drop in pediatric ER visits in five years, MedStar Health told CNN affiliate WBAL.
In the six months leading up to Franklin Square’s pediatric ER closing, GBMC admitted an average of 889 pediatric emergency department patients each month. By the next year, that monthly average jumped by 21 additional patients.
“Now we’re seeing the majority of any pediatric ED patients that would normally go to one of the surrounding community hospitals,” Nguyen said.
In other cases, it’s the hospitals that have only 10 or so pediatric beds that started asking the tough questions, Davis said.
“Those hospitals have said, ‘You know what? We have an average of one patient a day or two patients a day. This doesn’t make sense anymore. We can’t sustain that nursing staff with specialized pediatric training for that. We’re going to close it down,’” Davis said.
Saint Alphonsus Regional Medical Center in Boise closed its pediatric inpatient unit in July because of financial reasons, the center told CNN affiliate KBOI. That closure means patients are now overwhelming nearby St. Luke’s Children’s Hospital, which is the only children’s hospital in the state of Idaho, administrator for St. Luke’s Children’s Katie Schimmelpfennig told CNN. Idaho ranks last for the number of pediatricians per 100,000 children, according to the American Board of Pediatrics in 2023.
The Saint Alphonsus closure came just months before the fall, when RSV, influenza and a cadre of respiratory viruses caused a surge of pediatric patients needing hospital care, with the season starting earlier than normal.
The changing tide of demand engulfed the already dwindling supply of pediatric beds, leaving fewer beds available for children coming in for all the common reasons, like asthma, pneumonia and other ailments. Additional challenges have made it particularly tough to recover.
Another factor chipping away at bed capacity over time: Caring for children pays less than caring for adults. Lower insurance reimbursement rates mean some hospitals can’t afford to keep these beds – especially when care for adults is in demand.
Medicaid, which provides health care coverage to people with limited income, is a big part of the story, according to Joshua Gottlieb, an associate professor at the University of Chicago Harris School of Public Policy.
“Medicaid is an extremely important payer for pediatrics, and it is the least generous payer,” he said. “Medicaid is responsible for insuring a large share of pediatric patients. And then on top of its low payment rates, it is often very cumbersome to deal with.”
Medicaid reimburses children’s hospitals an average of 80% of the cost of the care, including supplemental payments, according to the Children’s Hospital Association, a national organization which represents 220 children’s hospitals. The rate is far below what private insurers reimburse.
More than 41 million children are enrolled in Medicaid and the Children’s Health Insurance Program, according to Kaiser Family Foundation data from October. That’s more than half the children in the US, according to Census data.
At Children’s National Hospital in Washington, DC, about 55% of patients use Medicaid, according to Dr. David Wessel, the hospital’s executive vice president.
“Children’s National is higher Medicaid than most other children’s hospitals, but that’s because there’s no safety net hospital other than Children’s National in this town,” said Wessel, who is also the chief medical officer and physician-in-chief.
And it just costs more to care for a child than an adult, Wessel said. Specialty equipment sized for smaller people is often necessary. And a routine test or exam for an adult is approached differently for a child. An adult can lie still for a CT scan or an MRI, but a child may need to be sedated for the same thing. A child life specialist is often there to explain what’s going on and calm the child.
“There’s a whole cadre of services that come into play, most of which are not reimbursed,” he said. “There’s no child life expert that ever sent a bill for seeing a patient.”
“When insurance pays more, people build more health care facilities, hire more workers and treat more patients,” Gottlieb said.
“Everyone might be squeezed, but it’s not surprising that pediatric hospitals, which face [a]lower, more difficult payment environment in general, are going to find it especially hard.”
Dr. Benson Hsu is a pediatric critical care provider who has served rural South Dakota for more than 10 years. Rural communities face distinct challenges in health care, something he has seen firsthand.
A lot of rural communities don’t have pediatricians, according to the American Board of Pediatrics. It’s family practice doctors who treat children in their own communities, with the goal of keeping them out of the hospital, Hsu said. Getting hospital care often means traveling outside the community.
Hsu’s patients come from parts of Nebraska, Iowa and Minnesota, as well as across South Dakota, he said. It’s a predominantly rural patient base, which also covers those on Native American reservations.
“These kids are traveling 100, 200 miles within their own state to see a subspecialist,” Hsu said, referring to patients coming to hospitals in Sioux Falls. “If we are transferring them out, which we do, they’re looking at travels of 200 to 400 miles to hit Omaha, Minneapolis, Denver.”
Inpatient pediatric beds in rural areas decreased by 26% between 2008 and 2018, while the number of rural pediatric units decreased by 24% during the same time, according to the 2021 paper in Pediatrics.
“It’s bad, and it’s getting worse. Those safety net hospitals are the ones that are most at risk for closure,” Rauch said.
In major cities, the idea is that a critically ill child would get the care they need within an hour, something clinicians call the golden hour, said Hsu, who is the critical care section chair at the American Academy of Pediatrics.
“That golden hour doesn’t exist in the rural population,” he said. “It’s the golden five hours because I have to dispatch a plane to land, to drive, to pick up, stabilize, to drive back, to fly back.”
When his patients come from far away, it uproots the whole family, he said. He described families who camp out at a child’s bedside for weeks at a time. Sometimes they are hundreds of miles from home, unlike when a patient is in their own community and parents can take turns at the hospital.
“I have farmers who miss harvest season and that as you can imagine is devastating,” Hsu said. “These aren’t office workers who are taking their computer with them. … These are individuals who have to live and work in their communities.”
Back at GBMC in Maryland, an adolescent patient with depression, suicidal ideation and an eating disorder was in the pediatric emergency department for 79 days, according to Nguyen. For months, no facility had a pediatric psychiatric bed or said it could take someone who needed that level of care, as the patient had a feeding tube.
