[HN Gopher] FDIC Takes over Silicon Valley Bank
___________________________________________________________________
FDIC Takes over Silicon Valley Bank
Author : khuey
Score : 1941 points
Date : 2023-03-10 16:46 UTC (6 hours ago)
(HTM) web link (www.fdic.gov)
(TXT) w3m dump (www.fdic.gov)
| dahdum wrote:
| > it has taken possession of Silicon Valley Bank, citing
| inadequate liquidity and insolvency.
|
| Does this settle the question of insolvency then? I didn't see
| that term in the other announcement.
| nemo44x wrote:
| This will be a day long remembered in the tech world. The next
| few weeks will be will be the bad kind of interesting. I hope
| they have enough assets to cover everyone.
| bluecalm wrote:
| Why do we have this system that to be able to use your money in
| convenient way you have to deposit it in a bank that can then
| lend it out? Lending and keeping deposits should be completely
| separated things. There is no reason whatsoever for me to have a
| stake in lending business just because I want a convenient way to
| keep and operate my money. Charge me for that and don't do
| business with my deposits.
|
| Bank going bust should mean stakeholders in the lending business
| losing their money. The whole federal reserve system can be
| preserved. Just raise capital to meet the minimum and don't use
| money from people who just want an account.
| wonderingyogi wrote:
| I wonder how many startups its going to affect.
| bagels wrote:
| All of them that need to fundraise.
| [deleted]
| idlewords wrote:
| Now we just need an "incredible journey" blog post from SVB
| spinning this acquisition as a great win for both customers and
| investors.
| [deleted]
| jdoliner wrote:
| ChatGPT is happy to oblige:
|
| Silicon Valley Bank, founded in 1983, has had a long and
| incredible journey leading up to its acquisition by the FDIC in
| 2023. As a bank that specializes in working with the technology
| and innovation industries, it has been at the forefront of many
| of the industry's most significant developments.
|
| The bank started its journey as a small community bank in Santa
| Clara, California. At that time, it was known as the Santa
| Clara Valley Bank. The founders, Bill Biggerstaff, Ken Wilcox,
| and Bob Medearis, saw an opportunity to create a financial
| institution that focused on serving the unique needs of the
| technology and innovation industries.
|
| In the early years, the bank faced many challenges as it worked
| to establish itself as a leader in the industry. One of the
| biggest obstacles was convincing investors and regulators that
| the bank's specialized approach to banking was viable. The
| founders knew that they needed to build a strong foundation and
| establish a reputation for being a reliable and trustworthy
| financial institution.
|
| Over the years, the bank grew and expanded its reach, opening
| offices across the United States and in key global markets. It
| also broadened its focus beyond just technology and innovation
| to include life sciences, healthcare, energy, and more. This
| diversification helped to insulate the bank from the ups and
| downs of any one industry and made it more resilient in the
| face of economic uncertainty.
|
| Throughout its journey, Silicon Valley Bank has remained
| committed to its core values of innovation, excellence, and
| customer focus. It has always been willing to take calculated
| risks and to push the boundaries of what is possible. This
| approach has paid off in many ways, as the bank has been
| recognized as one of the most innovative and respected
| financial institutions in the world.
|
| In 2023, Silicon Valley Bank achieved a major milestone when it
| was acquired by the FDIC. This acquisition was a testament to
| the bank's success and the strength of its business model. It
| also signaled a new era of growth and opportunity for the bank,
| as it now has the backing of one of the most respected
| regulatory bodies in the world.
|
| Looking ahead, Silicon Valley Bank is poised to continue its
| incredible journey and to make an even greater impact on the
| world. As the technology and innovation industries continue to
| evolve and grow, the bank is well-positioned to help fuel that
| growth and to support the entrepreneurs and visionaries who are
| driving it forward. With its deep expertise, strong
| relationships, and unwavering commitment to excellence, Silicon
| Valley Bank is poised to remain a leader in the financial
| services industry for many years to come.
| boeingUH60 wrote:
| > Bill Biggerstaff.
|
| He lived truly to his name! Founded a bank that processed
| bills with a big number of staff.
| Exuma wrote:
| Here's why a bank collapse is a good thing.
| ignost1cky wrote:
| [dead]
| colpabar wrote:
| Bonus points if they mention effective altruism, and how great
| it is, but how also it can be bad sometimes.
| hef19898 wrote:
| A pitty FTX went under before, just imagine SBF announcing he
| is bailing out SVB!
| jollyllama wrote:
| If you bail him out of jail, he'll bail out your bank, and
| then he'll bail out of the country.
| tibbon wrote:
| They'll have chatGPT write it
| huslage wrote:
| That's not really possible. SVB as an entity no longer exists
| once the FDIC steps in.
| NordSteve wrote:
| Not entirely correct. There is still a "bad bank" which is
| the SVB entity (and will be wound up in bankruptcy), and the
| "new bank" which has all of the insured deposits.
| Imnimo wrote:
| Don't forget the cutesy nickname for its employees and users.
|
| "Dear Sveebles and Sveeblettes..."
| khazhoux wrote:
| Or a cute 404 page when you login to your account:
|
| "Oops, looks like Santa misplaced his bag with all your money!
| Don't worry, his elves are busy looking for it all over the
| North Pole."
| reducesuffering wrote:
| South Park nailed this
| https://www.youtube.com/watch?v=-DT7bX-B1Mg
| moffkalast wrote:
| They've made an oopsie woopsie.
| adrianmonk wrote:
| Kinda seems like it should be a 503 Money Unavailable.
| oefrha wrote:
| 410 Gone is more accurate.
| [deleted]
| rtp4me wrote:
| 420 - up in smoke
| dpkirchner wrote:
| 402 Payment Required
| [deleted]
| capableweb wrote:
| Or 301 Moved Permanently. Or 406 Not Acceptable. Or 410
| Gone. Or 417 Expectation Failed. Or 429 Too Many Requests.
|
| So many fitting status codes to chose between I don't know
| what to do!
| jojosbuddy wrote:
| Nah, it'll go to a GoDaddy page: "buy this URL for
| $3.99/yr now!"
| [deleted]
| hef19898 wrote:
| Using all of them, and switch between them? Maybe doing
| some AB testing to figure out which ones work best with
| users?
| mayormcmatt wrote:
| Damn, this guy HTTPs.
| hnburnsy wrote:
| Username checks out.
| lukewrites wrote:
| "This was a learning experience that will provide velocity in
| our continued disruption of the finance space for startups. We
| look forward to continuing to maintain a growth mindset as we
| ~cash your checks~ earn your trust."
| entwife wrote:
| Are there any other banks that might be affected by interest-rate
| risk?
| arnonejoe wrote:
| So that's it, all 6500 employees are out of work? Is there any
| severance in this situation?
| bagels wrote:
| They may get to continue to work for the bank in the short
| term, under new management.
| tiffanyh wrote:
| Stripe?
|
| Is Stripe adversely impacted by this given they recommended to
| merchants to use SVB and probably accounted for a large portion
| of deposits into SVB (from payment transactions)
| brunoTbear wrote:
| Stripe's money is not there
| tiffanyh wrote:
| Question being: if a meaningful portion of Stripes customers
| were to bank with SVB, and if SVB were to seize operating -
| would this effect Stripe?
|
| It'd be a Jedi move for Stripe to straight up acquire SVB.
| Imagine how strong of an offering they could create then.
| ummonk wrote:
| Stripe doesn't have the assets to acquire SVB. As it is
| they're looking for funding to pay employees' stock tax
| bills.
| m00dy wrote:
| Sorry to say but the depression is on our way.
| jossclimb wrote:
| For tech workers who were part of the overtired 2021 cohort,
| sure, however most other industries remain isolated to this.
| hnburnsy wrote:
| Wow, this guy called it in January...https://twitter.com/RagingVe
| ntures/status/161582608803847373...
| MrMan wrote:
| wow very solid. you could have found SVB in screen just by the
| LTD ration and HTM percentages and zoomed in from there.
| blastonico wrote:
| Better call Gavin Belson.
| testfoobar wrote:
| What a debacle.
|
| Some gallows humor from twitter: "Imagine raising $100m for your
| AI enabled dog washing app - and your bank sets it on fire before
| you can".
|
| Original:
| https://twitter.com/88888sAccount/status/1634028258500169731...
| banku_brougham wrote:
| Its so funny until you realize your seed-round investment in a
| friends company used SVB.
|
| Gonna be quite a show, this.
| FormerBandmate wrote:
| Tons of VCs had their assets there too. It could lead to
| serious ramifications, anyone with substantially more than
| $250k in that bank is out a lot and only time will tell how
| much they'll be able to recoup. It's not an FTX situation,
| the assets are somewhat there, but the losses in securities
| look extreme and unwinding them at a fair price may take
| months, if not years
| anonymouse008 wrote:
| 9 times out of 10 bankruptcy is a cashflow mismatch - this
| is going to be quite painful for a lot of things.
| shawabawa3 wrote:
| It is actually exactly an FTX situation
|
| Not as extreme maybe, and less fraud got us here, but
| $assets < $deposits
| eshack94 wrote:
| This is a bad take. It isn't the same situation.
| cowmoo728 wrote:
| There is a very large difference between FTX and SVB. The
| people behind FTX will probably go to jail because they
| committed crimes and effectively stole money. SVB
| mismanaged interest rate risk and ended up on the wrong
| side of interest rate hikes. They had similar results of
| people quickly trying to pull all their money out, but
| it's not "exactly an FTX situation".
| blibble wrote:
| no bank on earth can survive every depositor turning up
| at once and demanding their money
|
| whereas an exchange shouldn't have a position at all
|
| and a hedge fund normally doesn't allow withdrawals at
| all (without vast notice)
| freejazz wrote:
| Well, people didn't show up to demand their money for _no
| reason_.
| hef19898 wrote:
| My reading is that the long term book value of those
| assets is bigger than the deposits. And now that the
| deposits are withdrawn, SVB ahs to liquidate thise assets
| at current market value, which is (maybe?) lower than
| deposits. So, at the least, it looks like a strange risk
| management approach on behalf of SVB. And those clients
| that kept most of their money at this one, single bank.
| ethbr0 wrote:
| From TFA:
|
| >> _As of December 31, 2022, Silicon Valley Bank had
| approximately $209.0 billion in total assets and about
| $175.4 billion in total deposits._
| ptero wrote:
| I see it as _very_ different from FTX. In SVB there was
| no fraud and no criminal wrongdoing; there may be no
| moral wrongdoing either. SVB was a chartered bank,
| subject to all regulation and reserve balance rules that
| other banks follow. As far as we know they followed all
| regulation to a letter.
|
| Two things got SVB down. First, a rapid change in
| interest rate got their assets repriced down. It did not
| need to be fatal, this happens to all banks when interest
| rates rise quickly.
|
| Second, its customers did a ran and went to pull their
| money. If all depositors of the BoA or Chase pull money
| out, those banks will collapse, too. This is highly
| unlikely for the BoA -- if folks start saying that BoA
| will collapse most depositors would shrug it off; the
| diversity of its base will make a run highly unlikely.
|
| But as SVB was a much smaller bank and had a lot of
| similar customers (startups advised by similar VCs) the
| ran was seen as plausible at which point it was over --
| customers pulled enough money to kill the bank. This is
| the price we pay for the flexibility of the current
| banking system that allows people to get loans and free
| checking accounts. My 2c.
| Mistletoe wrote:
| There may be no moral wrongdoing but it seems quite dumb
| to be so heavily in securities that massively lose value
| when rates go up and rates are at historic lows, no?
|
| The only job for these execs was to know which way the
| wind is blowing and they showed themselves to be not much
| better than every other rabid fool that bought GME etc.
| thinking things would never change and bull runs and low
| rates would last forever.
| freejazz wrote:
| To be fair, it sounds like some shockingly negligent
| management on SVB's part. Obviously thats orders of
| magnitude off from the complete lack of management w/
| SBF.
| ivalm wrote:
| Presumably VCs have only a tiny fraction of their fund as
| available as cash, so I guess it won't be too brutal.
| zamnos wrote:
| The VC fund only has a tiny fraction of their fund as
| cash because most of it is loaned to to their portfolio
| companies, which have it in cash at the bank their VC
| partners told them to (because you can't pay payroll with
| Tbills), which, to a large degree (judging from the
| comments on the thread from last night) was SVB. It's
| going to be brutal for every company who didn't get their
| funds out before this morning's announcement, not to
| mention the possible contagion risks.
| ivalm wrote:
| Yes, the companies will be screwed but that's not what I
| meant.
|
| What I meant by VCs have a tiny fraction of their fund as
| cash is that cash is held by LPs and is called upon only
| when the VC funds a startup. When a VC raises a $1B fund
| they don't get the money, they get commitment that the
| money will be available. So this means that this failure
| shouldn't affect VCs ability to invest in the future as
| most LPs didn't hold their money in SVB.
| gcek9 wrote:
| That's right. Although there is an interesting thing to
| consider: if you look at page 13 of the deck they shared
| on Wednesday[1], it says 56% of SVB's total loans are in
| the form of lines of credit issued to PE/VC funds,
| secured by their LP commitments. I imagine many if not
| most of those are fairly small in size, but it's possible
| some funds took out much larger lines of credit, secured
| by their future LP commitments, and were holding that
| cash at SVB. So we could definitely see some funds
| affected to varying extents.
|
| [1] https://s201.q4cdn.com/589201576/files/doc_downloads/
| 2023/03...
| testfoobar wrote:
| What is this? Does this mean that if PensionFundFoo
| invests in VCFundX as a LP, that PensionFundFoo never
| actually has to fork over cash to VCFundX to give to
| StartupZ? Does this mean SVB accepted PensionFundFoo's
| commitment to VCFundX as collateral and gave a loan to
| VCFundX to invest in StartupZ?
| zamnos wrote:
| Ah, thanks for explaining.
|
| > most LPs didn't hold their money in SVB.
|
| At the very step of funding, do LPs wire the money to a
| single bank (SVB) and then the VC dispurses it to the
| startup in one lump sum? Or do the LBs wire the money to
| the startup's bank account (at SVB)?
|
| I've heard that UHNW individuals also individually banked
| with SVB. Wouldn't they have their money at SVB?
|
| Also, wouldn't the VC's long-term relationship w/ SVB
| give them (the VCs and the startup they're funding) much
| more leeway with what the bank considers acceptable
| behavior (ie not money laundering and worth filing an SAR
| over)? Now that those relationships are gone and the VC
| has to go through the front door and deal with, say,
| BankOfAmerica or Chase like the rest of us chumps;
| doesn't the loss of that relationship materially hurt the
| broader environment?
| ivalm wrote:
| Oh for sure. LPs would wire money to SVB and that money
| may be frozen/will be returned at less than par. Loss of
| relationship will also hurt. But for the biggest funds
| LPs are like pension funds, and _that_ money will be
| available. One thing to consider is that VCs may need to
| call on their LPs to recapitalize their existing portcos
| which may leave less space for new investment.
| berkle4455 wrote:
| They'll most likely be made whole or close to whole. It'll
| just take time, so as long as that startup doesn't have a
| huge burn already, should be fine. Anyway you bought % in
| their company which you still own, the cash was gone when you
| wired it.
| davidw wrote:
| > likely be made whole or close to whole
|
| I've seen several versions of this sentiment here. What are
| people basing it on? I don't know much at all about the
| situation.
| [deleted]
| newaccount2023 wrote:
| its HN fantasy-land talk
|
| first HN said there was no problem
|
| then HN said everyone will get their money back
|
| what next?
|
| HN is full of dreamers, the kind who wander into traffic
| dllthomas wrote:
| The parent didn't say everyone would get their money
| back. It said the friend who took a seed-stage investment
| will likely get most of their money back. I don't know
| the odds of that (most uncertain about the amount of
| money involved) but it's definitely much higher than
| "everyone gets all of their money back".
| renewiltord wrote:
| It's how the FDIC does things. They pay what are called
| "dividends" on your previous deposits from the successor
| bank as they sell off assets.
|
| But if you're curious, and want a layman no-jargon
| version the press release from the FDIC is pretty good.
|
| I mean this in no uncertain terms. HN users know nothing
| about this and are regurgitating pure rubbish over and
| over again in this thread. If you're concerned, don't
| even trust me, but go read the press release. CA put out
| one too.
|
| https://www.fdic.gov/news/press-
| releases/2023/pr23016.html
| everybodyknows wrote:
| > All insured depositors will have full access to their
| insured deposits no later than Monday morning, March 13,
| 2023. The FDIC will pay uninsured depositors an advance
| dividend within the next week. ...
| sroussey wrote:
| Large burn? You mean any burn at all...
|
| Money there to to be spent over the next six months is now
| not available.
|
| Payroll in Silicon Valley is going to be a mess this week.
|
| Companies that lend to startups short term are going to
| have a busy time.
| berkle4455 wrote:
| [deleted]
| lmeyerov wrote:
| Yep traditional advice is don't burn > 100k / mo when
| early stage, and most lower. So 2mo+ payroll fine for a
| normal seed, early A. Later stage are normally more
| sensitive. It's also a real issue with profitable
| companies whose outflows are at that level and are
| considering bigger purchases -- I'd be bailing if we were
| there just bc that.
|
| Except the last couple years have been bonkers with
| little revenue / spending alignment during fundraising.
| Early stage burns are above that level, which makes the
| situation worse for current crop of co's. Ouch and good
| luck :(
| berkle4455 wrote:
| For sure. The post I was replying to was for a seed stage
| company though. They've got $250k secured by Monday. My
| point was small firms can meet payroll and bills just
| fine with only $250k
| zamnos wrote:
| A company with 2 _6_ people, each making $120k (pre-tax),
| or a company with 5 _1_ people, each making $60k /yr pre-
| tax is enough to miss payroll this week if there's only
| $250k to draw from, and that's not accounting for any
| other expenses (like, say an AWS/GCP bill, though
| hopefully you're net-60 with them). CEO/CFO's also now
| got two weeks to come up with another $250+k in a complex
| environment.
| sroussey wrote:
| Sure, pre-seed. Seed is usually $2m-5m these days, and
| received all at once (mostly) as compared to VCs which do
| capital calls.
| twelve40 wrote:
| but do you automatically get access to the insured part,
| or do you have to sit around and wait for a few months
| until FDIC hashes it out with whoever? it could be really
| a matter of life and death for some startups.
|
| Update: yes, seems like the insurance part is pretty
| quick
|
| https://twitter.com/MMikeMMa/status/1634245929481175040/p
| hot...
| bombcar wrote:
| The IOUs that FDIC hands out can be borrowed against, or
| sold. There will be a lot of people active this week
| trying to buy them at favorable rates
| idlewords wrote:
| That makes it even funnier, though. At least to the rest of
| us.
| baggy_trough wrote:
| You really have to be a tremendous shit to say this out
| loud, even if it's how you feel.
| loeg wrote:
| Not now, Maciej.
| idlewords wrote:
| Literally no better time than now.
| loeg wrote:
| If it's all downhill from here, then I guess it will
| never be funny. You don't speak for "the rest of us."
| uoaei wrote:
| Sounds like someone needs a little "kill your
| heroes"-ing.
| pwinnski wrote:
| Counterpoint: Now and always, as many times as it takes.
| sophacles wrote:
| Isn't the investor justification for taking a huge chunk of
| profits "we take risk"? I fail to see how this is unfunny
| just because the risk you took played out in the bad way.
| dannyw wrote:
| More people will lose jobs.
| serial_dev wrote:
| I believe they didn't think that the biggest risk to their
| investment would be the bank the co-founders chose.
| recursive wrote:
| Perhaps it wasn't the biggest risk at the time. Still a
| risk though.
| tiffanyh wrote:
| Imagine having a life changing amount of personal wealth
| deposited at a Crypto exchange, and before you can spend it -
| the exchange sets it on fire.
| themitigating wrote:
| That sounds terrible and I feel bad for them.
| idlewords wrote:
| It's still life-changing after!
| stephenhuey wrote:
| Disrupt disrupt disrupt! Those old stodgy banks just slow us
| down with their old-fashioned risk-averse ways! The cool kids
| can do it better!
|
| If I had a nickel for every time I heard this from actual
| friends in the past couple decades, or for when I said it
| myself a few times... :)
| renewiltord wrote:
| HN really is like a ChatGPT version of itself. SVB is a 40
| year old bank, bro. They _are_ the old stodgy bank. The Meows
| and Mercurys are all still around.
|
| Their problem was that their risk management didn't keep up
| with the changing times (rapid interest rate changes).
|
| Please go on and tell us more HN tropey things like "oh they
| shouldn't have sold customer data!" or more things that could
| be an autogenerated robot comment by ELIZA.
| [deleted]
| wbl wrote:
| 40 years ago is 1983.
| https://fred.stlouisfed.org/series/FEDFUNDS
|
| Their risk management might have overeindexed on the post
| recession era but the bank itself lasted through some
| pretty wild rate shocks.
| renewiltord wrote:
| True. It looks like they mostly just made poor decisions
| in their most recent allocations. Unfortunate.
|
| Mostly, though, all this talk about them like they're a
| neobank is because everyone appears to think they are
| one.
| onlyrealcuzzo wrote:
| But SVB wasn't even doing anything sketchy or disruptive,
| right?
| nairboon wrote:
| Wouldn't say not sketchy, they traded interest rate risk
| and didn't hedge properly.
| borski wrote:
| Correct. They were doing the same thing every other bank
| was doing, and an unnecessary panic run did them in.
| Depositors will get their money back because my bet is SVB
| gets acquired, as their balance sheet was actually fairly
| healthy (relative to other banks) pre-panic, but it's gonna
| have ripple effects for sure.
|
| We shall see.
| ghshephard wrote:
| "unnecessary panic run".
|
| Say you are a Small Company with $5mm in a recent fund
| raise that you have at SVB. You use that $5mm to make
| payroll, pay amazon, your office, AT&T for your fiber,
| buy macbook airs for your employees, etc...
|
| Now - you are listening to the recent news, and it looks
| like SVB is going to be taken over by the FDIC. If that
| happens, you will be insured up to $250K, but the rest of
| your $5mm, all $4.75mm is now frozen. You will be given a
| certificate for the uninsured funds, and you will be in
| line to be paid back, but (A) Not immediately, and (B)
| you may lose part of your funds.
|
| You, as a rational CEO, would probably want to put your
| money in, say, Wells Fargo, where it wouldn't be frozen,
| and you wouldn't lose any of it.
|
| That was the basis of the liquidity event that just
| happened.
| yeahsure22 wrote:
| They won't get acquired, they no longer exist. The dream
| is done.
| jldugger wrote:
| They've been acquired by a newly formed bank from the
| FDIC. I'm not sure that bank will be around much longer
| than it takes to mark their assets to market, since the
| press release said they didn't know:
|
| > At the time of closing, the amount of deposits in
| excess of the insurance limits was undetermined. The
| amount of uninsured deposits will be determined once the
| FDIC obtains additional information from the bank and
| customers.
|
| No bank is gonna buy another bank until that is cleared
| up.
| yeahsure22 wrote:
| Assets - 100b Liabilities - 130b
|
| Who is going to buy this bank? I wouldn't take it if you
| gave me 40b. That's why they had to make a new bank.
| makestuff wrote:
| Probably the good old federal government. Something
| something too big to fail.
| toomuchtodo wrote:
| I love the optics of remnants of Silicon Valley bank
| being owned by the gov alongside Fannie and Freddie.
| Behold the graveyard of poor risk management.
| gr1zzlybe4r wrote:
| How is the panic "unnecessary"? Are you saying that if
| your personal bank told you that you could get your money
| back, but just not right now, that you'd be ok with that?
