Mark Sniderman, Ph.D. – Executive in Residence, Weatherhead School of Management

Dear Colleagues:

Lets review some events (as of a week before this discussion…)

Less than a month ago, something called Silicon Valley Bank collapsed. If you’re anything like me you’d never heard of Silicon Valley Bank. It had only existed since 1983; had an unusual business model focused on deposits from and lending to the northern California venture capital community in amounts that meant the vast majority of deposits were not insured; held a very large share of assets in government bonds; and by the end of 2022 had a reported $209 billion in assets and $175 billion in deposits. On March 8 a “woeful financial report” led to much online discussion of concerns; on March 9 the “first Twitter-fueled bank run” withdrew $42 billion of deposits; and on Friday, March 10, the FDIC (Federal Deposit Insurance Corporation) took over SVB.

On Sunday, March 12, New York state regulators and the FDIC shut down Signature Bank, which was about half the size of Silicon Valley. The 19th largest bank in the country, founded in 2001, it also had an unusual niche. It concentrated on private clients with a network of private client offices and was “especially known for catering to law offices, real estate buyers, and cryptocurrency companies… Depositors panicked after SVB failed because Signature had high amounts of uninsured deposits and was exposed to the crypto sector.”

So SVB and Signature were outliers in some significant but hardly identical ways, especially their extremely large shares of uninsured deposits (which are most likely to run away), and their exposures to unusual niches of the economy. Would that make contagion less likely to spread? Or was it mainly coincidence that as the new week began, Switzerland’s Credit Suisse, with over half a trillion dollars in assets, was going down the tubes? After first extending $54 billion in credit to Credit Suisse in the middle of the week, the Swiss Central Bank brokered a deal for Credit Suisse to be taken over by UBS, including over $100 billion in potential support and wiping out $17 billion of the historic (but failing) bank’s bonds. At a minimum, it’s fair to say that general nervousness was making runs more likely, and that was particularly likely for banks which relied especially on wealthy clients.

As Credit Suisse was failing, back in the U.S.A. First Republic Bank was in trouble. First Republic was similar to SVB in size at the end of 2022; also relied especially on wealthy clients mostly in the northeastern U.S.; saw its stock price plummet; received a $30 billion support package from a consortium of other banks on March 16; and as the next week began was still teetering.

As I write on March 30, it’s too early to tell if the First Republic rescue worked and what might come next. But it’s been clear for a while that we have a new “must” topic for the Friday Lunch. This includes not just what is happening in the banking sector but how the Federal Reserve should respond and is responding. Many analysts claim that banks are in trouble in part because the Fed’s efforts to fight inflation by raising interest rates have cut the value of banks’ bond portfolios – an especially plausible claim in the SVB collapse. This puts the Fed in a bind as helping the banks by slowing down rate increases would seem to call for giving up on its fight against inflation. Or maybe not, since the banking crisis could well squeeze the economy as much or more as further interest rate hikes would.

Therefore I am very glad to welcome Mark Sniderman to try to explain the situation both in terms of the Federal Reserve’s responsibility to maintain the stability of the banking sector and its mandate to steer the macroeconomy. What’s going on? Should the peculiar business models of the firms that have had major trouble mean the contagion should not spread? Or does contagion spread with or without good reason? What could have been done to reduce the riskiness of SVB and Signature and First Republic – is this a failure of regulatory supervision, or of policy? Lots of the stories linked in this newsletter talk about falling bank share prices – but why should that matter? What’s going on, and what is to be done?

In-Person and Virtual Attendance

In order to make it easy for people to protect themselves and still participate, the meetings can be attended on Zoom. Participants can register for each meeting in the same way they did for the past two years. The link is posted below.

The discussion begins at 12:30 p.m., but the room should be open no later than Noon. We try to have beverages and refreshments set up soon after that. Participants should be able to sign on to Zoom also by Noon. But please remember not much will be happening online until the talk begins at 12:30 pm. Please also be prepared to show identification when entering Kelvin Smith Library.

Zoom participants should speak up when asked for questions or comments, or submit thoughts through Zoom’s chat function. Please keep yourself muted until you are choosing to speak.

Each week we will send out this newsletter with information about the topic. It will also include a link to register (for free) for the discussion. When you register, you will automatically receive from the Zoom system the link to join the meeting. If you do not get the newsletter, you should also be able to get the information each Monday by checking http://fridaylunch.case.edu Then if you choose you can use the contact form on that website to request the registration link.

This week’s Zoom link for registration is:

https://cwru.zoom.us/meeting/register/tJUvdOqtqDIuGNDCU1ux2pwf8U7rMwTWVphF

After registering, you will receive a confirmation email containing information about joining the meeting.

Please also e-mail padg@case.edu if you have questions about arrangements or any suggestions. Or call at 216 368-2426 and we’ll try to get back to you. We are very pleased to be partnering this semester with the Siegal Lifelong Learning Program to share information about the discussions.

Best wishes for safety and security for you and yours,

Joe White
Luxenberg Family Professor of Public Policy and Director, Center for Policy Studies

About Our Guest

Mark Sniderman’s academic and professional interests are focused on macroeconomics and financial regulation, especially the roles played by central banks. He is currently studying the unconventional monetary policies being employed by central banks in the wake of the global financial crisis, as well as their newer responsibilities for promoting financial stability. Sniderman came to Case after a career with the Federal Reserve Bank of Cleveland, culminating in his position as Executive Vice President and Chief Policy Officer. In that role, Sniderman served as principal adviser to the Bank president for economic and financial policy issues. As a senior executive officer, Sniderman had responsibilities for leadership of the Bank’s economic research, public affairs, and community affairs departments; he also served on the Bank’s management committee. Sniderman chaired the Bank’s Senior Policy Committee and was a member of its Credit Risk Management Committee. During his Federal Reserve career, Sniderman attended more than 100 meetings of the Federal Open Market Committee, the Fed’s monetary policy body; and spoke frequently to public audiences about the economic conditions and monetary policy issues. Sniderman continues to speak on these topics to a variety of business and professional audiences.

Schedule of Friday Lunch Upcoming Topics and Speakers:

April 14: Russia’s War on Ukraine: Where is it Headed? With Stephen Crowley, Ph.D., Professor of Politics, Oberlin College.

April 21: After Dobbs: So Far. With Jessie Hill, J.D., Judge Ben C. Green Professor of Law.

April 28: China. With Paul E. Schroeder Ph.D., longtime Visiting Assistant Professor of Political Science.