“My team of physicians, social workers and nurses spend a significant amount of time every day trying to reach out across the state of Maryland, as well as across the country now to find placements for this adolescent,” Nguyen said before the patient was transferred in mid-March. “I need help.”
Nguyen’s patient is just one of the many examples of children and teens with mental health issues who are stayingin emergency rooms and sometimes inpatient beds across the country because they need help, but there isn’t immediately a psychiatric bed or a facility that can care for them.
It’s a problem that began before 2020 and grew worse during the pandemic, when the rate of children coming to emergency rooms with mental health issues soared, studies show.
Now, a nationwide shortage of beds exists for children who need mental health help. A 2020 federal survey revealed that the number of residential treatment facilities for children fell 30% from 2012.
“There are children on average waiting for two weeks for placement, sometimes longer,” Nguyen said of the patients at GBMC. The pediatric emergency department there had an average of 42 behavioral health patients each month from July 2021 through December 2022, up 13.5% from the same period in 2017 to 2018, before the pandemic, according to hospital data.
When there are mental health patients staying in the emergency department, that can back up the beds in other parts of the hospital, creating a downstream effect, Hsu said.
“For example, if a child can’t be transferred from a general pediatric bed to a specialized mental health center, this prevents a pediatric ICU patient from transferring to the general bed, which prevents an [emergency department] from admitting a child to the ICU. Health care is often interconnected in this fashion,” Hsu said.
“If we don’t address the surging pediatric mental health crisis, it will directly impact how we can care for other pediatric illnesses in the community.”
Funding for children’s hospitals is already tight, Rauch said, and more money is needed not only to make up for low insurance reimbursement rates but to competitively hire and train new staff and to keep hospitals running.
“People are going to have to decide it’s worth investing in kids,” Rauch said. “We’re going to have to pay so that hospitals don’t lose money on it and we’re going to have to pay to have staff.”
Virtual visits, used in the right situations, could ease some of the problems straining the pediatric system, Rauch said. Extending the reach of providers would prevent transferring a child outside of their community when there isn’t the provider with the right expertise locally.
Increased access to children’s mental health services
With the ongoing mental health crisis, there’s more work to be done upstream, said Amy Wimpey Knight, the president of CHA.
“How do we work with our school partners in the community to make sure that we’re not creating this crisis and that we’re heading it off up there?” she said.
There’s also a greater need for services within children’s hospitals, which are seeing an increase in children being admitted with behavioral health needs.
“If you take a look at the reasons why kids are hospitalized, meaning infections, diabetes, seizures and mental health concerns, over the last decade or so, only one of those categories has been increasing – and that is mental health,” Davis said. “At the same time, we haven’t seen an increase in the number of mental health hospital resources dedicated to children and adolescents in a way that meets the increasing need.”
Most experts CNN spoke to agreed: Seek care for your child early.
“Whoever is in your community is doing everything possible to get the care that your child needs,” Hsu said. “Reach out to us. We will figure out a way around the constraints around the system. Our number one concern is taking care of your kids, and we will do everything possible.”
Nguyen from GBMC and Schimmelpfennig from St. Luke’s agreed with contacting your primary care doctor and trying to keep your child out of the emergency room.
“Anything they can do to stay out of the hospital or the emergency room is both financially better for them and better for their family,” Schimmelpfennig said.
Knowing which emergency room or urgent care center is staffed by pediatricians is also imperative, Rauch said. Most children visit a non-pediatric ER due to availability.
“A parent with a child should know where they’re going to take their kid in an emergency. That’s not something you decide when your child has the emergency,” he said.
After Effie’s first ambulance ride and hospitalization last month, the Schnacky family received an asthma action plan from the pulmonologist in the ER.
It breaks down the symptoms into green, yellow and red zones with ways Effie can describe how she’s feeling and the next steps for adults. The family added more supplies to their toolkit, like a daily steroid inhaler and a rescue inhaler.
“We have everything an ER can give her, besides for an oxygen tank, at home,” Schnacky said. “The hope is that we are preventing even needing medical care.”
Asian stocks fell broadlyon Tuesday, dragged down by banking shares, as fears over the fallout of Silicon Valley Bank’s collapse gripped the market despite US government efforts to stabilize the financial system.
Japan’s Nikkei 225
(N225) tumbled 2.19% to post its third straight day of declines. Hong Kong’s Hang Seng
(HSI) briefly dropped 2.5%, before trimming losses in the afternoon. Korea’s Kospi lost almost 3%. China’s Shanghai Composite shed 0.65%.
Banks were the hardest hit sector across the region.
HSBC
(HBCYF) Holdings plunged more than 5% in Hong Kong after the banking giant pledged to inject 2 billion pounds ($2.4 billion) of liquidity into SVB’s UK unit, which it had bought for 1 pound. Standard Chartered Bank sank nearly 7%.
The sell-off happened despite extraordinary measures by US regulators over the weekend to avert a potential banking crisis following the collapse of SVB. The California-based lender fell with astounding speed on Friday, marking America’s biggest bank shutdown since 2008.
Investors are now on edge over whether the demise of SVB could spark a broader banking sectormeltdown. On Monday, US stocks were mixed, with banking shares taking a hit.
“Investors fear other financial institutions are sitting on significant unrealized losses on their balance sheets because of markedly higher interest rates,” said DBRS Morningstar analysts on Monday.
The fear was “irrespective of fundamentals,” they said.
US Treasury yields were sharply lower on Monday as investors flocked to safe-haven assets. The yield on the 2-year Treasury was briefly down more than 50 basis points, the biggest daily drop in decades.
