Silicon Valley Bank and the Failed Banks of March 2023

How We Got Here

In a Forbes Magazine article on the 14th of February 2023, titled “America’s best banks”, an entity by the name of Silicon Valley Bank was ranked number 20 and has been on the list for five years in a row.

Founded in 1983, SVB was the 16th largest bank in the United States and had over $209 billion dollars in assets. In just a few short weeks following the publication of the article in Forbes Magazine, the bank would collapse over the course of a few of days. Silicon Valley Bank’s failure set off a panic not seen since the days of the financial meltdown of 2008, and is now causing shock waves across the world. This is the largest bank failure since 2008 and the second largest in history. But how did a bank go from making the list of the best banks to bankrupt in less than a month?

The FDIC seized the bank and took control of SVB through a bridge bank established on Friday March 10, 2023. The FDIC immediately issued announcements that all customers would have access to the insured amounts of their deposits on Monday March 1, 2023, which is a maximum of $250,000 dollars per depositor. The insured deposit limits of $250,000 per depositor was deemed to be simply inadequate for many companies left struggling to manage their finances. The potential systemic dangers to this situation had lobbyists and customers alike scrambling and imploring the federal government over that weekend to step in to help recover uninsured deposits over $250 thousand dollars.

The crash created a cascade of events.

Some smaller regional banks lost the majority of their valuation and another bank has since collapsed. Companies such as Roadblocks, VOX Media, and a whole host of Silicon Valley startups are scrambling to find the cash to pay their employees. Meanwhile, the UK government is at work trying to minimize the effects of the crash and at the same time the rest of the economy is trying to figure out what the long-term consequences of this disaster may be.

Is this the start of another financial crisis?

Perhaps, or perhaps not. Since January of 2018, the Members of the Juri (members of the Juro organization) have asserted that there are systemic adjustments which the global financial system should adopt now which would fundamentally change the conditions that lead to such financial disasters. Those systemic adjustments, economic remediation tools, products, services, utilities, marketplaces, networks, and tools are collectively known as the Juro System.

If the public authorities around the world adopt the Juro System, integrating it into legacy systems by leveraging the existing regulated parties which have fiduciary responsibilities to (and are systemically important to) the global economy; No such financial disaster, bank failure, or taxpayer funded bailouts will ever happen again.

Some risks that many have missed in the story of SVB’s Failure

The failure of SVB is a a cautionary tale of mismanagement, incompetence, and political lobbying.

Currently, SVB’s parent company along with its CEO and CFO are all being sued for fraud. It is important to note that the CEO lobbied the U.S. Congress to remove the very laws that would have prevented this crash in the first place.

How it Started

Silicon Valley Bank or SVB was no ordinary Bank. It was the go-to institution for venture capital and Tech startups. The bank enjoyed a healthy period of growth during the 2020 pandemic. The low interest rates and excessive selectively allocated money supplied from the fiscal policies of the Biden administration along with the monetary policies of the U.S Federal Reserve caused the tech sector to boom. Money was easy and investors were generous at the time startups were able to raise money easily due to cheap credit. Once the companies got that money, they needed somewhere to store it. This is where Silicon Valley Bank comes into the picture.

SVB was very popular among Silicon Valley’s new technology company founders. So popular, that nearly 50 percent of all United States startups have some deposits in Silicon Valley Bank. SVB saw a massive influx in deposits from around $61 billion at the end of 2019, which increased to around $189 billion at the end of 2021.

With the added deposits, SVB wanted to make a larger profit from all of the cash that they were suddenly sitting on. SVB invested in long-term bonds because these are usually seen as safer than stocks and provide a steady return. This is based on the premise that when interest rates are low newly issued bonds pay lower interest rates or returns making existing long-term bonds that pay higher rates more attractive. This leads to an increase in demand for these bonds and an increase in their market price, even though the nominal value is the same if held to maturity. The premise is that whoever’s holding these long-term bonds earns a profit.

The SVB saw this situation and invested 80 billion dollars of their tech company deposits in long-term bonds and other securities. This in and of itself raises the question as to what should be deemed “sound and prudent standard operating procedures for banks” in regards to depositor funds which are liabilities of the bank.

