The CCP Did What It Threatened, Some Western Banks Failed — But No One Admits It
Lei of the YouTube channel “Lei’s Real Talk” recently speculated that the SVB and Credit Suisse bank runs of early March, 2023, may have begun when wealthy Chinese depositors were politically pressured by the CCP, beginning in the summer of 2022, to repatriate US dollars back to China from their accounts in Western banks.
So far, the media has characterized SVB and Credit Suisse’s problems as a mismatch between their long-term bond assets and depositor liabilities. That’s the proximate cause. If they looked at their own news articles a year back, they’d notice that something like it was predicted last summer..
Why the media is not going back to the Chinese bank run theory is the subject of this essay. (You can watch Lei’s video for a detailed explanation of her reasoning). To be clear, I do not blame the Chinese.
This is what I believe happened. Chinese investors starting pulling their money out of SVB in the winter of 2022 for a variety of reasons. 1) because the CCP needed more dollars in its banks to protect its financial interests 2) wealthy Chinese individuals worried about the money getting sanctioned if China invaded Taiwan and 3) basic recession fears.
Last month, large depositors like Peter Thiel heard about the withdrawals and understood it would force the bank to sell long-dated bonds, which is where the media picks up the story. Yet, if Chinese depositors didn’t pull their money out would the bank have failed? That’s a question that isn’t publicly asked.
If so, again, I don’t blame the Chinese. I blame the government for not reacting when the prediction about it, in summer of 2022, were made.
Further, I believe capital flight might be a bigger problems in the U.S. then acknowledged.
No one in the West wants to admit that the Chinese blowback from Russian sanctions might be worse than expected.
For now, let me just point out that the issue of significant Chinese money is not controversial within banking. Let’s look at what Janet Yellen said to this question from Oklahoma Senator James Lankford during a mid March Congressional hearing (this question is buried deep in a 2 hour hearing).
Lankford: It has been reported publicly that SVB had a large number of Chinese investors, that there were companies directly connected to the Chinese Communist Party. Will those individuals, companies, entities, investors, that are Chinese investors, be made whole based on assessment of my banks in Oklahoma? What I’m asking is, will my banks in Oklahoma pay a special assessment to make Chinese investors whole, from Silicon Valley Bank?
Yellen answers “Uninsured investors will be made whole from that bank. I supposed that could include foreign depositors but I don’t believe there is any legal basis to discriminate among uninsured depositors.”
She does not dispute that there were many or large Chinese depositors in SVB bank.
Lankford is challenging the Biden Administration’s claim that individuals, or regional banks, won’t end up paying for the fall of SVB. Explaining why is complicated because we don’t have public data on the extent of those Chinese depositors (as Yellen points out). Perhaps in the future such information will become available through court cases.
Lei has pointed out that Chinese money has been on the move since the start of the Russian Ukraine war, when the West seized Russian oligarch assets. As mentioned above, many economists and political scientists pointed out–at the time–that removing Russia from the SWIFT system, for example, would motivate China to protect its dollar-denominated assets.
What fascinates me is why the media ignores questions it asked months prior?
My take is that freedom of the press doesn’t mean citizens will entertain theories that don’t fit into their existing narratives or story expectations. Group think is very strong on Wall Street and the media that covers it. Sure, there are the easy and hard money crowds, but little in between.
Generally, when it comes to the subject of money there are two types of stories that attract sizable audiences. The first is where we can morally pass judgment on the money-men who either seemed to have earned their wealth or cheated others. The second is that we can blame the minders of those money-men, the regulators or politicians.
In the case of SVB we have A) the American managers of the banks as the money-men, which the public will clamor for punishment and B) the regulators, who the media will shame.
Why can’t the public blame the Chinese investors?
Simply put, because the Chinese depositors are foreigners. We have no power to get them to pay for starting a bank run (even if we concluded 100% that they did). As for shaming Chinese depositors in our media, except for a few, they keep keep an ultra-low profile. They live in the secretive world of the ultra-wealthy.
Further complicating the public’s ability to understand what happened at these banks is that they need to understand the nuances of how the CCP has both institutional imperatives to keep itself in power (or control of the public) while also behaving as a selfish, individualistic collection of wealthy individuals who want to live in both China and Western countries (or at least have the option of sending their kids to work/learn there).
There are many Westerners who also have, how do I say it, divided loyalties.
In a sense, the Senator from Oklahoma was asking if these complex geopolitical interests would trump those of Oklahoma’s regional banks (and others across the nations). Janet Yellen said ‘yes’.