|
| Liquidity is a key feature of banks and it relies on
| trust. Without it, they have nothing. Trust isn't some
| ancillary thing for a bank. It is almost _everything_.
| anamexis wrote:
| Does that means panics are necessary at every other bank,
| seeing as how their liquidity is similar (or worse)?
| JumpCrisscross wrote:
| > _every other bank, seeing as how their liquidity is
| similar_
|
| Source?
|
| SVB had an unusual amount of long-duration assets. Most
| banks maintain a buffer of low-yielding, highly-liquid
| on-the-run Treasuries.
| nostrebored wrote:
| I would not find it surprising if bank liquidity was
| actually historically low, especially considering that
| many banks do maintain buffers _of the same covaried
| assets_ and that banks _induce covariance when they
| choose to use an asset class for liquidity_.
|
| Maybe ZFRB was just a really, really bad idea.
| strbean wrote:
| > my bet is SVB gets acquired
|
| By a Thiel-backed company, after he initiated the bank
| run?
| makestuff wrote:
| Does he back Brex? I saw they had billions of inflows
| yesterday.
| borski wrote:
| You may not be wrong, lol
| eurasiantiger wrote:
| Gotta get those black budgets somehow.
| recursive wrote:
| The market has demonstrated a demand for run initiators.
| Who are we to doubt?
| koolba wrote:
| They had massive asset / liability duration mismatch.
| That's gambling on low rates for an extended period of
| time.
|
| It'd be like a traditional bank not reselling mortgages
| to Fannie Mae. You can't have $1B of demand deposit
| liability and $1B of 10-year treasuries because a rate
| hike will wipe you out immediately if you need liquidity.
| onlyrealcuzzo wrote:
| Why can't a bank borrow for liquidity so it doesn't need
| to sell at a discount?
| lisper wrote:
| It can, and when rates are low, many do. But interest
| rates are rising, so borrowing is getting expensive.
| borski wrote:
| Every bank had this, especially during the last two
| years. They were not the only one. The difference was bad
| PR and a panic run.
| hd95489 wrote:
| If that's your theory then buy some puts because anyone
| that did this will absolutely get ripped a new one
| nostrebored wrote:
| They won't in the short term. Even the GFC had a multi
| year slow roll. Markets can remain irrational longer than
| you can stay solvent and all that
| dahdum wrote:
| DFPI specifically called them insolvent _and_ illiquid,
| took them over and handed them to the FDIC. I don 't
| think they were all that healthy after all.
|
| https://dfpi.ca.gov/2023/03/10/california-financial-
| regulato...
| borski wrote:
| No bank is healthy once all its depositors pull their
| cash out. What their balance sheet looked like _before_
| the panic is what I 'm talking about. Every bank dies
| from a bank run, period.
| kgwgk wrote:
| And how many banks are acquired after that happens
| because of how healthy their balance sheet used to look?
| charrondev wrote:
| You can see a list of failed banks and who acquired them
| here. https://www.fdic.gov/bank/historical/bank/
|
| Every one in the past few years looks like it was
| acquired.
| nostrebored wrote:
| The cost of money is very different now though.
| kgwgk wrote:
| This one is largest than the 100 previous ones combined.
|
| And the point is that there may be many reasons why a
| bank may want to acquire a smaller failed one to
| integrate it in its operations but "the previous owners
| used to have a well-capitalized business until they
| somehow lost it all" is not a strong reason on its own.
| slowmovintarget wrote:
| Unless they get bailed out by taxpayers because "they're
| too big."
| dahdum wrote:
| Wasn't their balance sheet before the panic what _caused_
| the panic? It wasn 't some WSB meme that drove the bank
| run, they couldn't cover their normal day to day
| operations and started a bond fire sale and desperate
| equity raise.
| shadowgovt wrote:
| IIUC: they could definitely cover their normal day-to-
| day. The thing that broke down is they had to announce
| true things that made investors conclude that their money
| wouldn't grow as fast as investors expected, and
| investors (understandably / justifiably) wanted to pull
| it out to somewhere it would grow faster.
|
| (The investors don't actually know the money won't grow
| as fast... the Fed could decide to drop interest rates
| tomorrow, or something else could intervene making it
| sensible to drop interest rates. But "not growing as
| fast" was the very likely scenario).
|
| Once _everyone_ decided to pull, they were tanked because
| no bank keeps 100% liquidity.
| SilasX wrote:
| No bank keeps 100% liquidity, but my understanding is
| that most banks are _capable_ of getting liquidity -- at
| least from the lender of last resort (LoLR) -- for
| massive withdrawals based on the value of their loan
| portfolio, and SVB 's portfolio had tanked too low to do
| this based on interest rates the LoLR would lend to them
| at.
| twoodfin wrote:
| Won't lots of investors (aka depositors) start making
| this same analysis? Whether you have $10K or $10M, right
| now you don't want your cash anywhere it's not earning
| 3%+. So it's back to whether they're unique in finding
| themselves uncompetitive as a place to park cash at a
| market rate.
| dahdum wrote:
| > The thing that broke down is they had to announce true
| things that made investors conclude that their money
| wouldn't grow as fast as investors expected, and
| investors (understandably / justifiably) wanted to pull
| it out to somewhere it would grow faster.
|
| SVB disclosed they took massive losses from high risk,
| high duration assets and were desperate for cash.
| Investors took large (up to 60% over 24h!) losses, paper
| or otherwise, to get out of the stock. That can't be just
| concern over not growing as fast, that's concern about
| solvency. VC's and depositors saw the same writing on the
| wall, but it was SVB who wrote it there.
|
| If they were able to cover their normal operations, they
| wouldn't have needed the emergency equity raise.
| marioestrada wrote:
| It was a 40 year old bank too
| bombcar wrote:
| Just about time for a midlife banking crisis!
| FormerBandmate wrote:
| They bought bonds, which tanked when the Fed raised
| interest rates by 5% in a year. It seemed sane, until now
| johngladtj wrote:
| The bonds they were legally required to purchase?
| lokar wrote:
| No, they were not legally required to buy 10 year
| treasuries
| yeahsure22 wrote:
| But they didn't have to buy THOSE bonds. They bought the
| wrong bonds.
| themitigating wrote:
| Did they know they were buying the wrong bonds?
| MrMan wrote:
| I think maybe they are not very good at running a bank.
| nairboon wrote:
| Of course, they are bankers, bonds are their daily
| business.
| PKop wrote:
| if they bought short term bills they wouldn't have lost
| value like the 10 yrs did. So, they made a duration
| mistake.
| dahdum wrote:
| They chose to buy the much riskier bonds to support their
| very high 4.5% savings yield.
| MrMan wrote:
| they were offering 4.5%? that explains a lot in terms of
| their reaching for yield in low quality assets
| victor106 wrote:
| Yeah, the cool kids also say/used to say only if they used
| blockchain this wouldn't have happened...lol
| spaceman_2020 wrote:
| In all fairness, those stodgy old banks have been bailed out
| multiple times in the past.
| andrepd wrote:
| If only banks were risk-averse x) Unfortunately they are
| risk-happy when they know bankruptcy means a taxpayer rescue.
| cal5k wrote:
| In fairness, it wasn't the risk-taking that did them in... it
| was the fact that they went all-in on 10-yr bonds at low
| interest rates and didn't adequately account for duration
| risk.
| williamtrask wrote:
| Forgive me but I think this may be a contradiction. "didn't
| adequately account for duration risk" == "risk taking that
| did them in"
| cal5k wrote:
| There's a big difference between accounting for KNOWN
| risks wrt managing your treasury - something that every
| bank does as a matter of course - and trying new things.
| CrazyStat wrote:
| Surely having your reserves locked up in assets that you
| can't sell without taking large losses is a known risk?
| nairboon wrote:
| What kind of bank doesn't know about interest rate risk?
| That's their whole business.
| cal5k wrote:
| That's what I'm saying. That's not the bank doing
| anything fancy and failing because of it, it's them not
| doing the basic things every bank should be doing.
| [deleted]
| SteveNuts wrote:
| Especially when the fed is telegraphing every move.
| hef19898 wrote:
| One of the reasons each and every central bank does
| telegraph _heavily_ is exactly to prevent situations like
| this one.
| p_j_w wrote:
| >it wasn't the risk-taking that did them in [...] didn't
| adequately account for duration risk.
|
| This sounds like risk taking to me.
| adam_arthur wrote:
| Duration risk is risk. Bonds are not risk free. Buying
| treasuries at ~0% rates was frankly stupid. The narrative
| going around that there was adequate risk management here
| and at Silvergate is not correct.
|
| The main question is whether they were forced into these
| investments via regulations. It's likely they could have
| bought shorter dated treasuries and been fine. In the end,
| regulations may change such that banks can only buy short
| dated treasuries... or limitations on the level of duration
| they can hold.
| SilasX wrote:
| >Duration risk is risk.
|
| Correct, but the GP's point was that it was _not_
| "startup creditworthiness risk", the thing SVB was most
| ridiculed for taking on.
| makomk wrote:
| Yeah, arguably duration risk is pretty much the stogiest,
| most old-fashioned banking kind of risk that could
| possibly have tripped them up. Long-term loans and short-
| term deposits is basically what banks traditionally do.
| shadowgovt wrote:
| The weird thing about all this to me is that the bank got
| sunk because they... Invested in very solid, predictable
| assets with guaranteed-except-for-apocalypse ROI.
|
| They're not being punished for losing money; they're
| being punished for not having the money put somewhere it
| could grow faster.
|
| I can't escape the feeling that America has lost its grip
| on what banks are supposed to be for.
| mrguyorama wrote:
| >they're being punished for not having the money put
| somewhere it could grow faster.
|
| No, it's because they didn't properly manage their assets
| to serve existing depositors if those depositors wanted
| to withdraw. Locking up money for 10 years has obvious
| liquidity consequences. I knew that when I first learned
| what a "CD" is when I was like 10.
| adam_arthur wrote:
| If you buy bonds you can lose money. To say they're risk
| free is wrong. Treasuries carry no credit risk, but they
| do carry duration risk. If you buy treasury bonds above
| par, you can also lose money even if you hold to maturity
| (though it would be illogical to buy them with negative
| yield. However we have seen this being done in Europe
| anyway)
|
| Duration risk is risk. Taking on 10-30y maturity is not
| "risk free"
|
| Many of these banks are holding Munis and other non-
| treasury bonds, which are not free of credit risk and can
| be worth 0 in some circumstances. I don't know about
| SVB's balance sheet, just speaking generally
| shadowgovt wrote:
| In this context, "lose" money means "You won't get as
| much money out as you would have if you had invested the
| money in something else?" Because if I buy a t-bond at
| $5, I'm expecting to get at least $5 back when it matures
| unless Uncle Sam has died.
| adam_arthur wrote:
| If you buy a T-Bond at 110 the treasury will pay you back
| 100 at maturity, thus you lost money in nominal terms
| (depending on coupon rate). This has been happening in
| Europe with their previously negative yielding debt
|
| What you mean to say is there's no credit risk. Not the
| same thing as you can't lose money. Saying you are
| guaranteed X dollars 30 years from now does not mean much
| at all if people need money today. This is not "safe" or
| prudent
| nairboon wrote:
| MBS are neither solid, nor predictable nor do they have a
| guaranteed return. Have a look at the GFC, where many
| thought MBS are how you describe them.
| shadowgovt wrote:
| I thought it was over-investment in 10-year T-Bills that
| did them in.
| capableweb wrote:
| Thing is, it's probably true for 1% of the cases, that things
| are slow for no good reason. Trick is how to identify that 1%
| of times when you can truly make something better. But 99% of
| the times, it's all shit and ends up like this, or similarly.
| [deleted]
| ethbr0 wrote:
| The irony is that, as near as I can tell, they cratered
| their balance sheet because they were heavily into long
| maturity bonds (i.e. super conservative).
|
| https://www.cnbc.com/2023/03/09/svb-financial-falls-more-
| tha...
|
| That seems an odd position to allow to build given the
| current macro. Post-Fed changing their mind on inflation,
| the course was charted.
|
| I'm guessing they held to avoid taking losses, and at some
| point it became untenable?
| kgwgk wrote:
| > long maturity bonds (i.e. super conservative)
|
| Do you think that long maturity bonds are more
| conservative than short maturity bonds?
| JumpCrisscross wrote:
| > _Do you think that long maturity bonds are more
| conservative than short maturity bonds_
|
| No. Nobody does. That's why they typically yield more.
| kgwgk wrote:
| Maybe ethbr0 does - considering the quote about super-
| conservative long maturity bonds.
|
| Why do you say that he doesn't?
| JumpCrisscross wrote:
| > _considering the quote about super-conservative long
| maturity bonds_
|
| Within the set of long-maturity bonds, Treasuries are
| conservative. That doesn't make them conservative _per
| se_.
| kgwgk wrote:
| Full quote: "The irony is that, as near as I can tell,
| they cratered their balance sheet because they were
| heavily into long maturity bonds (i.e. super
| conservative)."
|
| What exactly makes you think that the "(i.e. super
| conservative)" remark is not about "long maturity bonds"
| - which is the think that he just referenced?
|
| He didn't mentioned Treasuries at all. I find quite
| difficult to interpret the "super conservative" as being
| about some kind of long-maturity bonds relative to
| another kind of long-maturity bonds.
| travisjungroth wrote:
| The problem isn't what they bought it's what they sold.
| It was all correlated. Loans to startups were going bad
| while startups were pulling deposits since they weren't
| getting funded. So you're taking losses while losing
| capital. Doesn't really matter what else you're holding
| at that point if it doesn't happen to be skyrocketing
| right now. Long term bonds will never be that thing, but
| at any point in time almost nothing else would be,
| either.
| Voloskaya wrote:
| > Those old stodgy banks just slow us down with their old-
| fashioned risk-averse ways! The cool kids can do it better!
|
| SVB was an old stodgy banks that companies went to instead of
| the new kids like Mercury, specifically because of the trust.
| They have terrible UX and mobile app but at least they were
| solid and had a 40 year track record.
| sylvainkalache wrote:
| Speaking of Mercury, they recently announced increasing
| customers FDIC insurance maximum to $1M for customer
| accepting to enroll in their sweep program. Not sure SVB
| offers this but I hope they do.
| dismalpedigree wrote:
| Mercury is not a bank. It keeps your funds spread across
| many banks where they open accounts on your behalf. Then
| they spread the deposits around to stay below the $250k
| threshold at each bank. Same as Fidelity and many others.
| I would be shocked if SVB was sweeping deposit funds into
| other banks.
| iozero wrote:
| I've heard from a few people today who have Cash Sweep
| Accounts at SVB: https://www.svb.com/liquidity-
| management/deposits-and-invest...
|
| Some claim that these accounts are insured/protected up
| to _$125m_ , but I can't find any info online to
| corroborate that.
| dismalpedigree wrote:
| This surprises me. I wonder what the mechanism and
| incentives are for a bank to sweep deposits to another
| bank.
| xxpor wrote:
| How can they do that? They don't choose FDIC limits.
| themitigating wrote:
| Why does it seem the perception of the tech industry is that
| products are just useless devices (like what you mentioned) or
| scams, that its employees are lazy and entitled, and basically
| it's all just a giant bubble of alof elites.
|
| The same traits are present with every industry. How many BS
| oil fields are funded but turn out to be over hyper. What about
| real estate scams?
|
| Right wing media has done a great job of changing the
| conversation from big oil to big tech and many people here are
| helping, maybe with geniue intention, but foxnews or whatever
| is attacking tech because it's mostly liberals not because they
| are concerned with the industry's practices
| Octokiddie wrote:
| Maybe it's time to resurrect Fucked Company.
|
| https://en.wikipedia.org/wiki/Fucked_Company
| dheera wrote:
| Maybe it's time to get rid of fractional reserve banking and
| change it to full reserve banking.
|
| We really don't need a bunch of fake money flying around. It's
| time to have every dollar in the wild be a real dollar.
| kibwen wrote:
| Full-reserve banking doesn't eliminate risk, it pushes it
| elsewhere. The nice thing about fractional reserve (yes,
| there are nice things about it!) is that it allows people to
| have a savings without completely paralyzing the money
| supply. Money that is "saved" can still be used for
| productive purposes. Yes, this introduces risk (of the sort
| that the FDIC is intended to ameliorate), but the alternative
| is to either discourage savings entirely in favor of active
| investments (which are themselves mostly subject to the same
| sort of risks as savings accounts of today), or otherwise
| encourage savings but let the economy be strangled by a lack
| of funds (which becomes a vicious cycle).
|
| Certainly we can argue about the precise percentage of the
| fractional reserve, but keep in mind that "100%" is not a
| panacea.
| dheera wrote:
| > Money that is "saved" can still be used for productive
| purposes.
|
| If I wanted to put money to productive purposes (at risk,
| with reward) I would do so myself. I'd buy bonds, stocks,
| options, lend money out, whatever. I already do this.
|
| Whatever I keep in cash, without investing, is
| intentionally kept as cash, and I want that part to be zero
| risk, I don't need the bank to help me invest it at nonzero
| risk.
| [deleted]
| andrewmcwatters wrote:
| Unrelated to their finances, but they have an exceptional
| engineering team over there that I had the privilege of speaking
| with.
|
| I'm sorry to see this happen.
| danielmarkbruce wrote:
| Most un-insured depositors are going to get most of their money
| back. They'll get a good chunk (guestimate 20-50%) of it back
| within a week. The claims on SVB which will be held by depositors
| will likely be able to be sold to investors who specialize in
| this stuff for something reasonably close to par. Those who just
| hold onto the claim will be paid out most of what is owed (maybe
| literally 100%, more likely 90%+), but it will take longer.
|
| It will be annoying and stressful, but basically ok.
| xeeeeeeeeeeenu wrote:
| In the previous thread, someone posted a video showing the
| process of the FDIC seizing the Heritage Community Bank in
| Chicago:
|
| https://www.youtube.com/watch?v=KIh6NEBL8BU
|
| It's pretty interesting.
| Animats wrote:
| Rippling, the payroll company, reports that payouts "in flight"
| may fail.[1] They used Silicon Valley Bank. They're switching to
| J.P. Morgan Chase.
|
| [1] https://twitter.com/parkerconrad/status/1634237386564730882
| mupuff1234 wrote:
| Any recommendations for analysts/blogs/etc to understand how this
| might unravel?
| [deleted]
| tlb wrote:
| The regulations that allow a bank to hold long-term fixed-rate
| bonds backing variable-rate liabilities (since deposit rates
| float) seems broken.
|
| It's straightforward to reckon their exposure to interest rates:
| they had $90B in 10-year fixed rate bonds, so they lose $9
| billion per % of interest increase. They must have known that a
| 4% increase in interest rates would put them underwater, but they
| did it (and were allowed to do it) anyway. It'll be interesting
| to learn about the process behind that decision.
| Randalthorro wrote:
| What's crazy to me is the fed hasn't been raising rates out of
| the blue. What the fuck was this bank doing the last two years
| during every raise? They should have been rebalancing.
| eclipsetheworld wrote:
| I'm wondering the same thing. The current rise in interest
| rates must have been a scenario that the bank considered. How
| can we still have a system that allows situations like this to
| happen? Other than negligence or malpractice, I cannot fathom a
| reasonable explanation as to how this happened / was allowed to
| happen (again).
| kragen wrote:
| this is the system working as designed
|
| zero risk is not a thing
| [deleted]
| mynameisjonny_ wrote:
| There's nothing wrong with your first sentence really. Banks
| can (and should) hedge these risks using swaps and other
| products. Someone really messed up here.
| bombcar wrote:
| _All_ banks run on exchanging short term liabilities for
| long-term assets. No bank is big enough that it can survive a
| large enough run.
|
| The whole point of capitalization stress-tests is to
| determine that banks can withstand a certain amount of
| withdrawals.
|
| It of course is going to be much much more likely on a bank
| that only has 3% FDIC - I have no desire to "run" on my bank
| because I am below the $250k limit, and even if the accounts
| were frozen for a week it wouldn't be that worrisome.
|
| But if I were a startup with $100m at SVP, I would have been
| _freaking out_ earlier this week.
| engineeringwoke wrote:
| A swap has two sides. Someone still holds the bag, so what
| you're saying here doesn't make sense. What SVB was doing is
| typical; regular banks don't hedge anything. You can see
| everything in a Bloomberg terminal
| bagacrap wrote:
| they don't lose anything if they're not forced to liquidate
| those bonds but can hold them to maturity. It seems like the
| real problem here is a lack of diversity in liabilities (all
| tech/biotech startups).
| tlb wrote:
| That's not true. When interest rates go up, they have to pay
| the higher rates on customer deposits, but they're not
| getting any more from their bonds. Perhaps they can spread
| the losses over 10 years, but the losses are the same.
| xhrpost wrote:
| I don't think they "have" to pay the higher interest.
| Wouldn't they ultimately get that interest from parking
| money at the Fed over night? A bank isn't going to pay
| interest on money that results in a net loss, either they
| get it from the Fed or they are making private loans at a
| higher rate. Otherwise there would be no incentive to
| increase deposits as each would result in lost profits.
| tlb wrote:
| A bank either pays competitive deposit interest rates, or
| people move their deposits elsewhere. That can happen
| quite quickly, and they'd have the same liquidity
| problem.
| jasmer wrote:
| The whole f*ing point of banks is to hold your money.
|
| WTF is Silicon Valley if they can't make a bank that is just
| supposed to sit there and not do much - not collapse.
|
| I loathe to say this but maybe the CrytoBros need to come back?
|
| Bank collapses should happen as often as regular buildings
| collapse for no apparent reason.
|
| It's a bad look if there is less trust in regular banking.
| hintymad wrote:
| Will startups have problems paying salaries now?
| fullshark wrote:
| Good question and to me it seems the answer can only be yes.
| severingties wrote:
| If the company's payroll is under the $250K FDIC insured
| amount, they can make payroll on Monday. If the company's
| payroll is like $1 million a month, maybe not.
| jossclimb wrote:
| I can't see many startups having that sort of salary bill,
| unless they are a small seed with just a few founders working
| on a small wage as a sacrifice for their own investment. A
| lot of these startups would have hired during the frothy 2021
| early 2022 phase when $250k might just cover a single
| employee.
| manquer wrote:
| 250k for a single employee's mid month payroll ! That is
| $7.5m / year in only cash compensation!! that would be
| unheard of for startups who only bank at SVB, even only few
| blue chip CEOs will draw that much cash .
|
| Realistically 250k for 2 weeks pay probably can cover
| between 30-60 employees, if founders and some key senior
| folks can willing and are able afford to defer maybe
| stretch to 75.
| preinheimer wrote:
| I know SVB was an early partner for Stripe Atlas[1], I hope
| they've got other options now, and not too many companies get
| really hurt here.
|
| [1] https://www.svb.com/news/company-news/silicon-valley-bank-
| pa...
| bagels wrote:
| They had three choices. Mercury and one other.
| [deleted]
| reducesuffering wrote:
| Does this mean $SIVB stock holders who had $265 shares two days
| ago now have worthless shares? JFC no wonder bank stocks are
| priced so low compared to earnings... You're just hoping the
| dividends pay out enough before the inevitable implosion.
| ejb999 wrote:
| pretty much.
| abofh wrote:
| Well, they were 38$ this morning, but yeah, probably going to
| approach zero
| boringg wrote:
| They will be getting something but probably close to pennies on
| the dollar. Depends on how it gets repackaged and sold.