The plan was to buy long-term bonds and other securities and turn around and pay their depositors a lower rate. The bank’s profit would be the difference between the higher rates from their long-term investments and the cost of paying low rates for their deposits. This arrangement works particularly well when long-term rates on investments are higher than short term interest rates. Even if some clients decided to withdraw sooner than anticipated, the bank would simply sell the bonds in the open market and get the liquidity necessary to pay back the depositor.

But what happens when everyone wants to withdraw their money all at once?

Silicon Valley Bank was about to find out the forgotten lessons of the 2008 crisis and its aftermath that still affects us today. The post-2008-crisis financial markets are not used to a high interest rate environment and higher interest rates (especially in shorter maturities) could create risks in vulnerable areas of the financial system.The risk management team of SVB simply ignored this risk.

The problems for SVB started to develop in late 2021 when inflation in the United States began to rise. Usually when this happens the U.S., the Federal Reserve would increase interest rates to slow the economy and counteract the inflation. Due to the fiscal policies of the Biden administration and the monetary policies of the Federal Reserve, this time the Federal Reserve stood by and did nothing. In fact, for a while they told everyone that inflation was “transitory”. This turned out to be completely wrong and when the Federal Reserve realized their mistake, they made the decision to raise interest rates very quickly to make up for lost time. This jolt in higher rates did not allow for any time for the financial markets to adjust to the higher rate environment.

Simultaneously to the Federal Reserve’s decision to rapidly increase interest rates, the SVB investment portfolio using depositor funds began to flip on its head. As the interest rates rose, the newly issued bonds began to pay higher interest rates and this made the older long-term bonds in the SVB portfolio less attractive to investors. This resulted in a decline in demand for the lower-rate long-term investments, causing their prices to fall. At the end of 2022, SVB still owned tens of billions worth of these long-term bonds and were fully-exposed to interest rate risk which resulted in $15 billion dollars in unrealized losses from the fall in long-term bond prices.

Normally this would not be an issue because if SVB held onto these bonds until their respective maturities, they wouldn’t lose anything. But this was not a normal time in a higher interest rate environment, and they made some decisions in the process which are “questionable” at best, “incompetent” at face, and “criminal” at worst.

Technology startups were struggling to get financing in the last quarter of 2022 and through the first quarter of 2023. As credit began to dry up, these technology companies needed to use their cash deposits and cash reserves to fund their operations. With technology startups being the main client base for SVB, the deposit levels started to decrease, falling from $189 billion at the end of 2021 to $173 billion at the end of 2022.

With every large withdrawal, SVB had to sell some of their long-term bonds to cover the transaction. As depositors continued to withdraw funds, because of payments outside of the SVB depositor base in the ordinary course of business and due to other reasons, SVB’s liquidity was severely stressed. On March 8 2023, SVB made a bombshell announcement they were selling off their entire liquid Bond portfolio worth over 21 billion. Until this point, the falling bond prices were only unrealized losses on the balance sheet, meaning that the losses were only on paper due to market prices. But once the bond portfolio was actually sold, SVB realized a $1.8 billion loss in the sale, meaning real losses on paper and in actuality.

To recoup some losses, the management of SVB tried what managers at Credit Suisse and Monte dei Paschi di Sienna attempted in the first quarter of 2023; they decided to raise some capital from the financial markets. While this seems like a logical choice to a banking outsider, this was a grave error from management because the timing could not have been worse, resulting in a failed capital raise and a rebuke from the financial markets in the form of stock prices.

On March 8, 2023, the same day that SVB announced the sale of their entire liquid bond portfolio; it was announced that Silvergate Bank (of San Diego) would wind down its operations and liquidate. Silvergate Bank was small crypto-focused bank that failed due to a similar issue as SVB, although this failure had more to do with the exposure to the overall cryptocurrency market and their exposure to the failure of FTX in particular. On Mach 10, 2023, two days after realizing the loss on the sale of its long-term bond portfolio, SVB was seized by the Federal Deposit Insurance Corporation (FDIC).