“At the moment, markets are speculating on a Fed’s U-turn, but are equally pricing in a greater degree of contagion in the banking sector turmoil, which is ultimately weighing on risk sentiment,” ING analysts wrote in a research note on Tuesday.
Should the Federal Reserve accommodate market hopes and end its interest rate tightening cycle, there would be ample room for market sentiment to rebound, they said.
Other Asia Pacific banking shares also fell.
In Hong Kong, shares in Bank of China (Hong Kong) and Hang Seng Bank fell 3.7% and 1.3% respectively. Pan-Asian insurer AIA Group traded down 4.7%.
In Tokyo, Mitsubishi UFJ Financial Group, Japan’s biggest bank, lost 8.4%. Sumitomo Mitsui Financial Group and Mizuho Financial Group both dropped more than 7%.
In Seoul, KB Financial Group and Shinhan Financial Group fell 3.6% and 2.5% respectively.
In Shanghai, China Merchants Bank dropped 1.2% and China Minsheng Banking Corp retreated by 0.3%.
In Sydney, Macquarie Group pulled back by 3.1% and ANZ Group was 1.5% lower.
Editor’s Note: A version of this article originally appeared in the weekly weather newsletter, the CNN Weather Brief, which is released every Monday. You can sign up here to receive them every week and during significant storms.
We are already into meteorological spring as of March 1, which means we did not see a single nor’easter in the winter months, and hardly any snow for some of the East Coast’s big cities. But a major spring nor’easter is in the making and will have far-reached effects on the Northeast and New England this week.
“Overnight Monday, a coastal low pressure will strengthen rapidly into a major nor’easter that significantly impacts the Northeast beginning later Monday night through Wednesday,” the Weather Prediction Center said.
A nor’easter is a coastal storm with winds out of the northeast. Nor’easters are notorious for bringing huge impacts such as heavy rain, snow, strong winds, power outages and coastal flooding.
“The greatest concerns that I have about this storm is the fact that there will be heavy, wet snow that will combine with high winds, essentially causing power outages,” David Novak, director of the Weather Prediction Center, told CNN meteorologist Derek Van Dam. “The weight of the snow will be extreme. It’s known as ‘snow loading’ and has to do with the heavy, wet type of snow we are expecting.”
Areas around New York City will begin feeling the storm’s effects later today. Heavy rain and windy conditions will be the opening act, before the storm peaks tonight through Tuesday evening. Closer to Boston, the storm will peak Tuesday into Wednesday.
“The heavy-wet nature of the snow, combined with max wind gusts up to 50 mph, will result in scattered to widespread power outages and tree damage,” the prediction center explained. “Similar impacts could be felt along the I-95 corridor from New York City to Boston.”
Along Cape Cod and the islands, winds could gust as high as 60 mph. Further inland, winds will top 50-55 mph, adding to the threat of falling tree limbs and power outages.
More than 20 million people are under winter alerts in advance of the storm, including cities like Boston and Worchester in Massachusetts, Albany and Syracuse in New York and Portland, Maine.
Heavy, wet snow could fall at 2-3 inches per hour, resulting in up to a foot of snow in the higher elevations of the Northeast. The area includes the Catskills and southern Adirondacks in New York, Berkshires and Worcester Hills in Massachusetts, Monadnocks and White Mountains in New Hampshire, and southern Green Mountains in Vermont. Localized snow totals of 24 to 30 inches are possible.
“We’re trying to tell people not to focus on the amount of snow that you’ve got. Some areas are going to have a lot and other areas will only get four or five inches,” noted Glen Field, warning coordination meteorologist at the weather service office in Boston. ” Anything more than four inches of heavy wet snow will be enough loading to knock down trees, power lines, and lose power,” he added.
Novak said there will be a sharp difference between low and top snow totals. Some areas around Boston could see up to 7 inches of snow, he said, while other sections, like downtown, might see little to no snow.
Along with rain, snow, gusty winds and possible power outages, another big concern along the coast will be coastal flooding and beach erosion. For coastal areas in New York and Connecticut, residents can expect water to run a foot to a foot and a half above normal levels. This could result in flooding in coastal communities. Also, four-foot waves will break along the shoreline, leading to beach erosion.
The storm is coming late in the season, however, it is not unheard of. Nor’easters can strike the Northeast through April. In 1997, a nor’easter on April Fools’ Day buried New England. However, it is odd the first one of the season is striking so late. According to Field, New Englanders knew better than to count on the season finishing without a nor’easter.
“I think everybody was still expecting that we were going to get one,” Field said.
By late Wednesday, the nor’easter will push out, leaving chilly and windy conditions.
Ahead of the storm, Maine Gov. Janet Mills ordered state offices closed Tuesday.
“I encourage Maine people to stay off the roads if they can, plan for extra time if traveling, and give plenty of space to road crews and first responders working hard to keep us safe,” Mills said.
New Jersey Gov. Phil Murphy declared a state of emergency for five counties – Morris, Sussex, Warren, Passaic and Bergen – in the northern part of the state.
Connecticut Gov. Ned Lamont ordered a partial activation of the state emergency operations center, starting Tuesday.
For much of the weekend, Silicon Valley scrambled to find a way through what one prominent tech investor described as an “extinction-level event for startups” after the collapse of a top lender in the industry.
Startups raced to line up loans from venture funds and fintech firms to make payroll. Venture-backed retailers hosted last-minute sales to boost their cash reserves. And at least one prominent startup accelerator convinced thousands of CEOs and founders to sign an “urgent” petition calling for Treasury Secretary Janet Yellen and others to offer “relief.”
Then, late Sunday, federal officials stepped in to guarantee that all customers of the failed Silicon Valley Bank would have access to their full deposits on Monday. The sense of relief was palpable throughout the tech sector.