| rootusrootus wrote:
| In the FDIC priority list, stockholders are dead last,
| depositors first. If the depositors take any kind of haircut,
| I'd guess stockholders will end up with exactly zero.
| college_physics wrote:
| For some context, it seems that this is the first bank failure
| since some time (Oct 2020) [0]
|
| [0] https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
| seizethecheese wrote:
| So, I would expect a secondary market for deposit certificates to
| spring up. Has it? If so, what's the value of $1 in deposit
| certificates at SVB?
|
| If it hasn't, this would be a helpful way to provide liquidity to
| startups with SVB deposits.
| mkmk wrote:
| Oldie but goodie on what actually happens when a bank is taken
| over. https://www.npr.org/2009/03/26/102384657/anatomy-of-a-
| bank-t...
| mikece wrote:
| From the looks of the news stories, it looks like the FDIC
| isn't as efficient in taking over a bank as it used to be:
|
| https://nypost.com/2023/03/10/nypd-called-to-silicon-valley-...
| Animats wrote:
| When the FDIC takes over a bank, they usually have some local
| cops around, to deal with crowd control and calm down upset
| depositors. See the 60 minutes video. There's a police car
| parked in front of the bank, but the cops are not doing much.
| ellisv wrote:
| I wonder if the FDIC is just as efficient but this situation
| is different.
| Kye wrote:
| Possibly a forced rush job after that comment about
| solvency. I think the FDIC usually prefers to do secret
| operations under the cover of night to avoid problems. With
| everyone's eyes on the bank, that wouldn't be an option.
| PascLeRasc wrote:
| That's fascinating. I'd love to watch a documentary about that.
| khuey wrote:
| This 60 minutes segment from the Great Recession is the
| closest thing I know of to that.
| https://www.youtube.com/watch?v=TAE8i40A5uI
| bgc wrote:
| 60 Minutes followed an FDIC takeover in 2009, including when
| the agents actually walked into the bank's headquarters:
| https://youtu.be/TAE8i40A5uI
| supernova87a wrote:
| I just watched it -- aside from the very interesting
| mechanics of the FDIC coming in and taking over a bank, I
| thought Sheila Bair (the then FDIC chair) came off as very
| knowledgeable, realistic, and critical of the risks posed
| by big banks. She went on to become a university president
| after the recession / banking bailout.
| TremendousJudge wrote:
| That interview with the chairman (chairwoman?) is just
| great. She straight up says that maybe they shouldn't bail
| out the big banks and instead apply a similar process to
| them.
| FormerBandmate wrote:
| This case is unique because of the sheer volume of non-FDIC
| insured deposits. Substantial risk of depositors not being made
| whole for a while, they'll probably get all their money but it
| will still be bad
| nostromo wrote:
| _All_ their money? I doubt it.
|
| SVB owned a bunch of mortgage backed securities and
| treasuries - both of which are down 30-50% from their peaks,
| which coincides with our last venture capital boom. SVB was
| buying at the top because they had so much capital to deploy.
|
| Maybe instead of cashing it out, depositors could be given a
| treasury worth 30% less than SVB paid for it, that pays out
| 1% a year in interest, redeemable at face value in just 20
| short years.
| FormerBandmate wrote:
| They weren't insolvent yesterday, they just had a rush of
| withdrawals. It will probably be upwards of 90 cents on the
| dollar, but that amount of money locked up in a possible
| credit crunch coupled with a loss of confidence in banks
| and the current startup environment is very bad
| nostromo wrote:
| They weren't insolvent because banks are allowed to
| pretend treasuries haven't lost value so long as they
| intend to hold them to maturity.
|
| Across all banks, there are over $600b in such losses. If
| they can hold those securities until they mature, all is
| good. If they need to sell them earlier, the losses
| become real.
|
| https://twitter.com/grdecter/status/1634091448743219201?s
| =46...
| khuey wrote:
| In SVB's case I believe they are mostly mortgage backed
| securities (ironic, eh) rather than treasuries but yes. I
| wonder if this will spur any reflection on the accounting
| rules for HTM securities.
| dehrmann wrote:
| I bet they bought mortgage-backed securities because
| returns on everything safer were essentially zero. Crazy-
| low interest rates for too long created this problem.
| amluto wrote:
| > If they can hold those securities until they mature,
| all is good.
|
| That's an odd bit of logic. If interest rates stay the
| same and nothing of interest happens for the next 20-30
| years, then those banks will lose the spread between the
| interest on those instruments and the interest they're
| paying (SVB was paying 4.5% on savings!) for 20-30 years.
| That money needs to come for somewhere. The net present
| value of that loss is a very similar number to the
| unrealized mark-to-market loss of value of those
| instruments.
|
| It's almost tautological that being able to hold those
| instruments to maturity requires that they remain solvent
| for the term of those instruments, which means that the
| money to cover their losses must come from somewhere.
|
| Now everyone involved can gamble that interest rates will
| go back down in a few years and those short interest rate
| positions will recover, but that's a gamble, not a
| certainty. Of course, the Fed does have a bit of an
| interest in pushing rates down if needed to avoid bank
| failures...
| capableweb wrote:
| > They weren't insolvent yesterday
|
| Didn't management/CEO/someone high up in the company say
| something like "We're safe unless everyone pulls out
| their money" the other day, indicating that they were de
| facto insolvent?
| ummonk wrote:
| That just indicates they didn't have liquidity to cover
| every deposit, which is true for basically every bank
| that doesn't charge you to store your money in a vault.
| capableweb wrote:
| Which I guess makes it about semantics. If everyone takes
| out there money one at a time, one person each week, over
| years, they would be solvent. But if everyone did it at
| the same day, they wouldn't be able to handle it, making
| them insolvent.
| kragen wrote:
| i think by that definition all fractional reserve banks
| are 'de facto insolvent', which would make this a
| definition of 'de facto insolvent' that isn't useful for
| fractional reserve banks, since it doesn't distinguish
| among classes of fractional reserve banks
|
| and yes, the ceo did say that yesterday, which is likely
| why this happened
| cameldrv wrote:
| Yes but supposedly if you mark their balance sheet to
| market, the net is approximately zero, i.e. they have just
| enough assets to cover liabilities with no reserve. In this
| case you could say that the reserve requirement is serving
| its purpose. The stockholders may be wiped out (depending
| on how much a potential buyer values the goodwill), but the
| depositors should get all their money back. Worst case I
| think depositors would take a small haircut.
| opportune wrote:
| If they have to liquidate their assets (mbs/treasuries)
| they'll probably create at least some slippage, moreso in
| MBS, that may prevent them from recouping their value at
| current prices. Alternatively they can try to hold to
| maturity or spread out their selling but that will make
| depositors illiquid
| cameldrv wrote:
| I don't think that holding to maturity really solves the
| fundamental problem though. The reason the MBS have lost
| value is because they have a low coupon compared to what
| you can get now. To execute the hold to maturity
| strategy, they would have to pay the depositors interest
| with the coupons from the MBS.
|
| Under ZIRP, the depositors weren't getting anything, and
| so making 1.5% on MBS was fine. In the current interest
| rate environment, depositors won't be satisfied with a
| zero yield on their deposit accounts, and the MBS don't
| pay enough to cover it, so either they lose depositors
| because they're not paying competitive interest, or they
| take a loss every day because their investments don't
| cover the cost of the deposits.
|
| Ultimately keeping the bonds on the books as HTM just
| spreads out the loss over the lifetime of the bonds
| rather than recognizing it right when interest rates
| change, but the result is the same.
| opportune wrote:
| Oh fully agreed. They fundamentally lost depositors'
| money by making bad investments - holding to maturity is
| just a way to argue that depositors will be made whole.
| The depositors may as well just be given the bonds/mbs
| themselves and allowed to hold to maturity _or_ sell them
| to meet immediate needs.
| eagleinparadise wrote:
| If you mark to market hold to maturity assets for any
| bank there are hundreds of billions of loses, fyi
| PKop wrote:
| Yes so the key distinction is this bank had a bank-run
| against it that forced their hand. Fair to say any number
| of banks would fail if they faced a bank-run in current
| environment (depending on proportion of long dated bonds
| they hold)?
| hindsightbias wrote:
| SBF was a piker.
| gnopgnip wrote:
| Have there been any cases in modern times, in the last 25
| year or so where depositors lost money because they had more
| than the fdic covered ?
| dmoy wrote:
| Yes it happens literally every year. It's not usually a
| huge %, like it might end up being in this case.
| pirate787 wrote:
| 50 cents on the dollar at IndyMac in 2008
|
| https://www.depositaccounts.com/blog/indymac-depositors-
| are-...
| JumpCrisscross wrote:
| > _Substantial risk of depositors not being made whole for a
| while_
|
| Emphasis on for a while. Stock and bond holders (man, did the
| latter miss the ball) will absorb losses.
| kgwgk wrote:
| As of Dec 31 the total liabilities were $195bn.
|
| Given that they had only $5bn of long-term debt - and
| $173bn of deposits - it seems that bond holders cannot
| absorb much (even though it's not very likely that they
| receive anything).
| wbl wrote:
| That's $23 billion of non-deposit liabilities that will
| be junior to the deposits.
| dannyw wrote:
| What stock holders? Market cap was 2.5 billion pre-market,
| a small fraction of the 175b of deposits (as of Dec 31,
| 2022).
| JumpCrisscross wrote:
| > _market cap was 2.5 billion pre-market, a small
| fraction of the 175b of deposits_
|
| Market cap doesn't matter. Balance sheet equity.
| loeg wrote:
| Possibly forever, if the assets aren't there. A senior
| claim on $0 is still worth $0. There may be sufficient
| assets to pay back depositors, but we don't really know at
| this point.
| dmoy wrote:
| It's a little unique because it's a top 20 bank failing. As
| far as I can tell, it's not super unique in terms of % of
| fdic insured deposits.
|
| As a whole it's like <30% FDIC insured in the whole US
| banking industry.
|
| > they'll probably get all their money but it will still be
| bad
|
| They may not. Even for banks where most assets are FDIC
| insured, you'll see that not 100% of deposits are returned.
| Selecting a random recent one:
|
| https://closedbanks.fdic.gov/dividends/bankfind/Dividendinde.
| ..
|
| ~95%.
| mwarkentin wrote:
| Looks like 2.7% of their deposits were > 250k. So yes, it
| seems relatively unique (there are only 5 banks on this
| list with <15%).
|
| https://twitter.com/GRDecter/status/1634208652595699713?s=2
| 0
| [deleted]
| MR4D wrote:
| You've got that backwards. Reread the tweet you linked
| to:
|
| "Only 2.7% of SVB deposits are _less than $250,000_.
| Meaning, 97.3% aren 't FDIC insured."
|
| Not a good situation at all.
| dllthomas wrote:
| Aren't _fully_ FDIC insured, yes?
| lobochrome wrote:
| Yes - if you have 5M$ in the bank, you'll have 250k$ of
| that insured. Not that comforting.
| dllthomas wrote:
| But if you put in $250k because you're responsibly
| splitting things across banks, and the interest you've
| made on it raised you to $252k, you're counted amongst
| the 97.3% and it's not a big deal.
|
| I'm sure some people are out meaningful amounts of money,
| but I'm not sure what a typical account looks like.
| niij wrote:
| It's 97.3% of deposits ($), not _depositors_
| dllthomas wrote:
| Hm, you may be right, though "deposits are less than" is
| a really weird way to phrase it in that case.
| [deleted]
| ren_engineer wrote:
| will companies with money in SVB even be able to make payroll?
| Seems like this could cause huge issues in the short term and
| long term
| sroussey wrote:
| Pipe, Clearco, Founderpath, etc, are going to have a busy
| month.
|
| Likely many companies won't be able to do mid-month payroll.
|
| Someone will setup a market for the FDIC warrant on uninsured
| deposits, but that will take time.
| martinshen wrote:
| Who do you think backs those Clearco loans?
| katmannthree wrote:
| Are clawbacks a thing in this case for the people who did get
| [some] of their money out in time?
| dmoy wrote:
| no
| pclmulqdq wrote:
| Clawbacks are only poised to happen for big crypto failures
| (FTX) because the people who held money in those institutions
| aren't technically "depositors," and are considered a more
| generic type of creditor (which has a bankruptcy clawback).
|
| Bank deposits are special and there will be no clawback.
| However, depositors who lost money will be first in line at
| the bankruptcy court.
| dmoy wrote:
| note there is no bankruptcy court here. SVB will go into
| fdic receivership and almost certainly be sold off to
| another bank. Depositors are still first in line to get
| stuff back, but it's not through bankruptcy court. There is
| no court involved.
| mikece wrote:
| I know a couple bank VPs who have been the representative of
| the take-over bank in absorbing failed banks. They describe it
| in terms that most of us would recognize as taking over a
| failed project and re-architecting/refractoring it so that it
| can succeed (or making the call to discard all work to date and
| start over with a workable solution).
| armatav wrote:
| Those mortgage backed securities will get you every time
| twelve40 wrote:
| So it seems like they mismanaged their assets and their
| liabilities, taking on a lot of expensive deposits while
| investing at low yield.
|
| What I don't get is all this pro-SVB, anti-VC sentiment, how
| "some VC's yelled fire in a crowded theater" and caused the poor
| bank to collapse. Isn't it just common sense though, to protect
| your money? The bank fucked up by doing risky reckless things, it
| got exacerbated because the customer base is not as diverse as a
| big bank - it's all startups that are subject to the same
| patterns, and SVB is not as big for the govt to bail out, so the
| bank customers did the only logical thing which is to withdraw
| your money before it disappears, yet they get lectured for doing
| that.
|
| https://twitter.com/msuster/status/1634203251758469120
|
| https://www.linkedin.com/pulse/few-thoughts-svb-jeremy-solom...
| danielmarkbruce wrote:
| Of course the VCs who told their portfolio companies to pull
| the money were doing the right thing, by the people they are
| obliged to do the right thing by. They want to protect their
| companies and their investors. They'd be mad not to, and they
| are legally obliged in many cases.
|
| I think you'll find a lot of the people complaining are people
| who got hit and are bitter about it.
|
| e.g. some CFO's seem to be complaining about VCs - the CFOs
| likely didn't do their job, one part of it is "treasury/cash
| management". Some VCs are complaining about other VCs -
| probably they weren't paying attention and their portfolio
| companies got hammered.
| gregruss wrote:
| If you don't understand the sentiment, I recommend that you
| read about what happens in a "run on the bank". Too many large
| withdrawals at the same time results in a liquidity crisis. No
| bank in the country has enough reserves to pay all of its
| customer accounts at the same time; it's part of our system of
| fractional reserve banking. A massive spike in withdrawals
| forces a bank to sell long term securities in a disadvantageous
| environment, often for a huge loss. That undermines customer
| confidence and exacerbates the issue, causing more people to
| withdraw. A single person could bring the most successful bank
| to its knees in that environment, as long as enough customers
| believe them; it's a self-fulfilling prophecy.
|
| https://en.wikipedia.org/wiki/Bank_run
| twelve40 wrote:
| So my personal takeaway: pick a bank that is too big to fail,
| because if it happened to a bigger, non-niche bank they
| probably would have used the taxpayers' money to bail it out.
|
| PS. the sentiment still makes no sense, SVB customers did not
| sign up for the bank to gamble with their money and they have
| a full moral right to do whatever it takes to get their
| working capital back the second they start to sense any
| trouble. These withdrawals are not just stupid meme stock
| lulz, this money belongs to the customers.
| kelnos wrote:
| I was talking to some friends in finance about this, and
| unfortunately most of SVB's customers couldn't just pick
| another bank. Allowing a company to open a business account
| requires a bank to do a lot of know-your-customer stuff, as
| well as taking on a bunch of money-laundering and criminal-
| enterprise risk (that is, there are laws that punish banks
| if they hold funds that are used for criminal activities,
| especially terrorism-related activities).
|
| Many banks, even the big ones like Bank of America, Wells
| Fargo, and Chase, do not want to do this for random new
| small companies with no history and unknown founders. SVB
| was -- I believe -- founded in part to fill this gap.
|
| Beyond that, there are also come contractual relationships
| between some VCs and SVB that require some VC portfolio
| companies to hold their deposits (at least some amount of
| them) with SVB. (I don't entirely understand this point,
| but even if I'm getting it wrong, the previous point is
| enough.)
| Randalthorro wrote:
| The same thing happened to all these stupid crypto exchanges
| and banks and yield scams.
|
| The point is that they are supposed to have capitalization
| requirements and regulations that show they actually have
| more assets than liabilities.
|
| But in reality they don't so fractional reserve doesn't work
| here. In fractional reserve the bank still has assets worth
| more than liabilities. That's the whole point of the
| regulation.
|
| This bank doesn't meet that basic requirement.
|
| This is due to the rate hikes, yes, but just like all the
| recent events if the bank had properly adjusted its portfolio
| after the hikes, making losses and having a shitty stock
| price for a while, it would have been able to weather this
| storm. The storm came because the bank never adjusted until
| too late. It waited until it was negative from asset
| devaluation due to interest rate hikes
| lolinder wrote:
| I think we all understand why VCs telling people to get their
| money out caused or accelerated the collapse. But what was
| any _individual_ VC supposed to do, tell their startups to
| just go down with the ship?
|
| It's the same dynamic as the toilet paper shortages at the
| beginning of covid: most people weren't panic buying because
| they thought that there wouldn't be enough toilet paper to go
| around if everyone kept cool, they were panic buying because
| they knew not enough _other_ people were keeping cool.
|
| If it looks like the only reward you'll get for keeping your
| cool is a few weeks with a dirty bottom, it's hard to avoid
| joining in the run.
| hn_throwaway_99 wrote:
| "When there is a run on the bank, it's important to be
| first in line."
|
| Bank runs are fascinating psychological dilemmas to me. On
| one hand the SVB CEO was correct - everything _would_ have
| been fine if every depositor hadn 't run for the door. But,
| when a bank says "please don't run for the door", it's
| already too late.
| twelve40 wrote:
| Yeah, he was basically asking for the customers to keep
| fronting his risky shit. I'm almost certain SVB CEO
| already knew what was going to happen in the next 24
| hours after his "stay calm" interview - FDIC doesn't get
| dispatched like that for no reason.
|
| https://www.barrons.com/articles/svb-financial-stock-
| sale-ce...
| kelnos wrote:
| Fronting risky shit or not, on the whole, SVB's
| depositors would have been better off if every one of
| them had calmed down and done nothing right now. I would
| certainly understand if depositors would then build a
| measured plan to diversify their deposits over the next
| year or so, but while SVB certainly caused lack of faith,
| the reaction to that was what caused SVB to fail.
|
| So ok, we've "punished" SVB's management's poor money-
| management practices, but in the process we've also
| punished a lot of companies who had millions of dollars
| but now only have $250k (with uncertain future access to
| some portion of the remainder).
|
| Good job! Stick it to those SVB execs! Talk about cutting
| off your nose to spite your face... or I guess cutting
| off the noses of others...
| twelve40 wrote:
| If you hold deposits at 4% and invest at 2%, that's
| simply not sustainable. The more I read about this, the
| more it looks to me they were simply going down no matter
| what. If everyone kept calm for a bit longer, what would
| have fundamentally changed?
|
| PS. people didn't withdraw to spite anybody, this is not
| kindergarten. They started withdrawing because they don't
| want their small companies to die and need money for
| payroll, it's really the only sane thing to do.
| lolinder wrote:
| You're talking as though the SVB depositors are some sort
| of hive mind capable of acting in concert. They're not.
|
| Each individual depositor has to make the bail/stay
| decision with extremely limited knowledge of what
| everyone else is going to do. They know that the market
| is freaking out at SVB's sale, and they know VCs are
| sending panicked emails to their startups telling them to
| bail. They know that if enough people actually _do_ bail
| they may lose everything they have (in excess of $250k).
|
| Presented with that information, the only rational move
| for a depositor is to bail. It's weird to blame the VCs
| for making the _only good choice_ available to them.
| 100001_100011 wrote:
| SVB-like bank runs can be prevented with VBS-like
| locking.
|
| https://havenprotocol.org/knowledge/vbs/
| roguecoder wrote:
| That assumes a level of individualism that mostly doesn't
| exist. It doesn't matter if you are first in line if your
| customers are 1,000th in line: your business is going
| under either way.
| lolinder wrote:
| If your business isn't B2B, then any customers that you
| have are almost certainly fully FDIC insured.
|
| And even if you're B2B, if you're 999th in line and your
| customers are 1000th in line, you're even more screwed.
| If you're first in line you at least have some remaining
| assets even if you have no customers. If your assets
| evaporate at the same time as your customer base then you
| have nothing.
| hn_throwaway_99 wrote:
| I'm quite sure that businesses that got their cash out of
| SVB yesterday, and can thus make payroll today, are
| extremely glad they did so.
|
| Not all bank runs are systemic in nature.
| randall wrote:
| >But toward the end of March, TP sales plummeted because
| the supply just wasn't there.
|
| TP was a result of people shifting from commercial toilet
| paper to home toilet paper, and supply chains not keeping
| up. Not from panic buying, fwiw.
|
| https://www.washingtonpost.com/national/coronavirus-
| toilet-p...
|
| (there are other better sources i'm sure)
| lolinder wrote:
| That article doesn't say it was just the supply shift, it
| says it was a combination of factors _including_ panic
| buying. And other, later sources put a larger share of
| the blame on panic buying [0]:
|
| > However, because grocery stores and other retailers
| usually only keep several weeks' worth of toilet paper in
| their warehouses, the sudden increase in demand --
| largely fueled by panic-buying and hoarding -- has
| quickly depleted stocks.
|
| > "Consumers are experiencing nervousness and they are
| buying more than they should, depleting inventories of an
| industry that is very lean," Gonzalez said. "It will take
| a couple of weeks for people to understand they have
| enough, and the inventories will increase on the
| shelves."
|
| Again, there are similarities to SVB. There were
| legitimate concerns about SVB's solvency that triggered a
| run. The same goes for toilet paper: there were a few
| legitimate hurdles which were made many times worse by
| panic buying.
|
| [0] https://cnr.ncsu.edu/news/2020/05/coronavirus-toilet-
| paper-s...
| ofchnofc wrote:
| [dead]
| roguecoder wrote:
| "Common sense" that just fucked over the industry & a whole lot
| of workers in it.
|
| In more mature industries, people would have been confident
| that the government wouldn't let their bank go under, because
| the government usually doesn't, and as a result the government
| usually doesn't have to. Instead, startup culture is so low-
| trust that we shot ourselves in the foot.
| opportune wrote:
| This, these bonds/mbs are liquid instruments, they just lost
| value at market prices. When I make a deposit in a bank I am
| not purchasing a CD - I expect full liquidity. If the bank
| invested my deposit in something that lost money but _should_
| be worth my deposit amount in X years that is purely the bank's
| fault, not my fault.
| worik wrote:
| > This, these bonds/mbs are liquid instruments
|
| It is all relative, not all relevant
|
| Anything is liquid if you will lower the price enough
| kgwgk wrote:
| Liquidity is defined as being able to sell quickly at a
| fair price.
|
| Surely they did sell those treasuries without any hiccup.
| (I'm not 100% certain about the MBS they hold but the main
| problem is that the fair value is down and not the discount
| relative to that price that would be required to sell
| quickly.)
| alfalfasprout wrote:
| Here's the more mindblowing thing... not only are those MBS
| and treasuries completely liquid... they're correlated to
| interest rates! The fed has been forecasting interest rate
| hikes every single quarter. Every. Single. Quarter. They had
| plenty of time to roll over these investments at a slight
| loss. Heck, even reducing their exposure 50% would have been
| enough to not end up in this mess.