On March 12, 2023, which is a Sunday and two calendar days after the failure of SVB, Signature Bank was closed by the New York State Department of Financial Services, making Signature the third-largest bank failure in U.S. history. Two days after Signature was closed, it became known that the bank was already being investigated by the United States Department of Justice concerning its failure to properly scrutinize clients’ activities for signs of money laundering.

The root cause for the failure of SVB, Silvergate, and Signature in the span of 5 days was the same: the banks had a lot of assets which had lost their value due to rising interest rates.

In the cases of Silvergate and Signature, when withdrawals in the cryptocurrency market began to happen, they had no choice but to sell the assets which they held. Each sale of the assets were at lower prices than when they had bought them. The losses amassed to a point of no return, and the inertia of market actions resulted in bank failures.

But why did the SVB fail?

On March 8, 2023, when their capital raise efforts failed and when they reported their $1.8 billion loss from the sale of their long-term portfolio assets, investors assumed that SVB was going down the same path as Silvergate. Fears over insolvency issues quickly spread and this resulted in SVB stock losing about 60 percent of its value in one day. As all of this unfolded, many Venture Capital firms in the San Fransisco and Silicon Valley area advised the founders of startups to pull their money out of SVB. This further exacerbated the problem (or sabotaged the bank, depending on who you ask). By the end of the banking day of March 9th, 2023, customers had withdrawn $42 billion dollars, leaving the bank with a negative cash balance about negative $958 million,

The withdrawals were so heavy from March 8-March 9 that it ended up crashing the bank’s internal system, which only creating more fear for the e-banking and smart phone banking depositors. The depositors had a reason to panic because in the United States, the FDIC only guarantees bank deposits up to $250,000 per depositor (not per account). As SVB was a technology-company-focused-bank, 97 percent of SVB deposits exceeded the insured deposit limit of the FDIC.

The value of Silicon Valley Bank shares continued to be decimated until its trading was suspended on the morning of March 10th. They tried to raise capital and failed and then by midday on March 10th, the bank started to look for a company to bail them out, but no one wanted to touch them. This culminated in SVB being shut down by the FDIC. This all happened on March 10th, less than two days after the crisis started.

This was a spectacular failure on the side of SVB’s management. They failed to adjust to a rising interest rate environment. Even though the political operatives of the White House and the Federal Reserve did “get it wrong” when they stated that inflation was only “transitory”, the managers of SVB had a fiduciary responsibility to have a viable contingency plan in place in the event that inflation would be a lasting problem. It should be noted that such interest rate hedging contingency plans for this exact situation are not only taught in entry level economic courses and are tested subjects in securities and commodities license examinations (which upper management at publicly traded banks are required to have passed or prove mastery of the subject matters), but it is common practice and common knowledge for the most amateur day traders. To put it bluntly, there was no excuse for such a lapse in judgment and such a failure to insulate the bank from interest rate risks.

One overly simplified contingency plan could have been a “standing stop loss order”. That means that as soon as interest rates started rising, the bank could have began to offload their long-term treasuries / bonds and exchange them for bonds yielding higher interest to minimize their losses. Instead, it seems that the SVB management waited and sold all of their liquid long-term bonds at once after the value had already fallen. Famous investor Bill Ackman was quoted saying “Silicon Valley Bank Senior Management made a basic mistake. They invested short-term deposits in longer term fixed-rate assets”.

How could management do such a thing?

Unfortunately, the story gets a bit more bizarre the more that you look. As people began to dig deeper into this crash, some new information painted a very worrisome picture.

The chief risk officer for Silicon Valley Bank left unexpectedly in April of 2022 and he wasn’t replaced until January of 2023. This meant that the bank had no chief risk officer for eight months. This was precisely at the time when the downward feedback loop was accelerating from the higher interest rates. Just when the bank’s portfolios needed to be rebalanced to account for higher interest rates, there was no one to oversee the process. In other words, the bank was a ship on a rocky shoreline without a captain during a storm. As shocking as this is, the failures of management do not end there.

Worse yet, the management of SVB seem to have a tendency to manage a bank into failure. The SVB Chief Administrative Officer (Joseph Gentile) was the Chief Financial Officer of none other than Lehman Brothers at the time of its crash in 2008!