“Obviously, I’m quite relieved,” said Stefan Kalb, co-founder and CEO of Seattle-based startup Shelf Engine, who told CNN that his company would have had to shut down by the end of the week without the government intervention. “It was a very stressful weekend and I’m quite relieved with the news.”
Parker Conrad, the CEO of HR platform Rippling, who had previously said some customers’ payrolls were being delayed by the bank failure, tweeted Sunday: “Anyone else breathing a sigh of relief and looking forward to a good night’s sleep tonight?”
And Garry Tan, the CEO of tech startup accelerator Y Combinator who authored the petition to Yellen, praised the federal government for “decisive action.” Tan, the investor who had previously warned of “an *extinction level event* for startups” that would “set startups and innovation back by 10 years or more,” added his appreciation on Sunday for “everyone who helped us through a very very intense time.”
But even as the tech industry enjoys a respite from a fearful weekend, unknowns remain. “You can feel the collective *sigh*,” Ryan Hoover, a tech founder and investor wrote on Twitter Sunday. “I’m still nervous,” he added. “Hard to predict the collateral effects.”
It’s unclear how the aftershocks of the bank’s collapse will add to the startup industry’s growing challenges accessing capital. SVB’s collapse also risks changing how the world, and prospective recruits, think of Silicon Valley.
For years, the term itself conjured an image of an enclave of bright, contrarian, libertarian engineers and thinkers who could see around corners and make big bets on the future. Now, that same industry is relying on the federal government to survive after failing to see the risk, or worse, contributing to it through a shared hysteria.
In the chaotic days leading up to the bank’s collapse on Friday, some venture firms reportedly urged their portfolio companies to withdraw their money, which may have contributed to the bank failing.
Then, over the weekend, many venture capitalists and tech founders banded together to try and lobby government and public goodwill towards saving the companies impacted by Silicon Valley Bank’s sudden collapse.
While some VCs appeared to embrace fear-mongering on Twitter, much of the public messaging focused on the small businesses with exposure to Silicon Valley Bank that might be not be able to continue operating after losing access to the money in their bank account.
“We are not asking for a bailout for the bank equity holders or its management; we are asking you to save innovation in the American economy,” the Y Combinator petition stated. “We ask for relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank.”
A separate coalition of more than a dozen venture capital firms, including Lightspeed Venture Partners and Upfront Ventures, released a joint statement late Friday supporting Silicon Valley Bank, given its unique and vital role in the startup economy. The bank worked with nearly half of all venture-backed tech and healthcare companies in the United States.
“For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US,” the statement read. “In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”
Even before the bank’s collapse, the startup industry was in a tough moment. Venture capital funding had dwindled amid rising interest rates and broader macroeconomic uncertainty; tech companies were cutting staff and ambitious projects; and some of the biggest private companies were reportedly slashing their valuations.
The instability at a top tech lender, and the lingering questions about its impact on other regional banks and the broader financial system, risk making it even harder for money-losing startups to access the capital they need to survive.
President Joe Biden emphasized in remarks Monday that “no losses will be borne by the taxpayers” related to the government’s intervention for Silicon Valley Bank. But some are already skeptical of that statement, including Democratic Sen. Elizabeth Warren of Massachusetts, who wrote in an op-ed Monday morning, “We’ll see if that’s true.”
More immediately, there’s uncertainty around how long it will take for companies to get their money out of the bank.
As of Monday, Kalb said the money in his Silicon Valley Bank account has not been transferred yet to the new JPMorgan Chase account he set up for Shelf Engine on Thursday. “I’ve been obsessively checking my email,” he said. “Hopefully the money will be able to be transferred shortly.”
Ben Kaufman, the co-founder of venture-backed toy store and online retailer Camp, told CNN’s Poppy Harlow in an interview Monday morning that he and his team spent the weekend trying to “fight for survival,” including holding a last-minute 40% off sale, using the code “BANKRUN,” to raise capital over the weekend.
“We did not know how long it was going to take for us to get our cash out … we still kind of don’t, they say today, we’ll see what happens,” he said, noting the bank held 85% of his company’s assets. “We hope we can, and we’re so grateful that the Fed stepped in, and the way they did.”
When asked if the past week’s events would change how and where he stores his money, Kaufman said that is “going to have to be a consideration moving forward.”
Wall Street’s confidence in regional banks remained shaky Monday, despite emergency measures from the Biden administration to protect customer deposits.
First Republic shares fell more than 60% and were briefly halted for volatility. Western Alliance Bancorp’s stock also fell 60%, and PacWest Bancorp fell more than 34%.
The SPDR S&P Regional Banking exchange-traded fund fell 11%.
Monday’s turmoil for bank stocks stems from the collapse Friday of Silicon Valley Bank, which came unglued last week as customers panicked and yanked their deposits.
Rather than bailing out the bank, the Biden administration and federal regulators on Sunday night said they would to backstop customers’ deposits — even those that weren’t insured. The same protections would be in place for customers of Signature, a New York regional lender that folded when depositors were apparently spooked by SVB’s demise.
By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.
The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.
Despite those emergency measures to avoid a 2008-style crisis, investors sold off shares of regional banks that are seen as having similar risk potential.
“It’s a good thing that we have the backstop, and it’s a good thing that the depositors were protected,” said Mike O’Rourke, chief market strategist at Jones Trading. “But it doesn’t change the fact that there’s still problems — you’re just basically buying time to sort the problems out in a better way.”
The intervention from the Biden administration and the Fed does not amount to a 2008-style bailout, meaning investors in the banks’ stock and bonds will not be protected.
O’Rourke said he’s not concerned about the health of the banking system.
“It’s a confidence-crisis risk,” he said. “If we get through the next 24, 48 hours without the regulators having to close anymore banks, we should be fine.”