|
| Instead, they waited until it was way too late (by most
| accounts, the fed is going to do another 50bps hike next) and
| all it took was some fear for the house of cards to come
| crumbling down.
|
| This does feel like a regulatory failure though. Reserve
| requirements don't quite prevent a bank taking on massive
| undiversified risk like this.
| q1w2 wrote:
| Exactly - they failed due to one of the most widely
| predicted trends. Literally everyone knew interest rates
| would go up.
|
| They absolutely deserved to fail.
|
| The government allowing them to fail is actually a sign of
| the system working.
| nerdponx wrote:
| > Reserve requirements don't quite prevent a bank taking on
| massive undiversified risk like this.
|
| You would think that they _should_ prevent such risks,
| right? If the bank loses their collective shirt on a bad
| bet, they will eventually fail to meet their reserve
| requirements, right? I don 't see how you create a stronger
| incentive without specifically telling bankers how to do
| their jobs.
| Randalthorro wrote:
| Reserve requirements should be based on current market
| price or at least last quarter or last year, not purchase
| price.
|
| They would have had to recapitalize way earlier if that was
| the case.
| fooker wrote:
| > Reserve requirements should be based on current market
| price or at least last quarter or last year, not purchase
| price.
|
| This is the kind of thing you could get a Nobel prize
| for, if it was backed with data and people agreed with
| the conclusion.
| [deleted]
| tonetheman wrote:
| [dead]
| woeirua wrote:
| LMAO. Can't even believe how many people were confidently
| asserting that nothing was wrong yesterday. If you had more than
| $250k in SVB yesterday you probably just took a huge haircut.
|
| Hundreds of startups will become illiquid as a result of SVB's
| collapse, and there will be major layoffs here in the next 90
| days as founders realize that they lost their funds and cannot
| raise in the current VC environment.
| highwaylights wrote:
| [flagged]
| morpheuskafka wrote:
| > Hundreds of startups will become illiquid as a result of
| SVB's collapse,
|
| I know SVB was like a "high tech bank" that partnered with
| things like Stripe Atlas, but is there any reason that startups
| were using it for their regular operating funds? Other than the
| name, was there something that actually made this bank
| particularly suitable for them?
| chasd00 wrote:
| High interest rate and naive customers who think they're the
| smartest guys in the room.
| LightFog wrote:
| They were proactive in incubators and allowed new companies
| to open accounts and make large deposits right away, when
| many mainstream banks wouldn't or were too slow. I'm guessing
| plenty of startups stuck with them through inertia at least.
| cragfar wrote:
| I can't say specifically for tech startups, but a lot of
| times lenders will require you to use their banking services
| as a funding requirement.
| borski wrote:
| They 'understand' startups. That is, they were willing to
| work with founders of new ventures, didn't require insane
| proof of provenance of funds (because suddenly millions of
| dollars would appear overnight), and would support founders
| with mortgages, for example, that were running companies that
| weren't yet necessarily profitable but were well-funded
| nevertheless.
| 0x457 wrote:
| Try to walk to BofA as an entity that didn't exist yesterday
| and see how that goes.
| yieldcrv wrote:
| Its not that bad.
|
| But it works better at a criminal bank. Particularly one
| that might open a bunch of extra accounts for you when you
| aren't looking. Obviously that means opening the first
| account won't be the problem either.
|
| Get a big criminal bank and they won't freeze your account
| for dumb reasons. Or smart reasons.
|
| So just follow the settlements with the federal government,
| its advertising.
| dboreham wrote:
| Not BofA, but I've done this several times at Wells Fargo
| and never had a problem.
| vineyardmike wrote:
| > If you had more than $250k in SVB yesterday you probably just
| took a huge haircut.
|
| You may not lose money. The money isn't gone yet. The
| restructuring may save the money. There's a playbook for this
| sort of thing.
| hef19898 wrote:
| Well, and until everything is sorted all your deposits above
| 250k are illiquid now. So, I guess one way to not go under is
| to find a bank that gives you a generous credit line against
| whatever deposits there are at SVB. At huge risk margin, and
| quite a discount on the deposits. If there are such banks
| willing to do so, that is.
| samstave wrote:
| all Thos banks usually start with 'swiss' passports in
| their name.
| woeirua wrote:
| No one knows for sure. We don't know what the value of their
| HTM MBS actually is on the open market.
|
| What we do know for sure though, is that this process will
| take months, maybe years, to play out and many startups will
| run out of money long before this is resolved.
| prasadjoglekar wrote:
| You most definitely will. SVB already fire-sold 21Bn in MBS
| and took a 1.8Bn loss on that. Someone is eating that
| loss....
|
| Separately, this is going to cause a lot of finance vultures
| to look at other banks who also have MBS portfolios on their
| books. The show's only beginning.
| hef19898 wrote:
| MBS, as in _Mortgage Backed Securities_??? Those MBSs? Oh
| dear, I am having very serious flash backs now...
| kevinpet wrote:
| All men are mortal. My cat is mortal. Therefore my cat is
| a man.
|
| Not all mortgage backed securities are subprime CDO
| squareds.
| hnthrowaway0315 wrote:
| IMHO MBS is not as evil as it sounds. After all stocks
| are backed by even more fragile things.
| fallingknife wrote:
| Stocks aren't usually levered at more than 10:1, though.
| MBS are.
| jcadam wrote:
| Time to re-watch _The Big Short_ again.
| makestuff wrote:
| Don't worry everyone pays their mortgage...right?
| timr wrote:
| No, this isn't true. SVB has some unknown amount of cash
| and other assets on hand. We have no idea what that is
| right now, or what percentage this is of the shortfall.
|
| Someone will buy SVB, and they will put capital in as part
| of the purchase.
| hnthrowaway0315 wrote:
| I wonder if anyone has Bloomberg terminal access can take
| a look and check whether there are disruptions in MBS and
| its hedging tools.
| vitorsr wrote:
| I have access to Refinitiv. I think it looks fine?
|
| https://workspace.refinitiv.com/web/cms/?pageId=mbshome
| hnthrowaway0315 wrote:
| Thanks. Do not have an account but I get it.
| kragen wrote:
| US$1.8B is 1% of SVB's deposits; a 1% haircut wouldn't be
| that bad
|
| i suspect the real number will be closer to 40% than 1%
| sambull wrote:
| It's possible they'll socialize the losses on that for
| profit risk taking
| Me1000 wrote:
| Is there any reason the FDIC itself cant just hold onto the
| bonds until they mature? The federal government doesnt need
| liquidity the same way a bank does, they wouldn't need to
| sell them for less than face value.
|
| Edit: this is actually a serious question, if someone knows
| the actual answer.
|
| I understand that ideally the government wouldn't want to
| hold onto the bonds, but is there any statutory (or other
| real) reason why they would _have_ to sell them at less
| than face value? If you could guarantee 100% of deposits
| could be returned by just holding onto the bonds until
| maturity, that seems like a worthwhile trade.
| civicsquid wrote:
| Past losses aside, the press release says that there are
| about $180B in deposits with the bank holding about $210B
| in assets. Assuming the FDIC liquidates and restructures
| the bank, I don't see why deposits could not be made whole.
|
| If there were fewer assets then deposits, then yes the
| 250k+ accounts are probably out of luck.
| oceanplexian wrote:
| The "assets" are actually held-to-maturity securities
| (bonds) that are yielding less than the risk free rate.
| Who would want to buy a bond that yields 2% when you can
| buy treasures that yield 4%. So while they might have
| $210B in paper assets but there's no chance they will be
| unable to unload them without taking a loss, putting the
| bank upside down.
| Me1000 wrote:
| The federal government doesn't need liquidity in the same
| way that a bank does, why would they even need to sell at
| all?
| vineyardmike wrote:
| And restructuring tends not be stay "gov owned" - the
| government assumes ownership to stabilize the market then
| tries to sell off the business to another business. Often
| there's some incentive to assume a massive amount of
| customers and assets. The gov may even take on the
| intermediate loss (the FCID is an _insurance_ agency
| after all).
| Me1000 wrote:
| Yeah, I can see why in general the government wouldn't
| want to hold on to assets, but bonds are kind of a
| special class of asset in that they do eventually mature
| and will naturally just be something they don't need to
| manage (within a relatively short time period too). If
| you expect that the sell off could take years to
| complete, some of those bonds will be halfway to maturity
| by the time they're sold.
|
| If I'm the FDIC and I have the opportunity to return 100%
| of the funds to depositors at the cost of just holding on
| to a bond for a few more years than I otherwise would,
| that seems like a tradeoff I'd make to stabilize a lot of
| companies. (I'm of course biased here)
| ok_dad wrote:
| > Who would want to buy a bond that yields 2% when you
| can buy treasures that yield 4%.
|
| Whatever bank/organization that wants to have SVB's
| customers, probably. If an even bigger bank comes in, one
| which can take on those lukewarm assets for a decade
| without risk, then they can immediately position
| themselves as the "new SVB" and get a bunch of VCs and
| startups as customers. I assume that they could stand to
| profit some from such an arrangement, but I'm not a
| banker, so maybe not?
| petesergeant wrote:
| > Who would want to buy a bond that yields 2% when you
| can buy treasures that yield 4%
|
| The government, to protect the economy
| bentlegen wrote:
| Will those assets still be worth $210B as the days tick
| by? I'm not a macro financial analyst, but I have to
| imagine trying to liquidate $210B of bonds, stocks, etc.
| will cause at least some of that value to fall - that's a
| big number.
| nemothekid wrote:
| If someone well capitalized buys the bank, then they
| don't need to liquidate. The bonds aren't worthless, they
| just trade much lower now that interest rates have risen,
| however if you can wait until they mature you will get
| your money + interest.
| vineyardmike wrote:
| Once the FDIC kicks in they can sell off to a different
| bank which can absorb them without touching the open
| market. Alternatively the FDIC can guarantee the bank for
| the duration necessary to sell assets slowly. They could
| likely sell the bank as a whole to another bank if
| assets>liabilities without too much disruption.
| matheusmoreira wrote:
| If people have to be reassured to begin with, it's already
| over. Money only exists because people keep believing it does.
| As soon as they stop believing it's gone.
| banku_brougham wrote:
| That gummint fiat money looking better all the time.
| Bud wrote:
| [dead]
| andrewcamel wrote:
| Yep... I bet this is about to pull forward a lot of startup
| death. Gun now to VC heads to save things. Forcing decisions
| they were hoping they wouldn't have to make for at least
| another 6-12 months.
| briandear wrote:
| I bet a lot of VCs had significant money in that bank as well.
| Even if companies could raise money, there wouldn't be as money
| available.
| gumby wrote:
| VC firms don't generally have tons of cash sitting around
| compared to their fund size. When you raise a fund, an LP
| does't just hand you $20 mil, then simply promise to send you
| up to $20 mil when you ask for it.
| JumpCrisscross wrote:
| > _a lot of VCs had significant money in that bank_
|
| Everyone I know pulled yesterday.
| gsibble wrote:
| I know a lot of individuals and startups, most over the
| $250k limit, who did not get out in time. SVB disabled
| wires and transfers for many yesterday.
| dougmwne wrote:
| The trouble in a bank run is that it's impossible for
| everyone to have gotten their money out yesterday. Those
| first in line caused the collapse, the rest are out of
| luck. Nice to hear you have lucky friends.
| eddsh1994 wrote:
| In a fractional reserve people can't all win
| eddsh1994 wrote:
| Don't know why this is being downvoted - if a bank takes
| $100 and keeps $20 liquid while investing $80, and then
| everyone comes for their money, the first $20 is
| available but the rest will be slower if not completely
| lost. If everyone tried to take their money yesterday
| some people will win but a large number will lose... If
| there _wasn 't_ a run on the bank chances are it could
| have (slightly?) weathered the storm.
| pclmulqdq wrote:
| Everyone who can read a balance sheet could figure out
| there was a lot of trouble after the announcement of the
| sold securities for a significant loss. The VCs telling
| portfolio companies to ride it out may have been looking
| for bagholders to ensure that they can get their own money
| out.
| omgomgomgomg wrote:
| But why would the startups become illiquid?
|
| Do they get the investments from the banks or do they park the
| investment money in this bank?
|
| And why this bank, when there are many more risk averse
| institutions out there?
| NordSteve wrote:
| For business banking, you want a bank that understands your
| business. SVB was in the first rank of banks that understood
| startups.
|
| Many startups aren't particularly sophisticated financially
| and just kept their capital in cash in the bank.
| hef19898 wrote:
| What did James Ray say again about FTX? Something along the
| lines of "a group of highly unsophiscated people"? Man, the
| CFOs of the affected start-ups should all look for a new
| job. By the way, preventing things like that is something a
| good MBA does.
| tome wrote:
| > James Ray
|
| John Ray?
| hef19898 wrote:
| Yes, that's the one! I knew it was something with "J"!
| CyanLite2 wrote:
| They become illiquid because they don't have access to their
| money that was in SVB. They can't make payroll, can't pay
| vendors and landlords. The employees will leave first.
| Vendors next.
| omgomgomgomg wrote:
| But normally, they will be bought by another bank coming
| Monday and resume business. The fdic assigns a buyer and
| pays the buyer, from what I understand.
|
| Edit. I just realized, in the us, if there is no bidder,
| the fdic can close down the bank or run it itself.
| jojosbuddy wrote:
| Bridge loans, DES, convertible notes, etc..., I'm sure their
| were loan "products" for startups similar to helocs (likely
| what put them in the hole). The appetite for crypto/fintech
| startups was huge during the pandemic and likely pressured
| them to get creative on products and overleveraged. It's all
| unwinding now.
|
| Unfortunately, harder now for startups, mind that all those
| startup dreams from laid off FANG staff just got their rug
| pulled.
| dehrmann wrote:
| > likely what put them in the hole
|
| No. It sounds like they bought a bunch of safe, long-term
| load-backed assets. When interest rates went up, the value
| of the assets went down. This isn't a problem if no one
| withdraws before the loans are due, but if they do, they
| have to sell the assets that declined in value.
| johnbellone wrote:
| The same people that were saying that yesterday were removing
| their deposits. They just wanted to be there first.
| hef19898 wrote:
| There are three ways to succeed in this business: Be first,
| be smarter or cheat. And I don't cheat.
|
| Margin Call is such a timeless, great movie!
| xapata wrote:
| But to be first, you must be smarter. Or cheat.
| johnbellone wrote:
| Indeed!
| skywal_l wrote:
| And even though I like to think myself as smart, it's a
| hell of a lot easier to be first!
| hef19898 wrote:
| Didn't he say sometjing like "while believe we have a
| hell lotta smart people under this roof, it is a lot
| easier to be first"? After all, it wasn't brains that got
| him in his chair, earning the big bucks, he can assure
| you!
| highwaylights wrote:
| Do you care to know why I earn the big bucks?
|
| I'm here for one reason alone. To guess what the music
| might do a week, a month, a year from now. And standing
| here tonight I'm afraid that I. Don't. Hear. A. Thing.
|
| Just... silence.
| FireBeyond wrote:
| And to spin the quote further:
|
| "And there are a lot of smart people in Silicon Valley.
| It's a hell of a lot easier to be first."
| mangosteenjuice wrote:
| A good lesson for everyone who forgot the last cycle.
|
| Slowly, then all at once.
| themitigating wrote:
| Do you think it's strange people are excited for the economy
| to fail?
| chasd00 wrote:
| I was taught disruption is good.
| yr1337 wrote:
| When you see how much of a massive everything-bubble we
| were (are?) in, I can see where people are coming from on
| this one. Time to get some sanity back into this economy,
| and the people who will hurt the most are those who also
| benefited the most in the past 3 years (crypto-bros,
| useless startups with dumb valuations, etc.)
| themitigating wrote:
| And they deserve it?
| ashwagary wrote:
| >Do you think it's strange people are excited for the
| economy to fail?
|
| People knew free money was dangerous, planned for a return
| to sanity (QT) in 2018-2019, and were financially punished
| for acting responsibly by believing the Fed would follow
| its roadmap.
|
| They may get their day in the sun now and I cant blame them
| for being happy at the first signs of a temporary return to
| reality.
| gretch wrote:
| I think people are excited that we can get back to money
| tracking with actual value generation and not financial
| hacking.
|
| Events like these are similar to Enron and Theranos. No,
| I'm not excited to see "the energy industry" or "the
| medical industry fail", but that's not really what it was,
| was it?
| plonk wrote:
| SVB isn't Lehman Brothers.
| dehrmann wrote:
| It won't take out the broader economy, but it could really
| damage a lot of small companies in the tech sector.
| uoaei wrote:
| It will take a significant amount of work to prove that
| those companies were providing net-positive outcomes for
| our civilization.
| Me1000 wrote:
| Well, they were paying the salaries for hundreds of
| thousands of people (if not more) and making sure they
| and their families had health insurance.
| rvnx wrote:
| Which in turn may not be able to pay for their mortgage.
| Which could cause getting Silicon Valley more affordable.
| [deleted]
| nodesocket wrote:
| I worry about all the valley based companies that held their
| payroll and operating expenses with SVB. It's going to take
| awhile (potentially years) to deal with FDIC an clawing back
| what's left of funds. I.E. what about huge infrastructure related
| companies like Gusto, Brex, Xero? This is very concerning.
| knodi123 wrote:
| > Silicon Valley Bank is the first FDIC-insured institution to
| fail this year. The last FDIC-insured institution to close was
| Almena State Bank, Almena, Kansas, on October 23, 2020.
|
| How humiliating. At least this isn't an epidemic.
| 1970-01-01 wrote:
| I've seen double black diamond slopes with less of a drop:
|
| https://www.google.com/finance/quote/SIVB:NASDAQ
| ecf wrote:
| With so many banks dropping 20%+ I don't see how this doesn't
| result in an economic catastrophe.
| RaSoJo wrote:
| So SVB's problem was that they had too much of money?
| kmlx wrote:
| Silicon Valley Bank UK confirms it's a standalone independent UK
| regulated bank.
|
| London, 10 March, 2023: Silicon Valley Bank UK, the financial
| partner of the innovation economy, today moved to confirm to its
| UK clients, partners and external stakeholders its financial
| position as a standalone independent banking institution that is
| regulated and governed by the PRA in the UK.
|
| Silicon Valley Bank UK has been an independent subsidiary since
| August 2022 with a separate balance sheet to the SVB Financial
| Group and an independent UK Board of directors. Silicon Valley
| Bank UK fully abides by the UK regulatory requirements as covered
| by the Financial Services Compensation Scheme and by the
| Financial Ombudsman Service. SVB UK, Ltd. is ring-fenced from the
| parent and its other subsidiaries.
|
| Notes to editors
|
| Funds from client deposits placed with SVB UK, Ltd. are managed
| in the UK for the benefit of our UK clients. None of our
| operations in the EU outside our UK Subsidiary are licensed to or
| take deposits.
|
| https://www.svb.com/press/release?Channel=45991&Account=SVB_...
| prennert wrote:
| For posterity:
| https://web.archive.org/web/20230310175421/https://www.svb.c...
| rvnx wrote:
| The announcement is somewhat funny in a way that "independent
| Silicon Valley Bank"'s announcement actually happens on the
| website of the US website they are not supposed to have links
| with.
| Randalthorro wrote:
| Their regulatory framework and finances are independent not
| the company itself
| tbarbugli wrote:
| Dumb question perhaps: why only SVB crashed? I imagine all banks
| in US had an influx on money deposited in the same period as SVB
| zackmorris wrote:
| Looks like the FDIC coverage limit was raised to $250,000 in 2008
| and made permanent in 2010, before that it was $100,000 since
| 1980.
|
| https://americandeposits.com/history-and-timeline-of-changes...
|
| Plugging that into any online inflation calculator, $1 in 2010 is
| $1.33 in 2023. So FDIC insurance should really cover $333,000,
| and people could lose $83,000 or more due to coverage not being
| raised.
|
| This is one of 1000 examples of how deregulation and defunding
| government programs often backfires on the people calling for it.
| It's almost like the people who casually deal in hundreds of
| thousands of dollars don't know the value of the dollar, because
| they got that money by skimming it from their employees.
| cjbgkagh wrote:
| 'Bracket creep' almost never works in your favor and that is by
| design. The government knows perfectly well how to peg things
| to inflation.
| dylan604 wrote:
| >how deregulation and defunding government programs often
| backfires on the people calling for it
|
| You make this sound like the avg citizen called for this,
| because this is who gets screwed in these situations. The heads
| of banks and the banking industry called for it, and not one of
| them will even notice the blip in their lives.
| egiops wrote:
| Umm our CEO just posted on the team channel that SVB is our bank
| and we don't know what happened yet
|
| What does this mean for the company I work for, are they screwed?
| positr0n wrote:
| Worse case, imho, is your company has trouble making the next
| payroll since most of it's funds are temporarily inaccessible.
| And after the dust settles they take a ~10% haircut on all the
| cash they had in the bank.
|
| SVB still has lots of assets, they just aren't very liquid and
| it's possible the value (if you sold them all today) isn't
| quite enough to cover all deposits.
| formerly_proven wrote:
| Yesterday I read on here that "xyz doesn't mean SVB is going
| under like FTX did five minutes after doing that".
| karpierz wrote:
| The difference is that SVB's depositors will see most of their
| money back, which is the point of the FDIC taking over.
| johnbellone wrote:
| I wouldn't be too sure about that. 93% of SVB deposits are
| uninsured.
| jb1991 wrote:
| I'm super curious why in the world that in 2023, nearly all
| the deposits in the country's 18th largest bank are _not
| insured_ ? _what_?
| johnbellone wrote:
| I am more concerned that large VC shops are doing deals
| with the 18th largest bank because "that's what we've
| always done".
| dragonwriter wrote:
| Because deposit insurance only covers $250,000 per
| depositor per ownership class, and commercial bank
| customers often have deposits >> $250,000.
| rafaelero wrote:
| Welcome to fractional reserve banking system.
| delfinom wrote:
| FDIC is federal insurance and it's for the individual
| entities that deposited the money. It's capped at $250k
| per account at the failing bank. It's meant to protect
| the little guy and not the big guy that failed. It also
| encourages users to diversify their financial
| institutions if you are really packing money away in
| accounts that exceeds $250k.
|
| Otherwise no financial institution is actually insured
| against it's entire book. That would be insanely
| expensive and financially complicated at the scale banks
| operated at. For example, JP Morgan Chase has $3.7
| TRILLION in liabilities on the books. Where the hell is
| an insurer going to get $3.7 trillion to gamble?
| Macha wrote:
| By the government. Because government insurance is
| designed to protect individual accounts as that provides
| the greatest ratio of impacted voters/exposure.
|
| Could be some of these companies have other types of
| insurance against this, but for a lot of small startups
| this is way down the list of things you'd get private
| insurance for.
| rcme wrote:
| The FDIC only insures up to $250K per account holder.
| mynameisvlad wrote:
| FDIC insurance, regardless at which bank, only covers the
| first 250k per depositor per bank.
| dragonwriter wrote:
| ...per ownership category, of which their are, I think
| 14, and sometimes the insured party isn't the depositor
| (e.g., "Employee Benefit Plans" are a category, and the
| plan _participants_ are treated as the insured party for
| calculations in that category--and since its a separate
| category, it doesn 't effect any single or joint accounts
| those participants happen to have at the same
| institution.)
| mynameisvlad wrote:
| I had it in my comment initially and removed it. When the
| bank's deposits are several magnitudes more than the
| limit, I don't think that distinction will do anything
| but muddy the waters.
|
| Even if each owner had all 14 types, they only get
| $3.5mil in insurance. And the bank has, allegedly,
| somewhere around $200 _bil_ in deposits.