On another level of ridiculous in regards to the failures on supervision and regulatory levels, the SVB Chief Executive Officer (Greg Becker) was on the board of directors of the Federal Reserve Bank of San Francisco, which was in charge of supervising SVB in the first place. Mr. Becker was booted from the San Fransisco FED’s board promptly after the crash though.

Interestingly the crime of insider trading cannot be dismissed either, as the CEO, CFO and CMO (chief marketing officer) of the SVB sold a combined $4.4 million dollars of company stock just weeks before SVB’s decline. An SEC filing stated that the sale of the shares was “automated” and “pre-planned”, however it has been argued that there was some foreknowledge of the collapse. Further to this, the bank’s management and employees received their annual bonuses ranging from $12,000 to $140,000 only hours before the bank’s official crash. This has prompted SVB shareholders to file a lawsuit in federal court in San Fransisco alleging fraud against SVB and its management. The lawsuit states that the company failed to disclose how rising interest rates could leave the bank particularly susceptible to a bank run.

A unique combination of the following have all led to the failure of SVB:

rapid growth;
bad risk management;
low interest rates;
excessive exposure to only one market; and
large deposits with no insurance cover or hedging to minimize risk

The start of something bigger for the global financial system.

Is this another Lehman moment (like in 2008)? It may very well have been a Lehman moment for regional banks around the world as they have similar characteristics to SVB. The clients of regional banks are businesses they operate in a very limited number of fields and they all have some exposure to unrealized losses in this higher interest rate environment.

Because of this, the stocks of First Bank Republic, Western Alliance Bancorp, Westpac Bancorp, and other regional banks have all seen large declines; some as much as 66% in a day many hedge funds have also started to short sell bank stocks.

The week of March 13-17 2023 was the worst trading week for bank stocks since 2020. The following week was not much better, despite the fact that depositors of both Silicon Valley Bank and Signature Bank are going to be made whole (even without insurance) and the Federal Reserve has announced a new bank term lending facility that is going to lend to Banks at extremely favorable rates. This facility is meant to be an interim solution for an extraordinary situation. That is not helping the regional banks as there is still fear out there about this spreading elsewhere (ie Credit Suisse).

At this moment the rest of the banking system seems to be largely unaffected as deposit pressure is the greatest for smaller banks (including regional banks such as Monte dei Paschi di Siena). Global banks tend to have more diverse funding sources and therefore are less vulnerable to that risk.

That being said, many Global banks like Bank of America do have large exposure to long-term bonds. If these banks do not make the same errors as SVB and effectively manage liquidity and market risks to their portfolios, and if they don’t sell and actually hold these bonds to maturity; this exposure to long-term bonds should not be a problem.

Many are comparing this situation to that of the 2008 financial crisis, yet this is quite different. During that time, some of the largest banks in the U.S all failed simultaneously and they had much bigger issues to deal with. These banks had sizable investments and assets that overnight became worthless. The assets that are responsible for the crash of SVB are not worthless. In fact, far from it because they’re backed by the full faith and credit of the United States Government. For this reason, these assets are deemed to be cash equivalents and standard money instruments. If they are held to maturity, they’re not going to lose any legal value.

The problem for SVB is that they sold all of these bonds early and realized losses instead of leveraging the legal value of the cash equivalents and standard money instruments which they are. Instead, they tried to raise funds to cover those losses in a financial market where even the retail investor has access to information and is far more sophisticated in making investment decisions. The financial markets saw through the arrogant presentation by SVB’s management calling for billions in additional capital, without speaking to solving the real problem. This rebuke by the financial markets triggered a panic that was gaslit by social media postings and silicon valley insiders.

Another difference resides in the fact that the banks in 2008 had huge leverage issues. In the case of Lehman Brothers, the leverage exceeded 30 times the underlying asset value. In other words, a decline of three to five percent in those assets meant that Lehman Brothers was completely bankrupt.