First Republic lists $213 billion in assets. The lender reached out to customers over the weekend in a bid to reassure them.
“In light of recent industry events, the last few days have caused uncertainty in the financial markets,” First Republic senior executives said in an email to clients viewed by CNN. “We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations.”
Silicon Valley Bankcollapsed with astounding speed on Friday. Investors are now on edge about whether its demise could spark a broader banking meltdown.
The US federal government has stepped in to guarantee customer deposits, but SVB’s downfall continues to reverberate across global financial markets. The government has also shut down Signature Bank, a regional bank that was teetering on the brink of collapse, and guaranteed its deposits.
In a sign of how seriously officials are taking the SVB failure, US President Joe Biden told Americans Monday that they “can rest assured that our banking system is safe,” adding: “We will do whatever is needed on top of all this.”
Here’s what you need to know about the biggest US bank failure since the global financial crisis.
Established in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. It provided banking services to nearly half of all US venture-backed technology and life science companies.
It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom.
SVB benefited hugely fromthe tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.
The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements. Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. Its global headcount more than doubled.
SVB’s collapse came suddenly, following a frenetic 48 hours during which customers yanked deposits from the lender in a classic run on the bank.
But the root of its demise goes back several years. Like manyother banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.
What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.
When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.
At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding.
That forced companies to draw down on deposits held by SVB to fund their operations and growth.
While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances.
That set off panic among customers, who withdrew their money in large numbers.
The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it as investors began to fear a repeat of the global financial crisis a decade and a half ago.
By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.
US regulators said Sunday that they would guarantee all SVB customers’ deposits. The move is aimed at preventing more bank runs and helping tech companies to continue paying staff and funding their operations.
The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place mean that we’re not going to do that again,” Treasury Secretary JanetYellen told CBS in an interview Sunday.
“But we are concerned about depositors and are focused on trying to meet their needs.”
There are already some signs of stress at other banks. Trading in First Republic Bank
(FRC) and PacWest Bancorp
(PACW) was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab
(SCHW) stock was down 7% at 11.30 a.m. ET Monday.
In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.
SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value.
At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.
In a sign that regulators have concerns about wider financial chaos, the Fed said Sunday that it would make additional funding available for eligible financial institutions to prevent the next SVB from collapsing.
Most analysts point out that US and European banks have much stronger financial buffers now than during the global financial crisis. They also highlight that SVB had very heavy exposure to the tech sector, which has been particularly hard hit by rising interest rates.
“While SVB is a major failure, [it] and other niche players like Signature are quite unique in the broader banking world,” research analysts David Covey, Adrian Cighi and Jaimin Shah at M&G Investments commented in a blog post on Monday. “So unique, in our view, that it is unlikely to create material problems for any of the large diversified banks in the US or Europe from a credit point of view.”
HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender.
Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.
The HSBC rescue is “fantastic news” for the UK startup ecosystem, said Piotr Pisarz, the CEO of Uncapped, a financial tech startup that lends to other startups. “I think we can all relax a bit today,” he told CNN.
In a statement, HSBC CEO Noel Quinn said the acquisition “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally.”
A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.
New York CNN
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Understanding the economy is a complicated task, and even the experts are struggling to answer seemingly simple questions like “Are we on the brink of a recession?” or “Why isn’t inflation falling faster?”
Many have resorted to the use of metaphor to convey the current complexity of the economy.
It’s a communications tactic that some Federal Reserve officials have long favored. In the early 1980s, Nancy Teeters, the first woman appointed to the Federal Reserve Board, came up with an apt metaphor to explain why she disagreed with steep rate hikes implemented by then-Fed Chairman Paul Volcker.
Her colleagues were “pulling the financial fabric of this country so tight that it’s going to rip,” she said. “Once you tear a piece of fabric, it’s very difficult, almost impossible, to put it back together again,” she added, before remarking that “none of these guys has ever sewn anything in his life.”
These days, economists and analysts are turning to increasingly outlandish metaphors to help translate their thoughts.
Here are some of the most interesting descriptors used recently and what they mean:
Wile E. Coyote
If you think back to Saturday morning cartoons, you may remember the never-ending, and mostly futile, chase between Wile E. Coyote and his nemesis, Road Runner. That pursuit often ended with Wile E. running off a cliff and into mid-air.
The toons were fun sources of entertainment in our salad years, but former Treasury Secretary Larry Summers says they now double as a case study for the Fed and the economy.
“The [Federal Reserve’s] process of bringing down inflation will bring on a recession at some stage, as it almost always has in the past,” Summers told CNN last week.
And for the US economy, it could likely mean a “Wile E. Coyote moment,” Summers said — if we run off the cliff, gravity will eventually win out.
“The economy could hit an air pocket in a few months,” he said.
Antibiotics
When describing the state of the economy, Summers doesn’t just rely on Looney Tunes. He also borrows from the medical community.
While describing why the Fed can’t end its rate hike regimen when inflation shows signs of showing, Summers has compared higher interest rates to medicine for a country sick with high inflation. The entire dose must be taken for the treatment to fully work, he says.
“We’ve all had the experience of taking a course of drugs and giving up, stopping the drugs, before the course was exhausted, simply because we felt better. And then, whatever infection we had came back and it was harder to fight the second time,” Summers told Boston’s NPR news station WBUR in February.
What’s important in this oft-used scenario is that it’s hard to see and we’re doing something that typically requires clear visibility.
Clients “facing the fog of uncertainty in financial markets, economic growth and geopolitics,” should “avoid unnecessary lane changes,” and “allow extra time to reach your destination,” advised Goldman Sachs analysts earlier this year.