| karpierz wrote:
| You can't insure the vast majority of deposits; with what
| money would you insure all of the world's money?
| gtop3 wrote:
| The issue is in trust. Banking's value proposition is
| trust. The bank is trusted to hold deposits and to
| process withdraws. Adding insurance just changes the
| trusted entity. FDIC insurance exists to increase trust
| for individual deposits.
|
| 1. FDIC insurance only covers $250k. FDIC insurance is
| mostly to reduce personal risk, so individuals feel
| comfortable keeping their own money in the bank. This is
| key to the banking industry because individuals are much
| more likely to horde physical currency than businesses
| are.
|
| 2. Who would insure the bank for unlimited deposits? If
| it's a non-governmental organization how would depositors
| know the insurance company is good for it? If it's a
| governmental organization then the taxpayer would
| essentially be a codified safety net for corporate risk
| taking. The insurance is more political palpable (and
| affordable) if it's seen as protecting individuals from
| bad banking practice then if it's seen as a bailout.
|
| 3. Banks ideally are the safe organization to hold cash.
| A bank failing is seen as a failure not only for the
| individual bank, but for the set of regulations that
| banks must follow. One bank failing reduces trust in all
| other banks, so it's in the industry's best interest to
| accept regulations that prevent bank failures.
| dahdum wrote:
| FDIC insurance is to protect consumers and small
| businesses. I think of it as the same concept as
| accredited investors, once you have a certain amount of
| money, you get the _freedom_ to dive into the shark pool
| and _responsibility_ to manage that risk yourself. SVB
| was a high yield (4.5%!) bank. That comes with some risk.
| kevin_nisbet wrote:
| But SVB also has locked in assets to be auctioned off. So
| it's going to depend on what sorts of haircuts occur on
| those assets sales.
| MrMan wrote:
| the assets the bank held are worth some % less than the
| amount they took in deposits but its not 90% less, its
| something like 20%. so on average, people will get
| something like 80% of their money back. I dont think the
| asset price declines were catastrophic.
| karpierz wrote:
| "Uninsured" doesn't mean "all of your money is gone, sucks
| to be you", it means "you'll take a haircut proportional to
| the amount of missing assets from the pool." And yes, if
| the bank is a Ponzi scheme, then that pool is empty, but
| SVB's problem is liquidity, not overall solvency. The money
| is there, it's just locked at a suboptimal interest rate,
| which may cost you 10 - 20%.
|
| This isn't like FTX where your "assets" are worthless IOUs
| written to yourself.
| davidgerard wrote:
| May also be solvency - their assets are MBSes whose
| market value went down with the interest rate rise, that
| being the proximate cause of the panic that set off the
| bank run.
| johnbellone wrote:
| Isn't that the definition of uninsured?
| function_seven wrote:
| No. If I crash my car into a $80,000 BMW and totaling it
| --and I have no insurance--the other party will still be
| able to sue me and partially recover their losses. Maybe
| they get $63k from me and eat the other $17k.
|
| The bank has assets. Just not enough to cover all
| liabilities. That's why you see the term "haircut" being
| used a lot in these threads.
| CamelCaseName wrote:
| Only 2.7% of SVB's deposits will be covered by FDIC.
| dllthomas wrote:
| I thought it was 2.7% of accounts are fully covered by
| FDIC? That's only going to be 2.7% of deposits by
| coincidence, and what it means for the others depends on
| just how dramatically over the limit they are... unless I
| miss something (which is plenty possible).
| dllthomas wrote:
| Per another thread, it may in fact be 2.7% of deposits
| insured rather than accounts.
| kgwgk wrote:
| We don't really know yet if they will be getting most of
| their money back.
|
| The only guaranteed amount is 250k.
| dannyw wrote:
| When, though?
|
| If your company can't access your money to access payroll for
| X months, you might as well as be dead.
| kasey_junk wrote:
| The press release answers some of that. Insured money is
| there on Monday. Uninsured money will get their first
| payout no later than next week.
|
| After that its a question but typically depositors will
| know the answer very quickly because their claims come
| first.
| delfinom wrote:
| Not quite, the uninsured money will be partially paid out
| depending on how the books look (since the FDIC has to
| liquidate the bank), however a chunk of the money can be
| in limbo for now via receivership certificate that tracks
| the amount you have claim to.
|
| From the PR
|
| >The FDIC will pay uninsured depositors an advance
| dividend within the next week. Uninsured depositors will
| receive a receivership certificate for the remaining
| amount of their uninsured funds
|
| This is a 100% standard FDIC statement and not unique to
| SVB btw.
|
| https://www.investopedia.com/terms/a/advance-
| dividend.asp#:~....
| karpierz wrote:
| > All insured depositors will have full access to their
| insured deposits no later than Monday morning, March 13,
| 2023. The FDIC will pay uninsured depositors an advance
| dividend within the next week.
| HDThoreaun wrote:
| So you'll get 250k plus an unspecified percentage of the
| other 93% of deposits the bank is holding. Startups have
| millions in SVB, it will be at least months before they
| have access to that.
| delfinom wrote:
| Yep, the additional percentage paid out in advance will
| be based on the bank's books once the FDIC digs into it
| to estimate what can be recovered. The rest is after
| liquidation.
| [deleted]
| w10-1 wrote:
| "When, though": now. The article says checks continue to
| clear, and branches open Monday, the next business day.
|
| And
| dragonwriter wrote:
| > The difference is that SVB's depositors will see most of
| their money back
|
| Depositors will see all of their insured money back,
| uninsured deposits will be recovered based on available
| assets and/or terms of any resale by the FDIC, but could be
| lost in whole or substantial part. Large depositors could
| potentially see substantial losses.
| manquer wrote:
| The assets are all regulated t-bills and MBS with real
| interests and secured by hard assets not made up first
| party coins with manipulated values
| bell-cot wrote:
| "Denial isn't just a river in Egypt."
| preinheimer wrote:
| Adam Conover did an interesting episode on the mechanics of a
| bank failing in the US, and how the FDIC practices for this
| moment.
|
| It's in The G Word, their episode on Money.
| https://www.netflix.com/ca/title/81037116
| vagab0nd wrote:
| Why can't this bank borrow from the Fed overnight lending market
| to fulfill the withdraws?
| havkom wrote:
| I have no idea but maybe they are not solvent anymore (negative
| equity, even if small)? (I guess Fed will not loan to insolvent
| banks, but I do not know if that is the case?)
|
| If so, would be interested to know if anyone knowledgeable in
| accounting rules could speculate a bit here what has happened -
| has any event forced a revaluation of assets on the books due
| to accounting rules for example?
| havkom wrote:
| I asked ChatGPT now about the federal reserve loans
| alternative:
|
| Why would FDIC take over an unliquid bank instead of the bank
| just loaning money by the Federal Reserve?
|
| The Federal Deposit Insurance Corporation (FDIC) is a US
| government agency responsible for protecting depositors and
| maintaining stability in the banking system. When an unliquid
| bank fails, the FDIC may step in to take over the bank and
| manage its operations.
|
| One reason the FDIC may take over an unliquid bank instead of
| the bank just loaning money from the Federal Reserve is that
| the bank may be insolvent, meaning it does not have enough
| assets to cover its liabilities. In this case, simply
| borrowing from the Federal Reserve would not solve the
| underlying financial problems of the bank.
|
| Taking over the bank allows the FDIC to manage its operations
| and assets, and potentially sell off its assets to recover
| some of the losses for depositors and creditors. This process
| is known as "resolution" and is intended to minimize the
| impact of a bank failure on the broader financial system.
|
| Additionally, if the FDIC determines that the bank is not
| viable in the long term, it may choose to liquidate the bank,
| selling off its assets and using the proceeds to pay off
| depositors and creditors.
|
| Overall, the decision to take over an unliquid bank instead
| of simply loaning money from the Federal Reserve depends on
| the specific circumstances of the bank and the broader
| financial system.
| resters wrote:
| The knowledge that this would happen is why it happened in the
| first place. SVB execs won't take a pay cut.
| WalterBright wrote:
| The WSJ lays much blame on the way regulators regulate banks:
|
| https://www.wsj.com/articles/washington-is-the-systemic-risk...
| bgc wrote:
| An interesting tidbit from the Bloomberg live thread[0]:
|
| >The FDIC prefers to close a bank over the weekend, shutting it
| down on Friday and reopening Monday, Steven Kelly, senior
| research associate at the Yale Program on Financial Stability,
| told me.
|
| >"The midday takeover suggests the bank couldn't responsibly
| operate until the end of the day," Kelly said.
|
| [0]https://www.bloomberg.com/news/live-blog/2023-03-10/the-
| fall...
| dang wrote:
| Related ongoing thread:
|
| _The Demise of Silicon Valley Bank_ -
| https://news.ycombinator.com/item?id=35098607 - March 2023 (64
| comments)
|
| The previous major threads appear to be these (did I miss any?):
|
| _SVB in talks to sell itself after attempts to raise capital
| fail_ - https://news.ycombinator.com/item?id=35094466 - March
| 2023 (270 comments)
|
| _Ask HN: How is the SVB situation affecting your startup?_ -
| https://news.ycombinator.com/item?id=35094447 - March 2023 (130
| comments)
|
| _Banks lose billions in value after tech lender SVB stumbles_ -
| https://news.ycombinator.com/item?id=35087666 - March 2023 (9
| comments)
|
| _Bank run on Silicon Valley Bank?_ -
| https://news.ycombinator.com/item?id=35086836 - March 2023 (791
| comments)
| purpleblue wrote:
| The fact that no other bank stepped in to buy the assets makes it
| seem like this is going to be dire for depositors. There's
| something wrong in the books, or the liabilities are higher than
| the assets, both of which means that depositors are going to lose
| some money.
|
| I have a friend that uses SVB for his startup and now all his
| funds are frozen. The big question is how long will the money be
| locked up for? Could it be 6+ months?
| itg wrote:
| So any startup which had more than $250k in SVB only has $250k
| left now I'm assuming? Hopefully this doesn't have a bad domino
| effect.
| delfinom wrote:
| $250k is guaranteed by FDIC insurance.
|
| The rest is limbo until the bank is liquidated and the
| remaining money is distributed.
| HDThoreaun wrote:
| 250k on march 13th. The rest of the account will be released as
| the FDIC sells the banks assets, which will probably take
| months.
| tedivm wrote:
| I'm copy/pasting a commend I made elsewhere, but I'm not sure
| this is the case.
|
| > I worked at a startup that took in over $100m in investment,
| and I was curious so I asked the cofounder how they protected
| that. According to him the money was divided up into chunks
| smaller than $249k, pushed off to a custom entity made just for
| the purpose, and then invested in bonds or CDs on a rotating
| basis.
|
| Basically if you have a ton of money having it sit in a bank
| account is one of the worst things you could do with it, so
| most people who bring in a lot mostly just keep operational
| expenses in their bank account while leaving the rest of the
| money in other financial instruments.
| NordSteve wrote:
| The "bad bank" (SVB) will be liquidated and the proceeds
| distributed to the creditors. How much that will be for
| depositors won't be clear until that process occurs.
| discodave wrote:
| Probably just a haircut. How much nobody knows yet, but
| according to the FDIC release, 3 months ago they actually had
| $209B of assets, so it's not a FTX-like 'oops we accidentally
| your money' scenario.
| havkom wrote:
| Is this a good guess as any?
|
| * With-in a week or so uninsured accounts will get 40-60 cents
| per dollar
|
| * In years when the liquidation process is finished they will
| have gotten 5-20 cents more in addition per dollar
|
| * Shareholders will get nothing in this scenario
|
| Are there any better guesses or any flaws that makes this guess
| unresonable?
| christkv wrote:
| How many of companies will loose access to liquidity and face
| bankruptcy next?
| hi wrote:
| Heads up founders who banked with SVB - Customers with accounts
| in excess of $250,000 should contact the FDIC toll-free at
| 1-866-799-0959
| rvz wrote:
| Oh dear. It guess this is how the VC pyramid scheme collapses.
| $151BN uninsured deposits in the bank. [0]
|
| Now all those unprofitable startups will be falling like dominoes
| as now the money is tied up in the bank with withdrawals
| disabled.
|
| [0] https://twitter.com/FedGuy12/status/1634038788468113408
| marcosdumay wrote:
| That amount of confidence on the fact that the music would
| never stop is... I dunno, I don't get any good adjectives. I
| can't understand it.
|
| It's not even the case that they did it for the returns,
| because the returns were negative. Is it a regulation thing
| that forced banks to overinvest in long-term bounds?
| johnbellone wrote:
| You're getting downvoted because people are upset, but this is
| a real problem that could have been avoided. We'll come out of
| it stronger, but its going to hurt.
| bagels wrote:
| Many people will not come out of this stronger.
| tarr11 wrote:
| Does this mean that SVB customers are going to lose deposits
| over the FDIC limit (250k?)
| trimbo wrote:
| No because SVB has assets with value to sell. That's the
| "dividend" the FDIC refers to in the press release.
| rekttrader wrote:
| For now yes, you get a note on what's owed that remains and
| in time you get some of your money back post bankruptcy.
|
| Keep your accounts lower than 250k
| johnbellone wrote:
| Or better yet, don't listen to your VC's relationship
| people and put all of your money in one bank.
| roflyear wrote:
| Many bank's terms are if you get a loan from them, you
| need to use them as your only bank (or only accounts
| receiving deposits, or something). It is negotiable but
| it is the norm.
| alwaysbeconsing wrote:
| > Keep your accounts lower than 250k
|
| For full precision, if you're concerned about this, be
| aware that it's 250K per _depositor_ at a given bank,
| rather than per _account_. That is, all your qualifying
| accounts at the bank are considered as one pool and 250K of
| that is insured. More detailed information, including how
| joint accounts are handled, here:
| https://www.fdic.gov/resources/deposit-
| insurance/financial-p...
| ncallaway wrote:
| SVB's assets will be divided up and given back to creditors
| (including depositors). So remaining depositors likely will
| get something back eventually, but we don't know how much yet
| (10%? 50%? 85%). There will also likely be a delay in getting
| those funds back as the process plays out, which is probably
| more dangerous to many companies than the haircut (assuming
| the hair-cut isn't too severe).
| hintymad wrote:
| Just heard that the payroll company Ripping is down, as they use
| SVB as their partner. What a rippling effect...
| fudged71 wrote:
| Which other popular companies have SVB as their main partner
| for providing products/services?
| imhoguy wrote:
| https://twitter.com/Rippling/status/1634201986894577665
| mosfets wrote:
| What does the "takeover" mean? Will people's deposit still stay
| intact?
| dpweb wrote:
| May be nice for an acquirer. Roll those long term bonds into very
| short term treasuries - take that big loss now - and earn 4%
| going forward.
|
| Rates will eventually top out - they just had made a very bad bet
| at 1.5%/10 yr.
| zamnos wrote:
| _Eventually_ , sure, but we don't really know where. And
| neither does the Fed, though I'm sure they have ideas on how
| far they _want_ to go. They don 't control the jobs report
| though.
|
| Rates are 5% now, so a spread of 3.5%. If rates go above 8.5%
| (which they were, from 1973 to 1992) then the acquirer is in
| basically same hole as SVB, no?
| omgomgomgomg wrote:
| Hold on, what happens if someone raised money from them for an
| incorporation?
|
| They have to pay backbas usual, right?
| Macha wrote:
| Yes, if you owe money to a bankrupt organisation, the creditors
| of that organisation now have your liability as their asset and
| will still expect payment.
| NordSteve wrote:
| Only 3% of deposits in the bank are FDIC insured; other
| depositors will need to wait for the receivership process to run
| to get access to (what remains) of their deposits.
|
| edit: replace "bankruptcy" with "receivership" as the latter is
| usually a faster process than the former.
| treis wrote:
| This isn't true. The bank is in receivership and which is a
| different form of bankruptcy. The FDIC will liquidate assets or
| find a buyer relatively quickly. Depositors will end up getting
| most or all of their money back.
| sp332 wrote:
| _The FDIC will pay uninsured depositors an advance dividend
| within the next week._
| jb1991 wrote:
| > Only 3% of deposits in the bank are FDIC insured
|
| why is that?!
| NordSteve wrote:
| Because most of their depositors were business that kept
| >$250K (the insurance limit) in the bank.
| tome wrote:
| Why would someone keep more than $250K in bank deposits?
| Isn't it more prudent (looking back no more than 15 years)
| to keep T-Bills or some other liquid security that isn't
| subject to a bank run?
| blibble wrote:
| $250k isn't much for a company with employees
|
| you have to keep some cash somewhere to meet short term
| expenses (like payroll)
| tome wrote:
| Is it not possible to meet short term expenses with a
| short term loan which is discharged over a few days by
| selling liquid assets? Maybe banks just don't want to let
| you do that.
| SpicyLemonZest wrote:
| It is, and no prudent company should have lost their
| _entire_ war chest unless their funding arrived just
| yesterday. But when you 're spending $10M or $100M a
| year, it's operationally challenging to make sure you
| never have more than $250K in the bank while you're doing
| it. (It's much, much better to be imprudent and have too
| much in bank deposits than miss payroll because you have
| too little.)
| synu wrote:
| Because the insurance is for $250k and most depositors had
| much more than that.
| bagacrap wrote:
| Only 3% of accounts were under 250k. An account of $251k isn't
| part of the 3% figure, but is almost totally insured.
| ncallaway wrote:
| Where'd you get the 3% figure? The only thing I saw in the
| article was that it was not determined.
|
| > At the time of closing, the amount of deposits in excess of
| the insurance limits was undetermined. The amount of uninsured
| deposits will be determined once the FDIC obtains additional
| information from the bank and customers.
|
| Is the 3% figure from SVB or an estimate from another source?
| NordSteve wrote:
| Likely number is bigger than 3%, as they had a giant outflow
| over the last couple days.
| NordSteve wrote:
| https://twitter.com/GRDecter/status/1634208652595699713
| ncallaway wrote:
| Thanks!
| pastor_bob wrote:
| Bill Ackman and Wall Street calling for a government bailout
| for all depositors:
|
| https://twitter.com/BillAckman/status/1634032841687285761
| NordSteve wrote:
| I can't see that happening in today's political climate.
| Imagine the stories juxtaposing coddled tech workers against
| the cost of the bailout.
| bagacrap wrote:
| And what is the cost of the bailout, oh sage?
|
| > As of December 31, 2022, Silicon Valley Bank had
| approximately $209.0 billion in total assets and about
| $175.4 billion in total deposits
|
| I have a hard time believing they lost 20% of their assets
| in the last 70 days. The shortfall, if any, should be
| minor.
| lyrrad wrote:
| I think the asset figure did not include unrealized
| losses on bonds that they intended to hold to maturity as
| banks are not required to deduct those from their total
| assets. As deposits flowed out of the bank, they sold
| some assets and realized those losses.
|
| The FT reported a couple weeks ago that they had an
| unrealized loss of $15B in bonds: https://www.ft.com/cont
| ent/0387e331-61b4-4848-9e50-04775b4c3...
|
| I think we'll have a much better idea of the shortfall,
| if any, over the weekend as the FDIC tallies up the
| remaining assets and deposits.
| weard_beard wrote:
| AKA the inversion of long and short term treasury
| absolutely screwed them and JPow announcing additional
| rate hikes was the nail in the coffin.
| twoodfin wrote:
| Could the Fed do this in a back door way? Buy the devalued
| bonds at above-market rates?
| senttoschool wrote:
| What happens to the deposits above $250k in this case?
|
| Ouch for startups that didn't pull.
| hijinks wrote:
| they turn into creditors of the bank to try to get the money
| back from asset sales. That could take years though it isn't
| quick
| senttoschool wrote:
| Isn't that a death sentence for a startup? Even if you get
| your money back years later, you're company is already dead
| because it can't make payroll. At that point, the money will
| just go back to the VCs?
| ncallaway wrote:
| From the FDIC release there will be an advance payment on
| uninsured assets within the next week.
|
| My guess is they take a week to look through the books,
| determine an absolute floor for the value of assets, and
| use that floor to proportionately pay out uninsured
| depositors.
|
| So, some additional funds will be available soon. We don't
| yet know how much.
|
| The rest will probably be locked up while the process plays
| out. I've heard different timelines for that.
| hijinks wrote:
| basically but the FDIC usually comes in real quick if they
| think a collapse might happen. Rumor is there's enough
| assets to cover the loses but it just couldn't handle the
| run happening.
|
| I believe SVB will be open for business on Monday
| boringg wrote:
| "Customers with accounts in excess of $250,000 should contact the
| FDIC toll-free at 1-866-799-0959."
|
| At least its toll free...
| m00dy wrote:
| [flagged]
| ajhurliman wrote:
| Fixes what? An insolvent bank got was taken over by a national
| authority, all of the deposits were insured, account holders
| don't even notice anything happened unless they're following
| the news, the banking system doesn't even skip a beat.
|
| This sounds like everything went according to the highly
| regulated plan.
| willmadden wrote:
| FDIC insurance only covers accounts up to 250k. It's really
| only suitable for protecting middle class individuals, not
| corporations.
|
| 97% of the 175 billion on deposit was not covered by FDIC
| insurance.
|
| Those companies are going to be wiped out unless the
| government steps in and exceeds the requirements of the
| insurance.
| voisin wrote:
| > 97% of the 175 billion on deposit was not covered by FDIC
| insurance.
|
| Source?
| dragonwriter wrote:
| > all of the deposits were insured
|
| There's no official accounting yet, but most accounts seem to
| estimate that a very large fraction are not, because of FDIC
| insurance limits.
| ajhurliman wrote:
| The accounts are still insured even if the insurance
| doesn't cover 100% of the deposits
| zamfi wrote:
| > all of the deposits were insured
|
| Only up to $250k -- and an overwhelming majority of SVB's
| deposits were in accounts in excess of this amount.
| mewse-hn wrote:
| Yeah famously the feds step in and cover your deposits when a
| crypto exchange collapses
| willmadden wrote:
| Why is hacker news chocked full of people who don't
| understand crypto?
|
| You are not supposed to use centralized exchanges to custody
| your assets.
|
| "Not your keys, not your crypto."
|
| It's the entire point of crypto to not keep it on a
| centralized exchange!
| antibasilisk wrote:
| You're not supposed to keep your money in exchanges
| stouset wrote:
| Yeah famously the feds step in and cover your deposits when
| [your wallet is compromised|you lost your password|your
| hard drive crashed|the price of your algorithmic stablecoin
| goes to zero|you put in the wrong address|you open an NFT
| that drains your wallet|your DAO hands all its assets out
| to someone smarter than its programmers].
| antibasilisk wrote:
| just don't do those things and keep backups, it's not
| that hard unless you're a cryptobro larper
| telotortium wrote:
| What's the famous slogan? "You are your own bank!"
| [deleted]
| kuczmama wrote:
| What I don't understand is why do banks work this way?
|
| Imagine you were designing the bank from scratch having no
| knowledge of the current banking system. How would you do it? The
| most obvious thing would be if a customer deposits money, you
| would hold 100% of the money 1 to 1 exactly how they deposited
| it. Then the bank could make money by providing services to their
| customers.
|
| If I had to bet, most people who have money in a bank today
| _think_ this is how banks work.
|
| But in reality, when a bank receives money, a bank will take some
| percentage of their customers deposits (90% or so), and then
| invest that money trying to make a return on it. This works as
| long as all customers don't try to withdraw their money at once.
|
| But when enough customers... say 10% of the customers try to
| withdraw money from the bank at once, since 90% of the money was
| in other investments, the money isn't really there, and you get a
| bank run.