Lastly, the big global banks generally have a far greater degree of diversification than regional banks and smaller banks. This means that they can withstand liquidity shocks more easily as generally not every single sector gets impacted at the same time. Also, the bigger banks will probably benefit from the collapse of regional banks and small banks. Depositors have already started to move their money from regional and smaller banks to larger institutions. If there are more bank failures, it can be expected that the larger banks will acquire the healthy parts of the failed banks for pennies on the dollar.

What does this mean for the global financial system?

Although the current financial system is very different from the one which failed in 2008; it is the belief of Juro that this is the first crack in the fabrics of the current financial system. As of December 2022, the total unrealized losses for the whole banking system was close to $620 billion. If panic spreads too fast and too much, many small and regional banks around the world will fail as a result, creating a cascading effect that would cause the rest of the local and global economy to wobble.

The industry that will feel the most pain from the SVB, Silvergate, and Signature bank failures is going to be the tech sector. SVB was quite literally the financial lifeblood of the tech ecosystem in Silicon Valley and the USA at large. Tens of thousands of startups rely on them to pay their day-to-day operations including staff. Unlike traditional businesses, many of these tech companies have negative cash flows. The only way that they can pay their expenses is by raising capital. After the capital has been obtained, they store it and use it until the next capital raise is completed. If you take that stored money away very quickly, many of these firms start to fail, as their income streams and business models are not mature enough to sustain.

Following the SVB and other bank failures, several firms aren’t going to be able to pay their employees. If there are any delays in distribution of the money that is being covered by the FDIC and the Federal Reserve, a huge wave of layoffs and then eventually bankruptcies of these companies will follow.

For example:

Etsy had to delay their seller payouts;
the streaming company Roku held a quarter of its cash reserves in SVB
Roblox rocket lab Circle Fox Media and Vimeo are among countless companies affected
the CEO of Y combinator Gary Tan puts it best: “this is an extinction level event for startups and will set back their Innovation by 10 years or more”

Confidence in the finance industry has been shaken. U.S banks lost a combined $100 billion and $50 billion for the valuation of European Banks in just one trading week.

On the 13th of March, Joe Biden had to reassure the United States population “…look the bottom line is this, Americans can (be) rest assured that our banking system is safe. Your deposits are safe. Let me also assure you we will not stop at this. We’ll do whatever is needed”.

The situation spreads to the UK

The Bank of England was looking for ways to minimize the damage to the United Kingdom. On March 13th, the Bank of England decided that Silicon Valley Bank U.K. (a subsidiary of SVB), would be sold to HSBC one pound or one US dollar and 21 cents. This was a process that was conducted behind closed doors with no transparency and provided no reasoning for why a relatively healthy bank in the U.K. with short term liquidity stress and holding over $6 billion dollars in performing loans was seized and gifted to HSBC.

At the height of the chaos, 200 UK firms confirmed that they weren’t going to be able to pay their staff on the other side of the world Chinese startups also reported issues accessing their funds. SVB was especially popular among Chinese biotech startups. For Chinese groups, their ecosystem was already damaged by Beijing’s Tech Crackdown and Covid-19 pandemic controls, not to mention the rising geopolitical tensions with Washington.

So in all of this, where were the regulators?

Well, being lobbied apparently. Back in 2015, SVB’s CEO begged lawmakers to exempt banks with assets less than $250 billion from the tough supervision and regulations of the Dodd-Frank Act (an Act that was put into place to stop another financial crisis). The lobbying efforts of Mr. Greg Becker were successful because in 2018 a law was passed that weakened the Dodd-Frank Act. The law relaxing regulations for smaller banks should have never passed in 2018.

Silicon Valley Bank is now under FDIC control and the FDIC has since moved SVB deposits to a newly formed holding bank and named Timothy J. Mayopoulos its CEO. Mr. Mayopoulos was CEO of the Federal National Mortgage Association (FannieMae) which despite being in receivership, returned funds to the U.S. Treasury in the form of profit sweeps from gross receipts while under his watch (Aside: the same profit sweep mechanism of gross receipts is deployed in the Juro Revenue Sharing Program as it actually returned MORE money to the U.S. Treasury from FannieMae than ever before).