It’s essentially a fancy way of saying that no one really knows what’s going on in this economy. Instead of attempting to find a way out of the chaos, investors should slow down, stay the course and wait for recovery.
Edibles
Late last year, investment analyst Peter Boockvar used a semi-illicit metaphor to explain why he thought the Fed might be over-tightening the economy into recession. He compared the Fed to an inexperienced consumer of weed gummies, which can take a long time to kick in.
During that waiting period, an eager consumer may think the drugs aren’t working and eat more before the effects of the first dose even set in. They then inevitably find themselves way too stoned and feeling not-so-great.
Boockvar was careful to note that he himself does not indulge in this practice, by the way.
The Big Bank exec has repeatedly referred to economic recession as a storm gathering on the horizon — occasionally he’ll update the public on how far away and how bad that storm is.
Last summer Dimon spooked markets when he compared a possible upcoming recession to a “hurricane.” In November, he downgraded it to a “storm.”
By January, his forecast was simply “storm clouds,” adding that he probably should never have used the term “hurricane.”
Polyurethane
Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, has likened the economy to a bendable piece of plastic. Much like the economy, he wrote, polyurethane, “displays flexibility and adaptability, but also durability and strength.”
He added that “the material’s ability to be stretched, bent, stressed and flexed without breaking, while in fact returning to its original condition, is what makes it so chemically unique. In recent years the US economy has displayed a remarkable resilience to stresses and an extraordinary ability to adapt to changing conditions.”
Last week Senator Elizabeth Warren grilled Federal Reserve Chair Jerome Powell about American job losses being potential casualties of the central bank’s battle against high inflation.
Warren, a frequent critic of the Fed’s leader, noted that an additional 2 million people would have to lose their jobs if the unemployment rate rises from its current 3.6% rate to reach the Fed’s projections of 4.6% by the end of the year.
“If you could speak directly to the two million hardworking people who have decent jobs today, who you’re planning to get fired over the next year, what would you say to them?” Warren asked.
Powell argued that all Americans, not just two million, are suffering under high inflation.
“Will working people be better off if we just walk away from our jobs and inflation remains 5% or 6%?” Powell replied.
Warren cautioned Powell that he was “gambling with people’s lives.”
The discussion was part of a larger cost-benefit conversation that keeps popping up around the jobs market: Which is worse — widespread jobloss or elevated inflation?
CNN spoke with two top economic analysts with different perspectives to gain a deeper understanding of the debate.
Below is our interview with Johns Hopkins economist Laurence Ball.
Yesterday we published our interview with Roosevelt Institute director Michael Konczal, you can read that here.
This interview has been edited for length and clarity.
Before the Bell: Is it necessary to increase the unemployment rate to successfully fight inflation?
Laurence Ball: There’s a trade off between inflation and unemployment. When the economy is very strong and unemployment is pushed down, inflation tends to be higher. Right now there are almost two job openings per unemployed worker, the supply of workers looking for jobs and the demand for firms to hire is out of whack. That’s leading to faster wage increases, which sounds good except that gets passed through to faster price increases and more inflation. So somehow the labor market has to be brought back towards a normal balance of workers and jobs and that means slowing down the economy, and that probably means raising unemployment.
Can you explain the cost-benefit analysis of two million jobs lost to get down to 2% inflation?
If we assume we have to get inflation down to 2%, then it’s just an unhappy fact of life that that’s going to require higher unemployment. But a lot of people, including me, think that if the Fed gets it down to 4% or 3%, that’s the time to declare victory or say, ‘close enough for government work.’
It gets more and more expensive in terms of how much unemployment it costs to go from 3% to 2% inflation. Those last few points will have disproportionately large costs, and it’s very dubious if that’s really worth it.
Now, the Fed has the political problem that they’ve been insisting on a 2% target rate for years. If they say right at this moment that 3% or 4% is okay that would be seen as surrendering or moving the goalposts. I think a likely outcome is that inflation gets down to 3% or 4% and the Fed continues to say their target is a 2% inflation rate but never does what has to be done to get it there.
If you examine Fed history you see that 5% appears to be a magic number. When inflation is above 5% it becomes this big political issue. When it goes below 5% it disappears from the headlines.
What do you think is important for our readers to know about this back-and-forth between Powell and Warren?
Behind all of this, in a market economy there’s sort of a basic glitch. We have this thing called unemployment, we sort of chronically have not enough jobs for everybody and that’s a big problem. The problem can be reduced somewhat in the short run if you get the economy going very fast. But then that leads to inflation. Accepting that unemployment has to go back up is just recognizing that there’s this glitch in the market economy or capitalism. It’s not clear how we can get around that.
In an extraordinary action to restore confidence in America’s banking system, the Biden administration on Sunday guaranteed that customers of the failed Silicon Valley Bank will have access to all their money starting Monday.
In a related action, the government shut down Signature Bank, a regional bank that was teetering on the brink of collapse in recent days. Signature’s customers will receive a similar deal, ensuring that even uninsured deposits will be returned to them Monday.
In a joint statement Sunday, Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg said the FDIC will make SVB and Signature’s customers whole. By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.
The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.
Wall Street investors were relieved that the government intervened as stock futures rebounded on Sunday evening, although the rally is fading Monday morning. Markets had tumbled more than 3% Thursday and Friday as investors feared more bank failures and systemic risk for the tech sector.
Massive strikes in Paris against pension reform this week are affecting trash pickup services in the French capital, with piles of waste sitting on many of the city’s normally picturesque streets, including those just steps from monuments like the Eiffel Tower and the Arc de Triomphe.
As of Saturday, about 4,400 tonnes of trash were awaiting collection, a spokeswoman for the Paris mayor’s office said. The spokeswoman said that the problem is a blockage at trash incinerators caused by the strikes. Garbage trucks have thus been unable to pick up waste in much of the city because they have nowhere to put it.