|
| Silicon Valley Bank is not new, the whole reason we have FDIC
| insurance is to protect against bank runs. As long as this is the
| system we follow, we will continue to get bank runs.
|
| I feel like the entire banking system is broken because "The
| money isn't actually there". There needs to be a better way then
| relying to the government to bail out banks who make bad
| investments. Either a bank should be backed 1 to 1, or there
| should be some other way to keep hold of your money.
| bombcar wrote:
| There _are_ banks that do offer the 1:1 ratio you want; they
| charge you a quite hefty fee to do this.
|
| But from time immemorial banks work by taking money from you
| (short term) and selling it to someone else (long term).
| Originally the banks were "protected" by being able to claw
| back the long term at anytime; but that caused even worse
| problems.
|
| FDIC provides a way for "common people" to be protected from
| this; the other option would involve something like the USPS
| offering cash-only banking for people.
| nine_zeros wrote:
| > What I don't understand is why do banks work this way?
|
| This is such a great question. It has depth and nuance. If I
| understand it correctly, it comes from a place of wanting
| stability. Why wouldn't anyone design a banking system that is
| fully backed and stable? Who the hell wants these violent booms
| and busts? This looks like something that can be kept stable
| right from the get go.
|
| I hear you. The main reason I can think of is that "banking is
| crookery".
|
| The old goldsmiths were crooks who understood fractional
| reserve. Imagine if we were to ban the current system and asked
| banks to hold every deposit 1:1, they could - for a small fee.
| But that will mushroom a black market of lending for interest.
| All the banking crooks will have no choice but to go to the
| black market. This will cause the black market to grow faster
| than stable banking, which will lead to more unregulated chaos.
|
| The only alternative I can think of is equity-based islamic
| finance style banks. While these banks have interest in varying
| forms, they don't have as much asset risk because the interest
| rate is largely meaningless because lending/borrowing is not
| the main way to earn money.
| rafaelero wrote:
| > What I don't understand is why do banks work this way?
|
| People don't want to lose their money to inflation, so banks
| are implicitly required to make up for that. Also, it's just
| too tempting for them not to use the money that is collecting
| dust.
|
| Hopefully people will emerge from this with a better
| understanding of Bitcoin's advantage to normal fiat system,
| which is something that is severely lacking in discussions I
| see here in HN.
| themitigating wrote:
| Then how would a bank provide loans for cars and houses? They
| might also have to charge a very high fee to hold your money
| and not provide interest
| nemo44x wrote:
| > Then the bank could make money by providing services to their
| customers.
|
| The point of a bank is to loan money. That's it. This is how
| they make money. They need deposits so they can loan money.
| They pay the depositor a part of the interest on the loans they
| write. They don't exist to sell services because that's a
| really bad business. They provide services to attract deposits
| so they can write more loans. That's what banks are.
|
| > ...and then invest that money trying to make a return on it.
|
| No, they don't do that. They loan the money. If they can't loan
| it then they put it into a variety of safe places that can earn
| some interest, among other things. But they don't gamble
| depositors money. Investment banks may, but that's an entirely
| different thing.
| ncallaway wrote:
| > Then the bank could make money by providing services to their
| customers.
|
| Which services? And those services would need to be something
| that I can _only_ provide by being your depositor (otherwise I
| 'll get beaten by someone who provides those services _without_
| the added burden of holding and securing your physical money.
|
| You've basically designed a system that increases the costs of
| being a bank, and eliminates the main source of profit, and
| hand-waived over how to close that gap.
|
| I suspect it's simply unprofitable to run a bank in the model
| you've provided. I suspect the only way to make that system
| work is by saying "banking is a public good, it's OK if it runs
| at a loss" and making it a gov't provided service. I don't
| really see a path to private banks existing in the model you
| outlined.
| kuczmama wrote:
| That's a very good point. I think services could include
| things like financial management, checking, sending/receiving
| fees, etc.
|
| You're right, in this model it wouldn't be nearly as
| profitable to be a bank as it is now. Potentially, it could
| be a "public good" provided by the government, or it could be
| like a lot of the brokerages who provide investment services
| and charge a commission on top.
|
| Also, you're right it would be very hard for banks to be
| anywhere near as profitable as they are now if assets are
| backed 1:1.
|
| But in some sense, banking is _already_ viewed as a public
| good since the FDIC is backing all of the bank deposits. So
| at the moment we kind of have a weird hybrid situation where
| banks are kind of pseudo-private, but also backed by the
| government.
| mempko wrote:
| Banks don't lend out deposits. They don't take deposits and
| lend out 90% or so. Fractional reserve banking is a model of
| how banking works but it's a wrong model. In reality banks make
| loans (which create deposits). They try to attract deposits
| from other banks because they need enough bank reserves to
| cover liquidity issues (like customers transferring money to
| other banks). When a bank transfers deposits to another bank,
| they must transfer reserves too. There is really a 2 tiered
| money system in the US. There are bank reserves (which you and
| I can't have) and deposits (which you and I do have).
|
| How banks actually work was described well by the Bank of
| England. https://www.bankofengland.co.uk/quarterly-
| bulletin/2014/q1/m...
| kgwgk wrote:
| > Fractional reserve banking is a model of how banking works
| but it's a wrong model. [...] They try to attract deposits
| from other banks because they need enough bank reserves
|
| Not completely wrong, after all.
| PragmaticPulp wrote:
| > Imagine you were designing the bank from scratch having no
| knowledge of the current banking system. How would you do it?
| The most obvious thing would be if a customer deposits money,
| you would hold 100% of the money 1 to 1 exactly how they
| deposited it. Then the bank could make money by providing
| services to their customers.
|
| Now imagine you've finally settled on a cost structure that can
| pay all of your insurance, operating costs, payroll, and
| everything else. You charge monthly fees and you might also
| charge per-interaction fees to do anything or talk to anyone.
|
| Then a competitor comes along that operates in a fractional
| reserve manner. They not only offer zero fees, they actually
| pay customers interest to keep their money in the bank. There
| is a risk of failure, but it's rare and all evidence points to
| customers not suffering massive losses when it does happen due
| to various regulations. Inconvenient, yes, but it's unlikely
| that you're going to lose all of your money.
|
| The majority of your customers would leave for the competitor
| bank.
| AvAurora wrote:
| Not if you make inducing bank runs by means of marketing
| legal.
| stuxnet79 wrote:
| I see the point you are trying to make here but your argument
| isn't very convincing. You are completely ignoring the impact
| regulatory oversight would have. If fractional reserve
| banking was banned outright due to the risks it poses, then
| the situation you just described would never emerge.
|
| As time goes on it's becoming more obvious that the current
| status quo is unstable. Our financial institutions regularly
| engage in ponzi like activities and we've become accustomed
| to near catastrophic collapse at the end of every business
| cycle.
|
| If we are going to stick to fractional reserve banking then
| we need to come up with better reasons why otherwise I feel
| like the entire system needs to be reevaluated.
| adrr wrote:
| Also where would the capital come from to give out loans?
| suresk wrote:
| 1:1 banking essentially guarantees long-term loss of principal
| for depositors, albeit slowly. The main "service" a bank would
| provide in that scenario is holding onto your money for you and
| instead of paying interest on it, charging you a few percent
| per year to hold onto it for you.
|
| Also, in your model, where does money for loans come from? How
| are borrowing costs impacted by a major source of funds for
| loans going away?
| stoicking wrote:
| I think what you described is a vault. A bank is where I go
| when I need money for a car or a house. A vault is where I put
| my money to be 100% safe.
| adgjlsfhk1 wrote:
| The problem with this take is fractional reserve is really good
| for the economy because it expands the money supply. The
| problem with a bank that holds 100% of the money is that it has
| to charge it's customers to use it, so they won't get
| customers.
| ThrowawayTestr wrote:
| >What I don't understand is why do banks work this way?
|
| Because that's how you make real money.
|
| Fractional reserve banking is the biggest scam in history.
| chernevik wrote:
| The whole point of a bank is maturity conversion, the
| transformation of short-term deposits into long-term loans.
|
| It generally works because while any one depositor's funds are
| short term, the pool of such deposits is generally stable. A
| good chunk of today's deposits will fund tomorrow's
| withdrawals. Banks also have elaborate instruments like
| commercial paper and the Fed discount window to cover short-
| term liquidity gaps. A bank with assets it can't sell quickly
| enough can generally borrow briefly from some other bank to
| cover the term gap. But there is a limit on how much such
| borrowing a bank can do, and SVB has hit it.
|
| It seems that SVB made a classic mistake of putting a lot of
| "hot" money into long-term assets, thus taking on interest rate
| risk. They probably should have put the surge of deposits into
| shorter-term instruments, but that would have forced them to
| reduce interest on deposits or their own profits.
| UniverseHacker wrote:
| The ability to 'borrow' someone else's money to do something
| valuable with it opens huge opportunities. This model is what
| fueled the massive economic growth of the last few hundred
| years, made the industrial revolution possible, and made home
| ownership possible for non-aristocracy.
| thetrb wrote:
| People expect interest when they park a large amount of money
| in a bank. Where should that interest come from when the money
| just sits there? The bank will have to invest is somewhere
| (ideally somewhere very safe like in Government bonds) where
| they can then collect interest.
|
| So it looks like in this case SVB chose MBS with a pretty low
| interest rate and long maturity, which they now have to sell
| due to the bank run you mentioned.
| noncoml wrote:
| If you have a large sum of money that you don't expect to need
| them soon, do you put the in the bank or do you invest them?
|
| Probably invest then. Why would the bank put its money in the
| bank if you are not?
| 420official wrote:
| The bank can happily choose to invest *its* money, it
| shouldn't be investing *my* money.
| eddsh1994 wrote:
| Mortgage-backed securities strike again
|
| https://twitter.com/jamiequint/status/1633956163565002752
| tpmx wrote:
| A Swedish white collar pension fund (Alecta) was the 4th largest
| owner of SVB. It's been big news over here today. I think I have
| some pension savings there.
|
| Their investment in SVB represented 0.6-0.7% of their total fund.
| I assume that the FDIC takeover means it's a total loss.
|
| Was this a manufactured bank run?
|
| https://www.bloomberg.com/news/articles/2023-03-10/why-svb-w...
| cissou wrote:
| That's wild. I wonder if it's good news for neobanks like Mercury
| and Brex who will see an influx of new customers, or on the
| contrary, startups will seek old, boring, safe banks instead of
| niche boutiques with lots of exposure to industry risk.
| dopeboy wrote:
| In my circle of founders, it appears JPMC is winning out. We
| are currently on Brex via lending club and monitoring the
| situation closely.
| AndreLock wrote:
| I think it's the latter. If anything, this will negatively
| impact Mercury and Brex in the long run as companies will favor
| safety above all else.
| [deleted]
| sam345 wrote:
| lots of comments about bank but what about business clients ? WSJ
| says lots of startups in danger of losing their funds over FDIC
| limit ? Anybody having experience with that ?
| https://archive.is/tetbD
|
| Here's a good thread
| https://news.ycombinator.com/item?id=35094447. on affect to
| startups
| nsxwolf wrote:
| I had never even heard of the Silicon Valley Bank. It sounds
| fake. Is this really a contagion risk?
| DLarsen wrote:
| I think I'm going to start asking potential employers where they
| do their banking.
| capableweb wrote:
| I don't think it should be like this, but most surely your
| profile will be flagged as "suspicious" if you ask such
| questions.
| steve76 wrote:
| [dead]
| ShamelessC wrote:
| I'm fairly certain that would be A-okay with the person you
| responded to.
| zamnos wrote:
| Asking them to name the bank is a bit of a weird one, only
| because the answer can't be SVB anymore, and I'm not sure
| what OP would do with that information. (So it's FRB, then
| what? Unless you have inside info that they're about to fail,
| and you're interviewing _this week_ , I don't see how their
| banking partner's material) But if a startup you're
| interviewing at won't answer what their runway is, or the
| rest of the reverse interview business questions, then that's
| a red flag and you should run far, _far_ away from them.
|
| * Are you profitable?
|
| * If not, how long is your runway?
|
| * Where does the funding come from and who influences the
| high level plan/direction?
|
| * How do you make money?
|
| * What's preventing you from making more money?
|
| * What is the company's growth plan for the next 1 year? 5
| years?
|
| * What are the big challenges you see coming up?
|
| * What have you identified as your competitive advantage?
|
| https://github.com/viraptor/reverse-interview
| kube-system wrote:
| There are some founders who are aware that their early
| employees are invested in the financial security of the
| company, and not only aren't scared of these questions, but
| openly discuss company finances.
| banku_brougham wrote:
| Aw shucks I wonder if any of my clients kept their working
| capital at SVB.
| [deleted]
| firstfewshells wrote:
| I wonder if this has any effect on the deposit sweeping programs
| run by firms like robinhood, betterment and wealthfront. They
| promise 4%+ yields with freedom to take out your cash any time. A
| quick look at their partner program banks suggests they more or
| less transfer the deposits to the same set of banks.
| hw wrote:
| Are there any public companies that bank with SVB? Startups that
| went public in recent times?
| somenameforme wrote:
| An explainer post [1] connected to that Tweet is something I
| found extremely informative (assuming it's accurate):
|
| "- In 2021 SVB saw a mass influx in deposits, which jumped from
| $61.76bn at the end of 2019 to $189.20bn at the end of 2021.
|
| - As deposits grew, SVB could not grow their loan book fast
| enough to generate the yield they wanted to see on this capital.
| As a result, they purchased a large amount (over $80bn!) in
| mortgage backed securities (MBS) with these deposits for their
| hold-to-maturity (HTM) portfolio.
|
| - 97% of these MBS were 10+ year duration, with a weighted
| average yield of 1.56%.
|
| - The issue is that as the Fed raised interest rates in 2022 and
| continued to do so through 2023, the value of SVB's MBS
| plummeted. This is because investors can now purchase long-
| duration "risk-free" bonds from the Fed at a 2.5x higher yield.
|
| - This is not a liquidity issue as long as SVB maintains their
| deposits, since these securities will pay out more than they cost
| eventually.
|
| - However, yesterday afternoon, SVB announced that they had sold
| $21bn of their Available For Sale (AFS) securities at a $1.8bn
| loss, and were raising another $2.25bn in equity and debt. This
| came as a surprise to investors, who were under the impression
| that SVB had enough liquidity to avoid selling their AFS
| portfolio."
|
| [1] - https://twitter.com/jamiequint/status/1633956163565002752
| resource0x wrote:
| Ackman panics, appeals for a bailout
|
| https://www.msn.com/en-us/money/other/billionaire-investor-b...
| BlandDuck wrote:
| "This is not a liquidity issue as long as SVB maintains their
| deposits, since these securities will pay out more than they
| cost eventually."
|
| But that's exactly the problem. With higher interest rates,
| those deposits will be looking for a higher deposit rate. With
| their assets tied up in low-paying long-term bonds, SVB will
| not be able to pay that higher rate.
|
| It would only work out "eventually", if the depositors would
| accept a below-market rate until the bonds matured.
|
| EDIT: This is indeed a _solvency_ issue, not a liquidity issue,
| as also pointed out below.
| danpalmer wrote:
| It's never a liquidity issue as long as no one tests the
| liquidity!
| lkbm wrote:
| He meant _solvency_ issue. Someone else called this out
| downthread and he confirmed. Definitely felt like it should
| 've been corrected more prominently, though.
| jamiequint wrote:
| Yes, I mis-spoke. If only there was some way to edit tweets
| or to pin your replies to the top of a thread :P
| zzleeper wrote:
| And yet he is wrong!
|
| They were stuck with assets earning <2% for 10+ years,
| meanwhile depositors were demanding higher returns (else
| they would put their money in other banks, in 6m tbills,
| 10yr treasuries, etc.. all of which paid a lot more).
|
| And thus, "it's not a solvency issue as long as depositors
| are stupid and don't realize they can get more $$$ from
| other banks" ends up being quite misleading
| benlivengood wrote:
| So they didn't require the deposits earning 2% to be in
| term CDs like sane banks and credit unions do?
| blantonl wrote:
| "Eventually"
|
| The markets can stay irrational longer than you can remain
| solvent.
| pishpash wrote:
| All liquidity issues are solvency issues when marked to
| market.
| actionablefiber wrote:
| That's true in a tautological way, but there really is a
| difference between liquidity and solvency.
|
| If a firm's assets will _eventually_ mature and be worth
| more than the current liabilities, then a private rescuer
| can make a lot of money by bailing them out. If the assets
| will never recover or pay out, then someone will be holding
| the bag.
| kgwgk wrote:
| But it's important that they are eventually worth more.
| Enough to provide the rescuer with a substantial gain
| that compensates them for their troubles. Solvency in a
| "breakeven" sense is not enough.
| andromeduck wrote:
| Why even chase 1.5%.
| berkeleyjunk wrote:
| They got too much in deposits very quickly and could not
| originate loans at the same speed. If they kept the money
| uninvested their operating costs would have eaten up their
| principal (even if they had to pay 0% in interest to their
| customers)
| pirate787 wrote:
| On $80B that's $120 million a year
| snewman wrote:
| 1.5% of $80B is actually $1.2B
| postalrat wrote:
| If you could make 1.5% off other people's money how much
| would you "invest"?
| notShabu wrote:
| One of the differences between a central bank and regular bank
| is that the regular banks should do the riskier stuff and offer
| the higher interest rates.
|
| This in theory creates a diverse non-correlated system of
| capital deployment with the best projects winning over the bad
| ones.
|
| However when the central bank offers interest rates that a
| private bank cannot match even when it's deploying into safe
| and endorsed assets like MBS then some weird stuff happens...
|
| The Fed can promise risk-free returns at whatever rate they
| want but once it exceeds the private banks', then the banks no
| longer serve any purpose. If there were a way for individuals
| to hold accounts directly w/ the Fed, they'd all do that. Money
| will be sucked away from banks that deploy capital in the
| private sector and squeeze into ones that just passthrough to
| the Fed's like money market funds.
|
| With high enough interest rates, the Fed can end up sucking up
| liquidity even from good and safe projects and cause widespread
| asset collapse b/c the entities that are supposed to be doing
| price discovery can't compete anymore.
| itissid wrote:
| Noob Questions: How do banks typically diversify their
| investments so that this kind of thing does not happen? Also
| don't they have to have some kind of liquidity cushion? Can't
| they just cover their short term costs by borrowing(I thought
| there is an overnight facility for lending between banks to
| borrow at low rates)
| LanceH wrote:
| With only a look at the summary numbers above, it looks like
| they tied up 40% or so to 10+ years. I don't know what the
| right percentage should be, if that much is going to be tied
| up in hold-to-maturity, you would expect it on a rolling
| basis which reflects the long term liquidity of your
| deposits.
|
| On its face, such a purchase would only be done assuming
| rates and markets will remain the same. I wish I could say
| that accusing a bank of making such a naive purchase means
| that interpretation is wrong, but these banks keep doing
| things like this since it's always worked out before. I'm
| sure it's much more complicated, but sometimes that's because
| it should have been a lot less complicated.
| EMM_386 wrote:
| I don't understand why you would lock up that much money
| for 10 years at 1.5% interest.
|
| Did they expect interest rates to stay at 0 for 10 years?
| That is illogical.
| rvnx wrote:
| Especially illogical, considering it's not their own
| money that they locked, but customers funds (that they
| owe to the customer in the short-term).
| abm53 wrote:
| If that was the market clearing price, then to the extent
| that rate expectations set the bond price (which of
| course is debatable) this would have been the consensus
| view at the time.
| rsync wrote:
| "97% of these MBS were 10+ year duration, with a weighted
| average yield of 1.56%."
|
| I'd like to learn more about the dramatic drop in MBS -
| elsewhere, downthread, it is asserted that they have dropped
| 30-50% ?
|
| _I understand the inverse relationship between bond price and
| yield ..._
|
| ... but I am surprised that an asset yielding ~1.5% drops 30%
| in value when treasuries of similar duration rise to 3-4%.
|
| Are there other factors at play with MBS in early 2023 - such
| as increased delinquencies - that are putting downward pressure
| on their price ?
| fspeech wrote:
| Interest rate rise will cause the same loss for bonds of the
| same duration. However MBS don't have fixed durations. As
| interest rates go up, borrowers are expected to hold onto
| their mortgage longer. So the expected duration goes up for
| an MBS as well and loss is expected to be higher than bonds
| with similar duration to begin with. However there is a
| mitigating factor for MBS in a rising rate environment, that
| is they are amortizing instruments. So the duration doesn't
| go up as dramatically as callable bonds/CDs.
| nilsbunger wrote:
| It's pretty straightforward -- if you have asset yielding
| 1.5% forever, you can make it an asset yielding 3% by cutting
| its price in half.
|
| In this case it's a little more complicated since you also
| get the principal back in pieces, but you can calculate the
| price today to create the equivalent of a 3% yield instead of
| 1.5%, and you'll get a significant price reduction.
| ikiris wrote:
| Go watch Margin Call.
| [deleted]
| hervature wrote:
| I will first try to explain with simplified numbers and then
| do the equivalent calculation somewhere else.
|
| Let's assume you buy a $100 bond with 0% rate for 10 years.
| For simplicity, let's assume it's a riskless bond. Now, let's
| suppose those same bonds now pay 5% a month later. Well, the
| smart thing to do would be to sell your 1-month old bond and
| buy the new one. Of course, everyone is doing the same thing
| so the price has to drop until the bonds are equivalent. You
| would get $100/1.05^10 = $61.39. Of course, the old bond
| still pays 0% but now, on paper, the price of the bond should
| grow 5% every year as we get closer to maturation.
|
| Going to the real world, it would be something like 4.5%
| (current Fed rate - expected to be higher) minus 1.5% (the
| MBS rate they have) is 3% difference and so $100/1.03^10 =
| $74.41. Now, you said 10+ and so doing the same thing with 15
| years is $64.19. This is also not including the fact that MBS
| is strictly worse than treasuries in terms of riskiness and
| so it's easy to imagine 50% off.
| [deleted]
| actionablefiber wrote:
| > You would get $100/1.05^10 = $61.39.
|
| Emphasis on the _exponential decay_ relationship between
| market price and time-to-maturity. If you change that 10 to
| a 30, the bond is worth $23, and if you change it to a 50,
| it 's $8.72. For a bond that pays $100 at maturation.
|
| I think laypeople intuitively guess that long-dated bonds
| are safer, because that is sort of how it feels when you
| are borrowing money to buy a house. But in terms of the
| market value of the bond, you add exponentially more
| interest rate sensitivity as the time-to-maturity
| increases.
| boosting6889 wrote:
| There's a misconception that bonds are safe investments. They
| are not. You're just trading one kind of risk for another.
| You can do the math, compare 4% and 1.5% compounding for 10
| years and that's why no one wants the bonds yielding 1.5%.
| Dumping 90%+ of your liquid funds into a single thing other
| than cash is completely insane especially when it's not
| yours.
| snuxoll wrote:
| Treasury bonds are "safe" in the sense that you _will_
| (because the US Government will not default on her debt)
| get your money back. The caveat is you will get your money
| back _at maturity_ ; if you need it before then, well,
| market value adjusts based on current yields.
|
| If you're investing in bonds without building a ladder
| you're honestly doing it wrong. With the past 15 years of
| easy money and low yields it might have seemed pointless
| given rates barely moved, but completely giving up on any
| ability to capitalize on higher yields if rates move up is
| just poor investing :/
| SmartJerry wrote:
| Bonds are perfectly safe investments when the normal
| consideration of safety is that you cannot lose money and
| you know your exact return through maturity. Can you miss
| out on better investments, ofcourse. The only issue is
| investing someone else's money into bonds - because they
| are the ones to decide when the cash is needed, not you.