There are more possible bank failures on the horizon. For this reason, the Federal Reserve announced the creation of a temporary bank term funding program to shore up liquidity for other at-risk banks. Basically, they’re allowing the affected banks to sell their long-term bonds and securities to the Federal Reserve without a loss. This is in effect a temporary limited application of the Capital Conversion of the Juro System (“CCJS”). The adoption of the Juro System would provide this tool, and many other economic remediation tools, to regulated financial institutions permanently and globally using immutable terms and conditions with full transparency.

In what critics have called an inflationary move, evidence of selective enrichment, and political maneuvering; on the same day as the announcement of the temporary bank term funding program, the Treasury, Federal Reserve, and FDIC stated that all depositors of SVB, even the uninsured ones, will be made whole without the expenditure of taxpayer money. However, depositors of the other failed banks shall not be made whole over and beyond the $250,000 per depositor insurance policy.

Following these announcements, depositors remain distrustful and a lot of small and regional banks who use the same style of banking as SVB saw worried depositors piling up outside to get their money out. So, the actions made with the intentions to quarantine further bank-runs and calm depositors only partially worked.

Instead of central banks and governments being “forced” into making drastic moves to avoid bank runs that lead to bank failures and a Cascade of bankruptcies through unpopular government-assisted bailouts; the permanent facility with a suite of tools and solutions of the Juro System (that are transparent, equitable, consistent, and offered on a level playing field, and actually work) should be adopted and deployed.

Mr. Simon Johnson (an economist at MIT who previously served as the chief Economist of the IMF) says that in this situation “all choices are bad choices. You don’t want to extend this kind of bailout to people, but if you aren’t doing that, you face a run of really big and really hard to predict proportions”. Some economists agree, however by adopting the Juro System and the global permanent bad bank, central banks and governments would never be put into such a situation where bad choices are considered the only option.

Why should Juro’s System exist and be adopted?

Juro has been designed to be used by governments and all participants in the global economy as a permanent and Perpetual Global Bad Bank. The benefits and highlights of the Juro System are:

Price stability support
Added stability and efficiency of the financial system
Protection of savings through the CCJS back-stop mechanism
Conversion of debtors into investors & savers
Reducing the barriers to entry in:
- home ownership
- business ownership
- capital markets and venture capital access
- Establishing a zero-emission, sustainable, and equitable economy
100% Value Recapture in Asset Recovery and Debt Recovery
Fast and affordable dispute resolution & monetization
Recaptures “lost values” of already existing components of the money supply – wealth expansion and overall positive affects on the economy
Operates within the financial system’s existing regulatory guardrails
Operates within the framework of mature/existing domestic & international laws
Social stabilizations: reduction / elimination of evictions, reduction of homelessness, increases in quality of life
Strengthens / stabilizes the banking system (secondary market for the restructured debt, with increased liquidity)
Bankruptcy alternatives / eliminations & Businesses Stay Open (customers retained)
Economic relief / gains / restructuring
Expansion of the local money supply
All components of the Juro structure exist to provide a neutral platform of tools and solutions which Members of the Juri™ can use on a level playing field.
That means that all Juro affiliates and the Juro Funds are bound to be neutral parties in investments, arbitrage, or transactions that use the Juro Ecosystem.
Members of the Juri™ are free to use Juro solutions & tools in any way they choose, amongst themselves, on a local, international, and /or global basis.
In that respect, “Juro” is barred from competing with its members and customers, and vice versa.
No regulatory uncertainty as is the case with cryptocurrency and other digital asset classes
the only solution that provides 100% value re-capture of stressed, toxic, or non-performing assets
Regulators & Institutions who adopt Juro would no longer be required to or be called on to bailout a system, industry, or country
Regulators & Institutions can concentrate on their mandates and enforce regulations (ie remove “bad-actors”)
Avoids the perception of selective enrichment
(ie unfair / special treatment or different rules for different people / businesses / countries)
Juro does not actively seek assets for investment purposes
Juro is the only solution that provides 100% value re-capture of stressed, toxic, or non-performing loans & assets on a level playing field for all Members of the Juri™
Financial Institutions can use Juro Funds as EXITS for their existing and future fund portfolios with 100% value re-capture
Adoption of Juro solutions can increase efficiencies of the financial system

How is Juro’s System Structured?