Not all neighborhoods have been equally affected. The municipal government is in charge of garbage collection in half of Paris’ 20 arrondissements. Private contractors are responsible for the other 10.
Municipal services like trash collection in Paris have been affected since Tuesday, when strikes saw flights and trains canceled and delayed; oil refiners blockaded; schools shuttered; and left thousands without electricity. The French capital was the most affected, with nearly 60% of its primary school teachers walking out and the local metro forced to cut service to all but the busiest times.
Massive protests have been staged regularly throughout France since January 19, with more than a million people coming out multiple to voice their opposition to the government’s plan to raise the official retirement age for most workers as part of reforms to the government’s pension system, one of Europe’s most generous.
President Emmanuel Macron’s government says the changes are necessary to make the system financially stable.
The trash buildup in Paris has been sparked health concerns among Parisians and local politicians. The mayor of the 17th arrondissement, Geoffroy Boulard, said in an interview with CNN affiliate BFMTV that he has asked Paris Mayor Anne Hidalgo to hire a private service provider to intervene.
“We can’t wait,” he said. “This is a matter of public health.”
Boulard said he’s also worried about the proliferation of rats and rodents as well as Paris’ image.
Another local mayor, Jean-Pierre Lecoq of the 6th arrondissement, asked Hidalgo to intervene in an open letter he published on Twitter.
The US Federal Deposit Insurance Corporation offered Silicon Valley Bank employees 45 days of employment and 1.5 times their salary, reports say.
An FDIC official did not comment on the details to CNN, but said it is standard practice and one of the first steps the independent government agency takes after being named receiver.
US workers also received their annual bonuses on Friday, just hours before FDIC took over the collapsed lender, Axios reported.
SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.
California regulators shuttered the tech lender and put it under the control of the FDIC.
The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.
Employees, except essential and branch workers, were told to keep working remotely, Reuters reported. The bank had more than 8,500 employees at the end of 2022.
The FDIC said the main office and all 17 branches of SVB, located in California and Massachusetts, will reopen Monday.
The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, said all insured depositors will have full access to their insured deposits by no later than Monday morning. It said it would pay uninsured depositors an “advance dividend within the next week.”
The FDIC took over in the midmorning Friday; usually it waits until markets close.
“SVB’s condition deteriorated so quickly that it couldn’t last just five more hours,” wrote Better Markets CEO Dennis M. Kelleher. “That’s because its depositors were withdrawing their money so fast that the bank was insolvent, and an intraday closure was unavoidable due to a classic bank run.”
Investors are betting that Washington’s mounting scrutiny on TikTok could be good news for rival Snapchat.
Shares of Snapchat’s parent company surged nearly 10% on Monday and another 5%in early trading Tuesday following news that US senators are planning to introduce legislation that could make it easier to ban rival app TikTok.
Virginia Democratic Sen. Mark Warner is expected to unveil bipartisan legislation Tuesday afternoon that expands President Joe Biden’s authority to ban TikTok and other suspected information technology risks from the United States, a person familiar with the matter told CNN. The bill is expected to have nearly a dozen co-sponsors from both sides of the aisle.
The stock surge suggests some on Wall Street are taking the possibility of a TikTok ban more seriously, after years of chatter in the nation’s capital about cracking down on the short-form video app due to security concerns related to its Chinese parent company.
It also highlights how lawmakers’ efforts to address the perceived threat of TikTok could ultimately benefit large US tech platforms, including dominant companies that some in Washington also want to rein in for other reasons.
Angelo Zino, senior equity analyst CFRA Research, wrote in a note Monday that the “biggest beneficiaries of a TikTok ban” would be Snapchat, Facebook-parent Meta, and YouTube.
“TikTok’s emphasis on short-form videos has increased engagement/time spent by consumers and has upended the entire industry, creating a headwind for META/SNAP,” Zino wrote. “Given TikTok’s growing engagement/user growth, it has been taking an increasing portion of the digital ad dollars pie from other social media players.”
In recent years, TikTok’s popularity has led a number of major US apps to imitate some of its features, including the launch of Instagram’s Reels and YouTube’s Shorts.
Shares of YouTube’s parent company Alphabet were essentially flat on Tuesday. Meta, which is up 50% so far this year thanks to its commitment to “efficiency,” was up slightly in early trading Tuesday, likely because of a report claiming it’s planning more layoffs.
A TikTok ban, or the possibility of it, may just be one more positive for Meta’s stock this year.
Joe Biden and Donald Trump are bizarrely on the same page on the top issue so far in the 2024 White House race, as they aim huge, possibly campaign-defining swings at Republicans who they claim will shred retirement benefits.
The current and former presidents – bitter rivals who agree on little else – are both forcing their foes into political retreats and attempts to whitewash past support for changes that could cut Medicare and Social Security payouts.
Their strategy is reinforcing a truism of presidential election campaigns that candidates who even entertain the notion of “reforming” these cherished entitlement programs for seniors are playing with fire.
With typical bluntness, Trump has blasted his potential top rival, Florida Gov. Ron DeSantis, as a “wheelchair over the cliff kind of guy” after he voted, as a member of the US House, for non-binding resolutions that would have raised the age at which most seniors can collect their benefits to 70. As a 2012 congressional candidate, he supported privatizing Social Security, CNN’s KFile has reported. But trying to ease his vulnerability on the issue, DeSantis insisted in a Fox News interview last week: “We’re not going to mess with Social Security.”