| But I'd be shocked if at any given time at least 90% of
| cash is not invested in someway. You only want to keep what
| you need immediately out of investments.
| bialpio wrote:
| Safe investment means you're not risking losing the money,
| not that there will never be a better opportunity (that may
| be just as safe). Alternative cost is not really coming
| into play here IMO.
| ohgodplsno wrote:
| Investing in the exact same kind of unsafe assets that brought
| the 2007 crisis, as well as assets that cause house prices to
| stay unaffordably high.
|
| Yep, all of SV is truly made of bumbling idiots. That whole
| solution is truly hilarious and watching all these clowns lose
| their money is going to be fun.
| berkeleyjunk wrote:
| Actually not. The kind of asset they invested in does not
| really matter. If they invested in super safe government
| bonds at <1% at the same time, they would have had the _exact
| same issue_. It is the rapidly rising interest rates that did
| them in. If they were smarter they could have done a rolling
| ladder of short maturities but probably someone there was
| lazy.
| dahdum wrote:
| They could have stopped offering the very high savings
| yields that attracted that capital, but profits and exec
| comp would have dipped. So...this instead.
| darkerside wrote:
| That would have resulted in just as much of a flight, to
| higher yield instead of safety.
| dahfizz wrote:
| Gotta love the monday morning quarterbacking. "Get rid of
| the thing that attracts all your customers, surely then
| there will never be a bank run."
| dahdum wrote:
| The execs have been pulling $3-10M/yr compensation and will
| walk away wealthy, legally in the clear, and probably into
| similar roles and comp elsewhere (or simply retired). They
| aren't bumbling idiots, though if they were, they'd be hella
| crafty ones.
|
| I don't think the depositors, investors, or VC's that pushed
| for SVB were idiots. SVB was a good bank, with a good
| reputation, and good services that got mismanaged into
| oblivion.
| lapcat wrote:
| > An explainer post [1] connected to that Tweet is something I
| found extremely informative (assuming it's accurate):
|
| [1] - https://twitter.com/jamiequint/status/1633956163565002752
|
| That tweet is unattributed _verbatim_ from
| https://www.livemint.com/news/world/explainer-silicon-valley...
|
| [EDIT:] See the thread, it seems that the story may have stolen
| from the tweet! Pretty shocking for one of India's biggest
| business publications (and with 2 million Twitter followers).
| jamiequint wrote:
| My tweet was posted before that article.
| lapcat wrote:
| What are you saying?
|
| 1) You wrote the Mint article.
|
| 2) Mint took the text from your tweet unattributed.
|
| 3) ???
| jamiequint wrote:
| Looks like #2
| lapcat wrote:
| > Looks like #2
|
| Wow, this appears to be the case, at least judging from
| the timestamp on the first reference I could find:
| https://twitter.com/livemint/status/1634091187442266112
|
| That's massive journalistic malpractice!
| rvnx wrote:
| He is correct, but he is blaming the FED raising interest
| rates. The responsible is not the FED, but the negligent
| management of SVB that purchased such products because of
| greediness.
|
| When interest rates raise, previously issued bonds lose in
| value because there are more attractive ones available.
|
| It's like if they missed the Chapter 1 lesson about investing
| into bonds.
| baremetal wrote:
| If you inspect the values of SVB here:
| https://www.svb.com/about-us/living-our-values
|
| You can see that managing money responsibly is not one of
| their values.
| AviationAtom wrote:
| Relevant Bits About Money article on FDIC and bank failure:
|
| https://www.bitsaboutmoney.com/archive/deposit-insurance/
|
| I should add: apart from 2008, bank failure has historically
| been quite rare
| mooreds wrote:
| Affecting stripe payouts too:
| https://support.stripe.com/questions/important-information-a...
| dools wrote:
| What's interesting is that this bank failure as well as the
| failure of a neo bank Xinja in Australia despite taking in
| deposits both illustrate that it is not the case that banks
| make money by "lending out deposits" but rather by issuing
| loans and then attracting enough deposits to make their lending
| operations profitable.
| 323 wrote:
| I had the vague impression that after the 2007 crisis, banks
| holding retail deposit accounts were not allowed to invest in
| stuff like MBS, only investment banks (without retail accounts)
| were.
| dragonwriter wrote:
| > I had the vague impression that after the 2007 crisis,
| banks holding retail deposit accounts were not allowed to
| invest in stuff like MBS, only investment banks (without
| retail accounts) were.
|
| You are confusing the Great Recession with the Great
| Depression.
|
| The 2007 crisis and subsequent Great _Recession_ was
| contributed to by the 1999 repeal of that rule, adopted in
| response to the Great _Depression_ ; there were several
| efforts to restore it after the Great Recession, but none
| succeeded.
| davidw wrote:
| > 10+ year duration, with a weighted average yield of 1.56%.
|
| > the value of SVB's MBS plummeted.
|
| How much 'plummeting' did they do in numerical terms? Something
| with those kinds of yields doesn't sound like it ought to be a
| super risky asset. The mortgage lending market tightened up a
| lot after the great recession...right?
| [deleted]
| mitthrowaway2 wrote:
| A bond with a 10-year yield of 1.56% has a price of $0.85 on
| the dollar. A bond with a 10-year yield of 4% has a price of
| $0.676 on the dollar. So if yields increase from 1.56% to 4%,
| the bond price falls by 21%.
| mikeyouse wrote:
| They're very safe assets, they just have a long duration
| which makes them really risky if you could need them to cover
| deposits.
|
| To make things more straightforward, let's just compress it
| to a 1-year time frame vs a 30-day bond. So a $100 MBS at
| 1.5% would pay you $101.50 if you held it for 1 year. If you
| have $100 in deposits and a $100 MBS bond, you're "solvent".
| But what happens if after 30 days, your depositor asks for
| his $100 back? You either need to sell your MBS or find other
| money to pay them.
|
| If you try to sell the MBS to pay that $100 deposit liability
| and interest rates are about the same as they were when you
| bought it, you'd likely get around $100 and things are okay.
| If however, rates have spiked since then (like they have
| here), investors can either buy your bond that pays 1.5% or
| they can buy a new issuance 1-year bond paying 4% or 5%, or
| perhaps a 30-day bond paying 1.5%. So you need to give them a
| discount in order to sell your bond -- in this case it might
| be upwards of 30% or 40%.
|
| So if you sell your MBS, you'll only get $60 or $70 for it --
| leaving you a huge shortfall that you need to makeup from
| your other reserves. If you could convince your depositor to
| leave his money in the bank until that bond matures, you'd be
| completely fine -- but the timing mismatch and interest rate
| spike just kills the bank.
| davidw wrote:
| I get how it'd put them in bankruptcy or whatever the
| precise term is for a bank. I'm just curious what it means
| in terms of people getting their money back. If their
| assets lost 10% of their value, I could see that being
| enough, combined with the bank run, to put them under. But
| if everything else gets sold off at 90 cents to the dollar,
| that's not awesome but it's not like "poof it's gone
| entirely" either.
| BobbyJo wrote:
| > But if everything else gets sold off at 90 cents to the
| dollar, that's not awesome but it's not like "poof it's
| gone entirely" either
|
| You answered your own question. People will very likely
| get most, or even all, of their money back, just after
| the gov is able to offload some of the assets. Problem
| is, if you're a startup, you can't just wait a few months
| for the cash to make payroll.
| kgwgk wrote:
| The risky part is (or more precisely has happened to be) the
| 10+ year duration, more than the ~1% yield over treasuries
| (which may be too low to compensate for the additional risk
| but is not what has brought the bank down).
| dahfizz wrote:
| You can't use your intuition about stock prices for
| bonds/fixed income. In FI, its all a numbers game. As rates
| go up, prices go down.
| Someone1234 wrote:
| That has to be an inflation adjusted yield, right? Why would
| anyone do anything remotely risky for such terrible returns?
| You can almost find government bonds with similar average
| yields.
| Macha wrote:
| Weren't the rates on government bonds negative if you were
| a large investor like a bank?
| zzleeper wrote:
| Nope! I got a 2.0% mortgage in 2021 (no points or anything)
| and the bank then turned around and sold it to Freddie who
| paid them 1.7% (so the bank made a nice 0.3% just for
| originating the loan).
|
| Then Freddie packed my loan and sold it to others for
| something likely to be below 1.7%...
| dahfizz wrote:
| >You can almost find government bonds with similar average
| yields.
|
| Not a few years ago. T-Bills were paying like 0.1% in
| 2021[1]
|
| [1] https://home.treasury.gov/resource-center/data-chart-
| center/...
| kgwgk wrote:
| And 10-year bonds were well below 1%.
|
| https://fred.stlouisfed.org/series/DGS10
| bjornsing wrote:
| > - This is not a liquidity issue as long as SVB maintains
| their deposits, since these securities will pay out more than
| they cost eventually.
|
| You mean it's not a solvency issue? It sounds like a textbook
| liquidity issue.
| Eumenes wrote:
| The team making these poor choices at SVB should be criminally
| charged ... The tax payer shouldn't have to bail out banks.
| berkle4455 wrote:
| Another bank will acquire the company and make depositors
| whole. Government won't actually do the bailout, just
| facilitate/force it.
| Eumenes wrote:
| So where does the lost money come from? Another bank just
| gives it up?
| bryfb wrote:
| FDIC is funded by premiums from participating banks.
| Beyond the insured limit, there isn't really a guarantee
| that the "lost money will come back."
| berkle4455 wrote:
| Another bank will commit to meeting 100% of investor
| deposits, take ownership of all SVB's assets, and provide
| liquidity to shore up any depositor concerns. Why would
| they do this? They get to acquire SVB insanely cheap
| (basically just the cost of covering the losses), get
| loads of new now-happy customers, and be hailed as a
| hero.
| Asparagirl wrote:
| Unless, of course, this predicted white knight never
| appears because _lots_ of other banks are secretly in
| similarly shaky positions where they are _also_ holding
| lots of long-term Treasuries or MBS that are in some
| respects extremely safe but which also pay only 0-1% over
| 5-10 years, and those "assets" would need to be fire-sold
| at 65% of face value if the bank ever needed cash
| quickly...
|
| And even if that white knight or even off-white-ecru
| knight did come along and want to buy the bank next week,
| what if they don't decide to make every depositor whole,
| for those holding cash above FDIC limits? They certainly
| don't have to do that. They could just buy the loan book.
| Or the warrants or early debt for a number of Silicon
| Valley startups. They can be vultures, not Santa Claus...
|
| I think people don't quite grasp what could be coming
| next.
| tempsy wrote:
| honestly disgusted by the blatant PR moves by YC and Founders
| Fund yesterday in leaking their "advice" to their founders to
| get out of SVB
|
| Very blatant weaponization of FUD to drum up deposits for their
| investments in Brex, Ramp, and Mercury.
| [deleted]
| misssocrates wrote:
| Would it be better to keep good advice private?
| zdbrandon wrote:
| As someone who was considering using one of those "banks" in
| the coming months, this whole ordeal makes me want to stick
| with Chase, Wells Fargo, etc. Stripe integrations be damned.
| hef19898 wrote:
| If you are outside of B2B, you do not need Stripe. You need
| a solid business bank, ideally multiple ones.
|
| And if B2B is relevant, well, have an accoubt, or multiple,
| at a bank with Stripe integration to handle customer
| payments anf refunds. And keep everything else at different
| banks.
| [deleted]
| hef19898 wrote:
| Or just some, as it turned out, valid business advice. That
| being said, I would never let my investors choose my banks
| (as in more than one bank) holding my company's cash. And I
| definetly wouldn't use some not-to-big-to-fail, not
| international bank to hold my multi-millions in VC money,
| which is the only yhing keeping my company a float.
| tempsy wrote:
| Giving the advice is not what I'm referring to. I'm
| referring to intentionally leaking the advice to the press
| so they run the story about how Peter Thiel is warning
| everyone which accelerated the outflow.
| hef19898 wrote:
| Ah, I wasn't aware of that. I am not the least surprised
| so that Thiel is, however, involved in this.
| dang wrote:
| (We detached this subthread from
| https://news.ycombinator.com/item?id=35097120, which contains
| "that tweet".)
| mcenedella wrote:
| Great moderating dang! Appreciate your tireless work to make
| hackernews great.
| walrus01 wrote:
| > As a result, they purchased a large amount (over $80bn!) in
| mortgage backed securities (MBS)
|
| Do we now have people making decisions on stuff like this who
| are too young or clueless to remember what happened with the
| 2004-2007 mortgage backed security bubble that popped in the
| 2008-2009 financial crisis? Seriously? Did nobody learn the
| lessons on this? Countrywide and other originators of MBS and
| CDOs?
| mason55 wrote:
| > _Did nobody learn the lessons on this?_
|
| I'm not sure you learned the lessons. Other than MBS being
| coincidentally involved, this has literally nothing to do
| with 2008.
| dahfizz wrote:
| Do you think MBS are always and forever a bad investment
| because of a bubble 15 years ago?
|
| The MBS wasn't even the problem here. If they had 10Y
| corporate bonds or Treasury notes paying the same rate, they
| would have had the same problem.
| dragonwriter wrote:
| > Do you think MBS are always and forever a bad investment
| because of a bubble 15 years ago?
|
| I think heavy exposure to a single type of long-term asset
| for a retail bank is always going to be a bad investment
| decisions, because risks materialize, and correlated risks
| tend to materialize together, and when a retail bank
| suddenly lacks liquidity...
| walrus01 wrote:
| To be clear, I think MBS are morally wrong in how they're
| implemented in the market, yes.
|
| A bubble 15 years ago? We're in a massive housing price
| increase bubble _now_.
|
| Buying $80bn of MBS in the middle of a well-known housing
| price bubble is catastrophically stupid.
| twblalock wrote:
| Any investments whose value was sensitive to the Fed's rates
| would have had the exact same problem.
|
| In 2008 MBSes were bad because the underlying value of the
| investment turned out to be bad. That's not happening this
| time. All that's happening is the same thing that happens to
| any bonds -- when rates increase, older lower-rate bonds lose
| value because why would anyone pay full price for them when
| they can get a new one with a higher rate?
| alexlesuper wrote:
| The problem is with MBS but not for the same reason.
| SilasX wrote:
| The error wasn't that the mortgages defaulted too much (like
| in the '08 crisis) but that interest rates went up, which is
| a distinct problem, and, from the comments in these
| discussions, not something that the capital requirements
| adequately capture.
| voisin wrote:
| > - 97% of these MBS were 10+ year duration, with a weighted
| average yield of 1.56%.
|
| This is a pretty insane bet. Why didn't they ladder the
| maturities to have a lower average duration and less risk?
| rvnx wrote:
| As a bank, parking the money into long maturity bonds,
| especially when it's not your money, and your customer can
| take the money back anytime, and the current rates are 0% (so
| can go upward only...).
|
| Sounds like an insane investment decision.
| baremetal wrote:
| At least SVB _was_ diverse and inclusive. With extensive
| ESG virtue signaling. With that kind of pedigree, well,
| never you mind about making sound financial decisions.
|
| https://www.svb.com/about-us/living-our-values
| athammer wrote:
| What does ESG have to do with this? Seems like your
| politically motivated to see the world through one lens.
| kimbernator wrote:
| How is that relevant at all?
| makestuff wrote:
| My pessimistic view is that bonuses were paid out on invested
| cash not on cash just sitting there. So they had to buy
| something to get a fat bonus.
| voisin wrote:
| Shocking portfolio design isn't regulated given how much of
| banking is regulated.
| DiscourseFan wrote:
| I don't get it. I'm no expert in finance but even I knew the
| fed wasn't going to stop raising interest rates because I had
| the common sense to know the fed would fail to trigger a
| recession by doing so.
| [deleted]
| riazrizvi wrote:
| When I set my 'Hindsight Goggles' to 100, I too saw that the
| Fed would keep raising interest after the initial rounds,
| because unemployment would stay low despite massive layoffs,
| somehow, and that prices would keep rising. And I am an
| expert in finance.
| synu wrote:
| I, too, am a genius in hindsight. It's great to be in such
| rare company.
| hangsi wrote:
| Surely in retrospect, it must have been obvious you would
| find such people despite their rarity?
| DiscourseFan wrote:
| There still a war on, inflation wouldn'tve gone down until
| that ended. And you have to take the temperature of things
| in your daily life, its like Keynes said, people are driven
| by the "animal spirit", the market doesn't always (or ever)
| make sense, you have to get a feel for it and use specific
| data to support that feeling, not the other way around.
| Jesus am I the only one taking out more lines of credit
| with the expectation of an extended period of inflation? If
| everyone else is doing that (which they should be), the
| money supply will continue ballooning, the economy will
| stay strong and unemployment low.
| riazrizvi wrote:
| If people keep borrowing everything will be alright?
| Society, the economy, doesn't work that way.
|
| The economic good times are when confidence, trust, risk
| taking are all high. That music stops when people lose
| confidence, the Great Financial Crisis, just like all
| recessions are fundamentally a loss of confidence. This
| causes people with funds to claw them back, and retreat
| into their castle, and wait for the bad times to blow
| over. This is what happens when the economy collapses.
| When prices and asset liquidity crash. When rates go up.
| When you can't borrow anymore and when you have to pay
| back the money you are borrowing, because it's in the
| fine print that they can ask for it back whenever they
| like. Then inflation goes up. Borrowing rates go up.
| Asset prices go up, unless no-one has confidence in that
| particular asset (eg stocks or property where those
| companies are based).
|
| Consumer leverage is not a bulwark against recession.
| abigail95 wrote:
| I thought layoffs were way below trend? What layoffs?
| boosting6889 wrote:
| Why couldn't they just say they're doing a funding round to
| finance international expansion so they can support
| entrepreneurs all over the world or some similar corporate
| bullshit we hear nonstop?
| FireBeyond wrote:
| Because most of the potential investors are sophisticated
| enough to realize they wouldn't be 'investing' as plugging
| holes in what would be rapidly turning into a Ponzi scheme.
| KptMarchewa wrote:
| Because, as described in the link, the gap between deposits
| and liabilities is likely to be over 25B.
| JumpinJack_Cash wrote:
| > > 97% of these MBS were 10+ year duration, with a weighted
| average yield of 1.56%.
|
| But why didn't they just hold money at the Fed given that they
| are a bank and they can?
|
| It's literally splitting hairs between what the Fed Fund Rate
| is and what they got on their MBS.
|
| Explainer post says end of 2021 they made that trade, in March
| the Fed raised the Fed Fund Rate to 0.20%, and by April it was
| 0.77%.
|
| Had they waited just 5 months they'd have got a better Risk
| adjusted return by just keeping the money at the Fed
| gerad wrote:
| If they could have forecasted the future at that point, they
| could have made even more money than that!
| BobbyJo wrote:
| If you could forecast even 6 hours into the future, you'd
| be the richest man alive in weeks. Nevermind months.
| jwozn wrote:
| Yeah, but banks don't profit by holding money for months.
| the88doctor wrote:
| Even if SVB maintains their deposits, that _IS_ a liquidity
| issue, it just isn 't a solvency issue.
| kypro wrote:
| > - The issue is that as the Fed raised interest rates in 2022
| and continued to do so through 2023, the value of SVB's MBS
| plummeted. This is because investors can now purchase long-
| duration "risk-free" bonds from the Fed at a 2.5x higher yield.
|
| Let's be clear, the issue wasn't that the Fed raised rates to a
| historically average level, it was that they were manipulating
| the bond market in 2021 with trillions of dollars of QE.
|
| Over the last few years the Fed has basically done a pump and
| dump on the bond market, and SVB being a bank was basically
| forced by regulation to buy long-dated bonds for yield.
|
| I've seen a lot of people speak critically of SVB and I get it,
| but I think people should take a minute to ask why the hell
| bonds were yielding such a low amount in 2021. I just wonder
| how much longer we're going to blame, banks, crypto investors,
| bond investors, equity investors, home buyers, etc for what's
| happening to the value of their assets. When central bankers
| make government bonds trade like meme stocks this is what
| happens. Perhaps if we didn't do that, SVB and many others
| wouldn't be in this position.
| NovemberWhiskey wrote:
| > _Let 's be clear, the issue wasn't that the Fed raised
| rates to a historically average level, it was that they were
| manipulating the bond market in 2021 with trillions of
| dollars of QE._
|
| One of the principle, statutory purposes of the Federal
| Reserve is to conduct monetary policy to achieve maximum
| employment and stable prices. That means it's the _job_ of
| the Fed to manipulate interest rates.
| mattwad wrote:
| Actually, they are sacrificing employment to stabilize
| prices: https://time.com/6253699/federal-reserve-inflation-
| interest-.... The interest rate hikes are designed to cause
| unemployment, and it's not even working.
| maskil wrote:
| Don't see how anyone could view the feds actions in the
| last few years and conclude that they had this as their
| mandate
| kazen44 wrote:
| mind you the alternave is far worse.
|
| Having unstable prices for staple goods will lead to unrest
| very, very quickly, which in term results in a downturn in
| the econonmy, which in term leads to even more unstable
| prices and thus more unrest.
| highwaylights wrote:
| Nah, the bank is responsible for their decisions.
|
| They bought $80b of fixed-rate bonds at historically and
| artificially low interest rates in a time of massive QE. Even
| based on the information available at the time, this is not a
| surprising outcome _at all_.
| abfan1127 wrote:
| that doesn't excuse the Fed's behaviors.
| SantalBlush wrote:
| Whether or not the Fed's behaviors are excused is not the
| topic of conversation.
| freejazz wrote:
| What's the fed's obligation to that bank that you are
| making this point?
| reso wrote:
| The fed wasn't buying bonds for lulz, they were doing it
| to carry out their primary function.
| danielmarkbruce wrote:
| It's easy to criticize the fed, but they did a pretty
| good job during COVID and they did a pretty good job
| during 2008.
|
| The charge of "manipulating bond markets" is pretty
| absurd - their mandate is to influence inflation and
| employment via interest rates. Of course it has an impact
| on bond markets.
| yterdy wrote:
| Not to let the banks off the hook, but
|
| >They did a pretty good job during COVID
|
| One word: "transitory".
| danielmarkbruce wrote:
| It was surprisingly accurate.... mom inflation has been
| reasonable for several months now
| nervlord wrote:
| That's.. Delusional. It's barely budged.
| danielmarkbruce wrote:
| https://www.bls.gov/news.release/pdf/cpi.pdf
|
| Note all the months since July 2022. It's good to read
| the source material rather than hyperventilating news
| articles.
| yterdy wrote:
| By that metric, and it took quite a bit longer to get
| there than ideal. It's also still elevated historically
| and compared to FFR, all of which is a roundabout way of
| saying that inflation has and continues to destabilize
| the outlook. Stability historically comes after an
| n-month lag of the FFR and core inflation meeting, right?
| Well, banks are failing now, and 4Q24 is a ways off.
|
| I just don't know if I'd call it a "pretty good job," is
| all. They were caught-off guard and didn't move quickly
| enough.
| danielmarkbruce wrote:
| They are always caught off guard. Try predicting anything
| macro and see how well it goes to plan. Then try not
| moving too fast or too slow.
|
| The idea that they aren't doing a good job because they
| aren't perfectly precise with their timing is silly.
| nerdponx wrote:
| Two wrongs don't make a right!
| danielmarkbruce wrote:
| And the $80 bill was about 40% of their assets. And their
| depositors are all businesses who will move the money out
| fast because it's not insured over 250k.