Juro is a corporate and trust structure which isolates illiquid, non–performing, and high risk assets, which meet the definition of Standard Money Instruments as defined by the Juro Trust Deed. Juro has a proprietary system where it has standardized the specifications of various transaction, loan, and deal types for purposes of securitization through an in–kind subscription for units or applicable securities issued by a standardized asset-specific fund series of the “Juro Revenue Sharing Program LLC” , securitized as either segregated statutory trusts or as segregated publicly traded partnerships or as private limited partnerships. These standardizations and securitizations are meant to provide secondary markets and increased liquidity for participating economic players through the capital markets and the de novo neutral marketplaces.

The Juro System creates benefits for each economic player — borrowers, investors, banks/lenders, aggregators and rating agencies:

Borrowers – Borrowers who can qualify for a conforming loan benefit from potentially lower costs and greater access to capital and loans for longer periods of time.
Investors – Investors (including institutional players such as banks, pension funds, hedge funds and others) enjoy getting exposure to specific kinds of securities that better meet their needs and risk tolerance.
Banks/lenders – Lenders can move certain loans and assets off their books, while retaining other loans and assets that they’d prefer to have. It also allows them to efficiently use their capital, allowing them to generate fees for underwriting deals, purchase the units of the appropriate series of the open-ended fund for the deal type, selling or otherwise monetizing the units created by the deal and then using their capital again to write a new loan for a new deal. By using depositor cash as a lender in the first instance only through the standard securitizations, short term liabilities are matched to short term maturities, eliminating a majority of liquidity risk associated with interest rate changes and maturity disparities. The lender may retain the right to service the loan of the deal, which can be a lucrative stream of fees as well. The bank may also benefit as an investor, too, by buying units that diversify its own assets.
Aggregators – Aggregators such as banks, funds, and alternative investment groups earn fees from bundling and repackaging loans/deals and structuring them with certain attractive characteristics.
Rating agencies – These firms generate sales by rating loans / assets portfolios which are backing the securities created in the open-ended funds and ensuring that they have specific traits and riskiness.

Because it allows lenders to slice up their loans and deals, the secondary market also enables financial firms to specialize in various areas of the market. For example, a bank may originate a loan but sell it in the secondary market while retaining the right to service the loan.

As a loan originator, the bank underwrites the loan, processes the loan, funds the loan and closes the loan. It collects fees for these services and then may or may not hold the loan.

As a loan servicer, the bank receives a fee for processing the monthly payment, tracking loan balances, generating tax forms and managing escrow accounts, among other functions.

Even if the lender decides to originate the loan and hold it, it benefits by having an active and liquid secondary market, where it can sell its loans or servicing rights if it wanted or needed to.

In short, the secondary markets and the Perpetual Global Bad Bank created by the Juro System shall exist to create more efficiency and better meet the needs of the players. Simultaneously, the Juro System complements the mandates of central banks and financial markets/lending regulators, and promotes price stability within the framework of existing laws. Dual Listing on regulated stock exchanges in the home jurisdiction of deals originated and in the USA (or other selected jurisdictions) shall add significant liquidity and stability to the global economic system.

Why would a Creditor need the Juro Economic Remediation Solution?

A Creditor may accumulate a large portfolio of debts or other financial instruments, that fall into the definition of “Standard Money Instruments”, which unexpectedly increase in risk, making it difficult for the Creditor to raise capital, for example through sales of bonds. In these circumstances, the Creditor may wish to segregate its “good” assets from its “bad” assets. Banks generally seek to do so through the creation of a bad bank, or a government mandated bad bank is created for that purpose. Through Juro, a Creditor always has access to this tool, as “conversions” and “exchanges” are possible on an open–ended basis.

The goal of the segregation is to allow investors to assess the Creditor’s financial health with greater certainty and to simultaneously insulate the economy from shocks of massive defaults or bank failures. Traditionally, a bad bank might be established by one bank or financial institution as part of a strategy to deal with a specific difficult financial situation, or by a government or some other official institution as part of an official response to financial problems across a number of institutions in the financial sector at a specific point in time. A bad bank generally has a limited lifetime and a specific purpose. As Juro is a perpetual and permanent structure which allows for “conversions” and “exchanges” on an open–ended basis, the Juro System is very flexible and attractive to Creditors.

