My read is that they see the shortage at SVB as relatively small and that they may be closing some marginal banks like Signature ahead of true insolvency/illiquidity to both protect depositors and minimize reactionary withdrawals across the broader market.
And it sounds like they have the authority to just do this on a Sunday, so it doesn’t sound like any rules being changed.
If I was a banker with a marginal portfolio, I wouldn’t be encouraged by this. Depositors are making it out, but banks are being aggressively shuttered to make that happen.
The government can't generally arbitrarily seize an operating business. (Indeed, in the recent Johnson & Johnson court case we saw the opposite: they asked to undertake bankruptcy proceedings early because they're facing a large liability, the government said no, not until you're proven to be actually bankrupt)
Sounds like a bit of a hazard: the difference between insolvent or not for many entities is just accounting conventions. Lock in some non-MTM losses-- wham!-- insolvent.
Why should bankruptcy protection be denied to any entity that would be unquestionably qualified if they simply took an additional legitimate action that would make their creditors worse off?
And it sounds like they have the authority to just do this on a Sunday, so it doesn’t sound like any rules being changed.
If I was a banker with a marginal portfolio, I wouldn’t be encouraged by this. Depositors are making it out, but banks are being aggressively shuttered to make that happen.