Despite his own proposed cuts to these programs as president, Trump has kept up the attacks. “We’re not going back to people that want to destroy our great Social Security system – even some in our own party; I wonder who that might be – who want to raise the minimum age of Social Security to 70, 75 or even 80 in some cases, and who are out to cut Medicare to a level that will be unrecognizable,” he said at the Conservative Political Action Conference last Saturday.
A few days later, another Republican hopeful gave both Biden and Trump a new opening to exploit.
Former South Carolina Gov. Nikki Haley was forced to make clear Thursday that her striking and unspecific call the day before for raising the retirement age was only supposed to refer to Americans currently in their 20s, who are in effect a half century away from drawing their pensions. But her clarification won’t protect the former ambassador to the United Nations from Trump, who is splitting his party down the middle, yet again, by pouncing on competitors who have voiced traditional conservative orthodoxy on cutting or changing the programs. Biden is sure to also highlight Haley’s remarks as he claims only he can thwart a secret GOP agenda to kill off the vital programs.
“I guarantee you, I will protect Social Security and Medicare without any change. Guaranteed,” the president vowed in Philadelphia on Thursday. “I won’t allow it to be gutted or eliminated as MAGA Republicans have threatened to do.”
Biden browbeat Republicans during his “State of the Union” address last month to confirm on camera that they support shoring up Social Security and Medicare. And he’s anchoring his likely reelection bid on the most forceful campaign by a Democratic candidate in years on the issue. Some of his attacks are fair; others take statements by GOP leaders out of context. But they’re still potent – since both he and Trump know that when conservatives are explaining that they don’t plan to cut Medicare or retirement benefits, they are usually trying to dig out of a losing position.
And Biden has public opinion on his side. A Fox News poll last month, for instance, showed that Democrats are preferred over Republicans to better handle Medicare (by 23 points) and Social Security (by 16 points). No wonder Biden seems to relish this particular political battlefield.
The odd confluence of approaches – from a former president who sought to overturn an election and a successor who sees his administration as vital to saving democracy – says so much about each man’s political instincts, backgrounds and campaign strategy. It is also reflects the shifting character of the Republican Party, which Trump has torn from its corporate, ideologically pure conservative roots to build a new coalition that includes working class voters, often in the Midwest, that Biden is battling hard to win back.
In one sense, possibly the most thorny domestic issue of the years to come should, of course, have a place in a presidential campaign. But when candidates use it to inflame their political bases, it only makes it harder to address in government. This is especially the case with entitlements since they cut into the DNA of each party and have defined the dividing lines between them for decades – at least until Trump came along and took over the GOP.
Ever since the New Deal reforms of Franklin Roosevelt, who was president from 1933 to 1945, Democrats – through presidents Lyndon Johnson, Barack Obama and Biden, especially – have sought to use government power to secure the living standards and health care of less well-off and elderly Americans. Republicans, from 1980s President Ronald Reagan onwards, have increasingly sought to find ways to shift the burden of some of this care to the private sector and to reduce or eliminate government’s role in an attempt to whittle away the New Deal reforms of FDR and the Great Society program of LBJ, who was president in the 1960s. They have often paid a heavy price. Republican President George W. Bush’s failed attempt to partially privatize Social Security contributed to a disastrous second term. And Trump still rails against former House Speaker Paul Ryan, who promoted a similar plan.
While raising the alarm about threats to social programs for seniors might be a shrewd political tactic – especially in mobilizing older voters more likely to show up at the polls – it usually does nothing to address the program’s increasingly dire solvency challenges.
The latest Congressional Budget Office projection found that Social Security’s retirement trust fund could be exhausted by 2032. At that point, with fewer workers paying into the program and with a rapidly aging population, benefits could be cut by at least 20%, CNN’s Tami Luhby reported. Medicare is even more precarious since its hospital insurance trust fund, known as Part A, will only be able to fully pay scheduled benefits until 2028, its trustees said in their most recent forecast.
Biden, who released a new budget on Thursday that will help shape the message of his likely reelection bid, has proposed a plan to raise taxes on people earning more than $400,000 a year to shore up the program and would expand the range of drugs for which its managers can negotiate prices. He says the move would keep Medicare solvent until 2050 and would involve no cuts in benefits. The president also wants to target those who earn more than $400,000 with increasing payroll taxes to secure Social Security for the future. There is an infinitesimal chance, however, that the Republican-led House will agree to tax increases, so Biden’s plan represents more a device to deliver a political message than a viable plan.
Despite warning his fellow Republicans to avoid cutting these programs, it’s unclear how Trump would save them if he wins back the White House – and doing nothing isn’t an option. And while other Republicans insist they don’t want to cut benefits or raise taxes, it’s unclear how they can square the circle.
Florida Sen. Rick Scott has now excluded Social Security and Medicare from his proposal for all spending programs to be reviewed every five years. His original plan, released when he was leading the Senate GOP’s campaign arm, sparked the ire of his Republican Senate colleagues, including Minority Leader Mitch McConnell, who quickly identified it as a political liability. That hasn’t stopped Biden from repeatedly claiming that it represents Republican policy.
House Speaker Kevin McCarthy has, meanwhile, said that cuts to Social Security and Medicare are “completely off the table” in what he insists must be negotiations with Biden over raising the government’s borrowing limit later this year. But that position has put him in a bind because it means that in order for the GOP to honor their pledge to slash spending, they will probably have to take aim at other social programs that could also prove unpopular with voters.
America is not the only country staring down a crisis.
French President Emmanuel Macron sparked nationwide strikes and protests with his plan to raise the retirement age to 64 from 62. Even China’s Communist Party is struggling as a falling birthrate threatens to inflict severe costs on the world’s most dynamic emerging economy.
Back in the US, whoever wins the 2024 elections for the White House and Congress, there seems no easily identifiable solution to safeguard these vital programs on which millions of Americans depend. And time is running out.