Benefits of the Permanent Juro Bad Bank

In addition to segregating or removing the bad assets from parent Creditor’s balance sheets, the Juro structure permits its specialized management to deal with the problem of bad debts and asset recovery with a very long–term view based on the Juro standards, in a manner which is in the public interest. The approach allows good banks and good Creditors to focus on their core business operations and/or lending and operations while the Juro bad bank can specialize in maximizing value from the high risk assets in a manner that is consistent to its ethos. The Juro structure is independent to the respective Creditors and is charged to hold the bad assets and service them in accordance to the immutable terms in the Juro Trust Deed. This completely isolates the original Creditor from the risky assets, as they will have been paid in full for them. In this function, Juro acts similar to a bad bank spinoff.

Bad Banks Been used in the past

Such bad bank institutions have been created to address challenges arising during an economic credit crunch to allow private banks to take problem assets off their books. But this has never been offered in a perpetual and standardized manner which is open to all participants of the global economy on a level playing field the way Juro offers. The financial crisis of 2007–2010 resulted in bad banks being set up in several countries. For example, a bad bank was even suggested as part of the Emergency Economic Stabilization Act of 2008 to help address the subprime mortgage crisis in the US. The bad bank, however, never materialized.

Challenges

The challenges to the goals of the global implementation of Juro are many, including (but not limited to) differing languages, differing attitudes towards technology, different levels of infrastructure development, differing legal systems (civil law versus common law), different attitudes as to what money is, different attitudes as to what is in the Public Interest, and most importantly the differing levels of independence of the judiciaries of different countries (or the perceived independence thereof). The achievement of the goals of the proposed Juro Project are, however, measurable (ie. statistics reporting the changes in acceptance and trust of the respective judiciaries of member states by foreign governments, institutions, and individuals around the world, etc.). This provides a basis of vital data which is needed for the continued improvement of the mechanisms, systems, and methodologies by the respective components of the Juro project.

As the “Juro” endeavor addresses subjects which are ethical, philosophical, social, political, economic, governmental, and international in nature, it would be inconceivable to proceed with the project without the cooperation of a government with an important place in the international geo–political order of the world as well as a group of cooperating countries on an international basis. It would also be inconceivable to proceed in a commercial enterprise of the concepts without a coordination of standards and the coordinated dialogue of a parallel international governmental organization

SUMMARY

This is the largest banking failure since the financial crisis of 2008. Prudential rules for regulating the financial system should not be selectively or arbitrarily enforced, and neither should entities be provided exemptions from regulatory oversight if they are providing any services in a fiduciary capacity to the general public. If the Federal Reserves’ creation of the bank term funding program isn’t as smooth as promised, is not implemented on a level playing field, or takes too long; consequences for depositors and overall economy around the world could be devastating.

Monetary policy and fiscal policies should not be made in a manner in which an environment is created where “all decisions are bad decisions”. Any actions taken in haste could result in even more chaos in the financial system and destroy the economy.

With Silicon Valley holding 50 percent of U.S. venture capital backed startups as customers; 65,000 startups would be affected by the collapse even if the government does succeed in making each depositor whole.

It’s a sad time for the tech sector and the banking sector as confidence has been shaken. The nightmare of being locked out of company cash, delays in paying staff, and countless administration issues will be traumatic, economically and psychologically devastating to many, and will not be resolved by legislation or speech-giving. In summary, this is a story of rapidly changing market conditions, risk management failure, and lobbying. Zooming out even further for a bird’s-eye view, this is the unhealthiest the economy has been ever since the 2008 crash.

The post-2008-crisis economy has been built on a scaffolding of easy money and low interest rates. When these conditions reverse, we’ll start to see that weak scaffolding start to shake and crumble. What happened with the bank failures of SVB, Signature, and Silvergate is proof that it will be the weaker and badly managed sectors of the economy that start to show at first. But what happens after if the Juro System is not adopted and the core problems of the global financial systems are not resolved?

This story is still unfolding.