| disgruntledphd2 wrote:
| Yeah, this is all very odd. What the hell happened there?
|
| In retrospect, the Chief Risk Officer leaving and not
| being replaced immediately was a bad sign:
| https://fortune.com/2023/03/10/silicon-valley-bank-chief-
| ris...
| [deleted]
| KirillPanov wrote:
| > I just wonder how much longer we're going to blame crypto
|
| HN will blame crypto for everything, for ever. Because it's
| trendy to do that.
| JoeJonathan wrote:
| Or because it's actually a huge scam.
| nvr219 wrote:
| And because crypto is garbage.
| [deleted]
| darkerside wrote:
| Is there a reason they couldn't have just purchased shorter
| term bonds and securities instead?
| muzz wrote:
| Greed. Those were yielding close to zero and they wanted
| the 1.x%
| polygamous_bat wrote:
| It's an interesting reward mechanic for the bankers,
| "heads I walk home with big bonuses, tails I go home with
| a big severance and our customers get screwed".
| roguecoder wrote:
| ... housing prices have continued to rise at wildly
| unsustainable rates, leading to record homelessness. Which is
| the exact opposite of what happened with the crypto market,
| where the Ponzi scheme collapsed.
|
| When the assets haven't even moved in the same direction, I
| don't know how you are going to blame federal policy to
| counteracted the recessionary impact of covid for moving
| them. Whereas the fed has caused significant damage & also
| been ineffective at fighting the current supply-side
| inflation caused by Russia's war of aggression.
| harambae wrote:
| There's always degrees of speculation that are going to
| vary - cryptocurrencies, tech stocks, consumer staple
| stocks, gold, commodities, real estate, etc.
|
| No one expects that real estate will skyrocket and tank
| like shitcoins (even in 2008, the residential real estate
| market didn't bottom out until 2012). But that doesn't mean
| that Federal Reserve policy has been good.
|
| I'd highly recommend the book (or audiobook) "The Lords of
| Easy Money: How the Federal Reserve Broke the American
| Economy" for anyone who is interested in a historical
| summary of the FOMC.
| jamiequint wrote:
| I hope it's accurate. What I should have said though is "This
| is not a *solvency* issue as long as SVB maintains their
| deposits", it's obviously a liquidity issue.
| rqtwteye wrote:
| "to generate the yield they wanted to see on this capital."
|
| Sticking to unrealistic goals seems to to be the downfall of a
| lot of financial institutions (and probably a lot of other
| companies). Same happened with Deutsche Bank in the 2000s. The
| CEO declared that they wanted to achieve higher ROI and to
| achieve this they had to start doing ever riskier stuff until
| it blew up in their faces (and the taxpayer generously bailed
| them out so they could keep their big bonuses).
| weego wrote:
| When the fuck are retail banks going to be ring-fenced away
| from being able to trade in MBS. They're consistently cancerous
| to our banking systems.
| tertius wrote:
| This isn't an MBS problem. It's just a poorly performing
| asset problem.
| walrus01 wrote:
| This is a symptom of the problem of middle class single
| family home residential real estate being treated as an
| unreasonably-price-increasing bubble inflated investment and
| not a place for people to live in.
|
| The irrational exuberance in price increases in this segment
| of the market over the past 4-5 years is not sustainable.
|
| It is not logical, sane or normal for houses that were valued
| at $150k five years ago to now be valued at $400k in some
| suburbs and metro areas.
| s1artibartfast wrote:
| It's logical or sane if you think capital investment
| options in New areas is going to dry up and existing assets
| are the best opportunity for preserving or growing your
| money.
|
| How much would you spend on the house if you're only
| alternative is to watch your capital disappear
| dahfizz wrote:
| This has nothing to do with MBS in particular, it is a
| fundamental aspect of the fixed income market.
| zomglings wrote:
| I do not think this is a problem of mortgage-backed
| securities.
|
| The problem is that SVB tied up their liquidity for 10 years
| at a yield far lower than they would get with more secure
| investments after the FED's rate hikes.
|
| The specific assets they invested into are immaterial.
| mannerheim wrote:
| Yep. Let's not forget this same thing pretty much happened
| last year in the UK - pension funds got margin called
| because they borrowed money to buy gilts (UK gov bonds).
| Low interest bonds, money tied up, messed them up when
| interest rates rose.
| snuxoll wrote:
| Aye, the mistake was the duration, not the instrument. I
| hope nobody would take 60% of their brokerage account and
| invest it in a 10 year bond either, ladders exist not just
| to manage liquidity but also to limit the duration you have
| to suffer low yields with.
| bluetwo wrote:
| There are some big parts to this story we don't know.
|
| Yes, they sold the treasuries and took a bath. But if that was
| their best option, it speaks very poorly to the other "assets"
| they held on their balance sheet.
|
| We may find out in the coming days that they had a big position
| in Silvergate, which went bankrupt yesterday, and they had to
| mark their position to zero, creating the need for liquidity.
| PhaedrusV wrote:
| I heard elsewhere they were extending loans to startups with
| pre-IPO shares as collateral, so yeah, that was their best
| option apparently.
| duxup wrote:
| I have some family who (with some other partners) founded a
| small community bank that has grown over the years.
|
| They expanded in some areas by buying other small community
| banks, specifically in areas where there was a big increase in
| income in the local area (from mineral rights, etc).
|
| The smaller banks that they bought were in a situation where
| suddenly they had large amounts of cash incoming, and customers
| who were paying off / not taking out loans like they used to.
|
| They didn't have the reach (mostly confined to a small rural
| region) to use that cash to give out loans elsewhere so they
| looked to merge or be bought by someone who did.
|
| Until I heard about those banks I hadn't considered "too much
| money" was a problem.
| navane wrote:
| with interest being zero as it was the past couple of years,
| can the bank not just sit on that money and literally do
| nothing? What operational expenses do they have?
| [deleted]
| ronjobber wrote:
| Sure, if depositors said "ok we'll let the bank ride this
| out." But that's not what happened.
| disgruntledphd2 wrote:
| Yeah, and remember that this particular bank has a very,
| very well-connected set of customers (in the graph theory
| sense). So once the run starts, everyone tries to get in,
| causing the actual run.
| ptaffs wrote:
| rent and maintenance if they have branch property, salaries
| and benefits for staff at least. Banks have a lot of
| regulation and audit requirements which take work.
| tropicaljacket wrote:
| but that doesn't increase with more deposits, right?
| kccqzy wrote:
| Actually if you think about the balance sheet for banks "too
| much money" is a problem for them because deposits are
| liabilities not assets. The money belongs to customers not
| the bank. The bank must pay back the customers on demand.
|
| That said, I think historically many banks can easily avoid
| the "too much money" problem by setting the interest they pay
| on deposits to be low, and maybe even negative.
| duxup wrote:
| Agreed. Also too much money is hardly an automatic
| existential crisis. They can do what I described, get
| bought, merge, etc.
|
| Of course if you dump it all into unwise investments,
| that's a problem.
| goodoldneon wrote:
| Why is "too much money" a thing? If a bank only wants $100
| million in deposits, but customers deposit $150 million, why
| can't the bank set the extra $50 million to the side and
| pretend like it doesn't exist until customers want to
| withdraw it?
| nbar1 wrote:
| I believe it's because depositors want a return on their
| "investment"
| aj7 wrote:
| Because the customers expected interest and the bank's
| investment portfolio can't provide the necessary return to
| pay the interest rate they used to attract the customers.
| thecyborganizer wrote:
| The customers who deposited $150 million expect some rate
| of return on their deposits - in fact, you promised it to
| them. In a year that $150 million needs to turn into $155
| million or whatever.
|
| So you need to lend it out, and charge interest, and use
| that interest income on your loans to pay the interest on
| your deposits.
|
| Sounds like SVB made a lot of loans or investment purchases
| quickly, and then some of those went bad.
| thepasswordis wrote:
| Is this not what bonds are for? Savings accounts earn
| less than just buying bonds, and the bank pockets the
| delta.
|
| They got greedy.
| kccqzy wrote:
| Bonds have a duration until maturity. Savings accounts
| can be withdrawn at any time. The bank normally pockets
| the delta by taking up the risk of this mismatch. In this
| case the risk became too much.
|
| Think about it from the other end. You have a mortgage.
| But the bank needs money _now_ and asks you to prepay
| your mortgage. What do you do?
| drdec wrote:
| That's exactly what the bank did - they bought bonds. The
| type of bond they bought doesn't matter, what matters is
| that in a rising interest rate environment, the face
| value of the bonds fall and they are no longer producing
| higher yields than the saving account rates.
|
| They didn't get greedy, they failed to anticipate the
| speed and amount that interest rates would rise.
| treis wrote:
| Yeah, but they bought bonds to make their numbers work.
| They had a choice of getting like 0.08% in overnight
| funds or 0.36% in short term T-bills or locking it up and
| getting ~3% in MBS. They chose the latter to make more
| money. If they had chosen the former things would have
| been far less critical.
|
| In retrospect this was a huge risk. They locked up way
| too much money in long term securities for how flighty
| their deposits could be.
| snuxoll wrote:
| 3% MBS, that's a good one. Try more like 1.25% coupon
| rate with the crazy low mortgage rates were at when SVB
| got the inrush of deposits (the banks and the GSEs gotta
| make their money too, with mortgage rates near 7% UMBS
| coupons are only at 5.5%).
| disgruntledphd2 wrote:
| They too, thought that the world had fundamentally
| changed as a result of the pandemic.
| gregruss wrote:
| They did not get greedy. They bought bonds, and those
| bonds turned into a liability. Because the bonds were
| bought when interest rates were extremely low, they are
| worth less than bonds at current rates and had to be sold
| at a loss in order to shore up liquidity. That spooked
| investors and prompted a run on the bank.
| rvnx wrote:
| The bank has short-term liabilities to their customers,
| and decided to lend out the customers funds to someone
| else for the long term.
|
| Total non-sense and greediness.
| jaycroft wrote:
| Because now the bank has to pay interest to depositors of
| $150M instead of $100M, which means that they'll pay a
| lower, less competitive rate. So, in order to keep
| customers, banks are incentivized to lend out any and all
| spare cash for whatever yield that they can get, in order
| to give attractive rates to depositors. Losing customers
| though shouldn't really be a problem for the bank, after
| all, those customers did deposit "too much" money - once
| enough have left to seek higher yields elsewhere, there
| will be less cash on the sidelines, and so higher yields
| for the remaining customers. I suppose if your whole
| philosophy is "growth at any cost", and you're measuring
| growth not just by AUM but also by number of customers, you
| get excess risk taking and yield chasing.
| rcme wrote:
| At the SVB bought the securities in question, interest
| rates were 0 across nearly all savings products. SVB was
| trying to maximize profits for itself and shareholders.
| This isn't about attracting customers with high-yield
| accounts.
| skellington wrote:
| How bad can it be when most banks are paying 0.2% on
| savings accounts and nearly 0% on checking?
| actionablefiber wrote:
| I feel _most banks_ are coasting off the inertia from
| longtime and /or unsophisticated customers.
|
| Up until I switched to a neobank late last year to get
| some actual yield on my savings, I'd been using the same
| brick-and-mortar checking and savings account I opened in
| high school.
| actionablefiber wrote:
| So the conversation goes:
|
| A: We have too many depositors! We are not getting enough
| yield to pay interest without taking on risk.
|
| B: What if we reduced the interest we pay on deposits?
|
| A: Then we'd stop getting new depositors! Our only option
| is to take on risk.
|
| You are right, this feels like a very unsympathetic
| problem to have. If you are a regulated bank you need to
| act like a grown-up and understand that overworking the
| soil and underworking the soil will both give you a bad
| yield in the end.
| abigail95 wrote:
| paying a lower rate literally solves the problem of
| having too much deposits.
|
| they wanted a higher return so they increased their risk
| and blew up.
| jellicle wrote:
| Well, yes, if your bank is receiving too many deposits and
| you didn't want to be vulnerable to a SVB-style failure,
| then you could:
|
| - set your rate of paid interest on demand deposits quite
| low - what's going to happen, some people will pull their
| deposits? That's fine, that's what you want.
|
| - re-deposit those excess deposits at other banks, taking
| only their meager interest payments on demand deposits
|
| The math here works fine. As long as there's some
| difference between the rate you're paying on deposits and
| what you're getting, no matter how small, you're fine. And
| if you need cash quickly, hey, those are DEMAND deposits at
| other banks, you should be able to withdraw them
| immediately. You can spread the risk of a run on your bank
| around to every other bank.
| joosters wrote:
| At first glance, bank balance sheets are unintuitive and feel
| 'the wrong way round'. When someone deposits $1m at a bank,
| the bank doesn't have $1m more assets, it has $1m more
| liabilities.
|
| (Yes, this is a gross over-simplification)
| im3w1l wrote:
| I think it should be both: The $1m that was deposited is an
| asset, the customer's ability to withdraw $1m is a
| liability.
| skybrian wrote:
| Yes, bank deposits are a liability for the bank, which is
| why a bank won't increase the amount you have in your
| account if you ask nicely. You have to pay them. If
| someone's bank account went up by $1 million, the bank
| better have gotten $1 million more in assets from them
| somehow, or something weird is going on.
|
| (Often, the asset comes from the bank making a loan. You
| can pay later.)
| selimnairb wrote:
| Running a bank sounds like a huge PITA.
| joyfylbanana wrote:
| That's why it pays.
| WJW wrote:
| This is correct. The only reason people still do it is
| because it makes them boatloads of money, not because it
| is fun in any way.
| lottin wrote:
| I work in a bank and it's kind of fun.
| somehnguy wrote:
| Working in a bank and running a bank are _slightly_
| different I would assume
| wdb wrote:
| One way to control it is by lowering interests on accounts
| to make it less attractive deposit money
| StillBored wrote:
| Which is why there is a ~4% spread on savings/CD interest
| rates at banks right now.
|
| Edit: maybe I wasn't clear and should have said "between"
| banks. Synchrony bank will give you 4% in a _savings_
| account (https://www.synchronybank.com/banking/high-
| yield-savings/?UI...) while my local credit union and
| many big banks (ex: bank of America are at 0.01%) are
| still effectively 0%
|
| In the past (<2008), cash accounts (savings/cds/etc) I
| remember there being a %1 or so between banks, but these
| days its huge.
| snuxoll wrote:
| Synchrony offers such high yields on savings because
| their big product is consumer credit cards, and even at
| 4% APY on savings accounts the spread to a 25% APR credit
| product, even factoring in risk, makes it extremely
| profitable to do so.
|
| That's really the big reason why savings rates vary so
| much between banks, if you have a bunch of consumer
| credit lines then high savings rates make sense, if you
| have a bunch of lower fixed-rate collateralized loans
| then you can't get away with lowering your spread so
| much.
| kgwgk wrote:
| Not exactly. The banks do not want less deposits (ask SVB
| how bad that can be!) but they try to get away with
| paying as little as possible and keep the spread. (You
| wouldn't say that the main objective of companies when
| they raise prices is to have less customers, would you?)
| nickff wrote:
| If they wanted more deposits, why would they pay as
| little as possible to 'keep the spread'? No bank is
| anywhere near monopoly; there are tons more deposits to
| get (if you want them, and can make money safely on a
| spread).
| kgwgk wrote:
| For the same reason that many businesses do not want
| "more customers" above anything else - to the point of
| selling at cost or at a loss - and if they increase
| prices is not necessarily because they want "less
| customers".
| NovemberWhiskey wrote:
| To my mind, although it's in-principle equivalent, the
| clearer way to think about this is that banks _borrow_
| money from depositors and _lend_ that money via loans or
| investments.
|
| The primary business of a bank is borrowing short and
| lending long - where short and long refer to the holding
| time: i.e. taking demand or short-duration term deposits
| and making mortgage, car and other types of loans.
|
| If you do this badly, you can lose money due to duration
| risk (you might end up paying more on your demand deposits
| than your mortgage book is bringing in), but you also have
| liquidity risks because your depositors can ask for those
| deposits back faster than you unwind your lending.
|
| If you have both of these occurring at the same time,
| you're then in severe difficulty, because the only way to
| repay your depositors is by borrowing money ... which is
| going to be harder if you look unprofitable ... and that
| very borrowing can exacerbate the perception of a bank in
| trouble.
|
| That's basically what happened here.
| missedthecue wrote:
| And to make matters more confusing, deposits are called
| assets on the balance sheet!
| kgwgk wrote:
| You may feel relieved - and less confused - if I tell you
| that deposits are liabilities in the balance sheet.
| mytailorisrich wrote:
| They have both $1m more assets and $1m liabilities.
|
| But that does not reflect risk.
|
| For instance, now they take those $1m in cash and use them
| to make risky loans or investments. At face value the
| balance sheet is the same because they still have $1m in
| asset... except that the risk that this asset turns into
| eff all has significantly increased.
| disgruntledphd2 wrote:
| yeah, like SBF's "balance sheet". https://www.ft.com/cont
| ent/0c2a55b6-d34c-4685-8a8d-3c9628f1f...
|
| Theoretically they had assets, but most of them were just
| internal magic beans.
| javajosh wrote:
| Not an expert, but was having some thoughts.
|
| Let debt be a graph where the nodes are people (with
| ledgers) and the edges are all of the form "alice rents $x
| from bob for y% APR". Actions that resolve/relax graph are
| payments of the form "alice pays bob $z", that lead to all
| balances being 0. Let the edges decay to null when balance
| is 0, such that a 'resolved graph' is simply a list of
| nodes with no edges, meaning 'no one is in debt to anyone'.
|
| From this we can infer: 1. There is only
| one logical 'debt graph' in the world since they can (and
| do) all join. 2. The people running the graph do not
| want the graph to die, ever. 3. The profit of the
| debt business is proportional to transactions over time,
| which is proportional to edges of the debt graph. 4.
| They want to (add, prevent from decay) as many edges as
| possible.
|
| I somehow feel like I've caught my first, hazy glimpse of
| something important.
| 1attice wrote:
| This is actually a nascent PhD-level thesis. Follow this
| thread.
| fecaldog wrote:
| 2. The people running the graph do not want the graph to
| die but want the edges to decay.
|
| Thanks for this, I am now also having some thoughts.
| occamrazor wrote:
| They have both 1m of assets more than before, _and_ 1m of
| liabilities.
| dragonwriter wrote:
| A deposit of $x adds both $x in assets (cash) and $x in
| liabilities (account balances).
| treis wrote:
| This isn't an over simplification it's just wrong. The bank
| does have more assets (the 1 million in cash) that balances
| the liability (the 1 million they owe to their customer).
| eftychis wrote:
| Yes, but the problem is the 1 million is unlikely to be
| in cash. Here, it is in MBS issued at low interest rates
| and thus practically ~$500k if the security is sold right
| now.
|
| Banks have a serious problem in their hands as they have
| to figure out a way to keep buying assets that they have
| to buy by law, while the Fed is going to keep increasing
| the interest rates via selling their MBS portfolio at a
| rate that makes "yesterday's treasury or MBS" the loser.
|
| If action is not taken we haven't heard the end of this.
| KirillPanov wrote:
| What?
|
| No, it's cash.
|
| If I deposit $1m in cash at the bank, the bank suddenly
| has an extra $1m liability and an extra $1m _cash_ asset.
| kenjackson wrote:
| You're right, the full million isn't a liability. But
| anyone depositing 1M isn't putting it in a non-interest
| bearing account. So now you are generating liability
| every second you sit on the cash. Which means you need to
| "invest" it.
| lxgr wrote:
| And you think that the bank just keeps sitting on that
| cash until you withdraw it again, paying you interest in
| the meantime?
| tylerhou wrote:
| If they are sitting on excess cash, they can lower
| interest rates on deposits.
|
| The point is that when banks receive deposits, in the
| short term, their assets/liabilities doesn't change.
| mbreese wrote:
| It's cash, until the bank converts it to something else.
| For example a loan.
|
| Yes, it is initially cash. But if the bank wants to make
| any money, it needs to convert that cash into some other
| vehicle for generating interest.
| louloulou wrote:
| No one is showing up at a bank and depositing $1M of
| physical cash (except maybe Mexican drug cartels).
|
| That $1M you're depositing is presumably the liability of
| _another bank_.
| nabla9 wrote:
| So true.
|
| Money for banks is what raw material is for manufacturing.
| What they are doing is risk management (analyzing risk,
| packaging risk, selling it, buying it).
| pishpash wrote:
| Too much money is only a problem if you are greedy for
| returns, like all the investors who lost money when yields
| were unsustainably low the last few years. They could have
| deposited it with the Fed and have been totally fine.
|
| Individual investors don't even have that option and also
| have inflation to deal with. Banks don't.
| coredog64 wrote:
| 6 month T-bills were yielding 0.7% last year at this
| time. Inflation for 2022 was over 6%.
|
| It's not that people are greedily chasing returns, it's
| that they don't want to lose significant chunks of their
| capital due to loss of value.
| pishpash wrote:
| No, they were greedy. They were going to lose it one way
| or another, either through inflation or through asset
| depreciation. There was no way around it. Going to a
| riskier asset doesn't help because all assets have the
| same interest-rate risk embedded. They just took on more
| risk in addition to that.
|
| Real rates were negative for 10+ years (and still are on
| the short end!). That's everyone paying for trillions of
| dollars of wars, speculation and bad investments. The
| bill has to be paid.
|
| But as mentioned, none of this applies to intermediaries
| like banks. They aren't forced to take on any risk.
| disgruntledphd2 wrote:
| > Real rates were negative for 10+ years (and still are
| on the short end!). That's everyone paying for trillions
| of dollars of wars, speculation and bad investments. The
| bill has to be paid.
|
| They sure were, and fortunately humanity took that free
| money and invested it in sustainable energy technology so
| that at least we got a bunch of infrastructure out of it.
|
| Oh actually wait we just had austerity for some reason.
| duxup wrote:
| I think coredog64 is speaking more generally. The bank in
| the article was foolish. Other banks can still encounter
| real problems with too much cash on hand... granted they
| don't have to go hog wild on MBS or anything like that.
| pishpash wrote:
| Yes, why did they invest in MBS, with negative convexity,
| at historically low rates!
| duxup wrote:
| I think there is a limit. The bank costs money to run,
| customers expect interest (even if little).
|
| That money isn't doing anything to cover those expenses
| if some of it isn't "working" to produce returns.
| pishpash wrote:
| Banks don't pay the Fed rate on deposits so they already
| have that to pay expenses. In fact more deposits = more
| money on the interest differential but expenses don't
| scale with money.
| acchow wrote:
| A $1M deposit adds to both assets and liabilities.
|
| In double entry accounting, you mark any changes with both
| a debit and a credit. This allows you to see not only why
| one account changes (a single entry), but also the cause of
| that change (the second entry).
| jfengel wrote:
| I think programmers find double-entry bookkeeping
| counterintuitive. It feels error-prone. In programming,
| you keep a single source of truth. Any time you copy the
| same data to two different places, one of them is always
| wrong.
|
| Double-entry bookkeeping makes sense once you understand
| the the invariants you have to keep, and why you need to
| track 5 different types of books. Some of those accounts
| work in opposite ways, such that credit to one is a debit
| to another.
|
| It all works out and is essential for "debugging"
| problems (when money appears to go missing -- or worse,
| materializes and you don't know why). But there's some
| counterintuitive language and it'll mess you up until you
| accept it.
| ghaff wrote:
| The other thing you get into as scenarios get complex is
| that there's a tendency to ask questions like "Why are
| you recording it this way rather than that way? The
| second way seems more logical to me."
|
| The answer usually being some variation of "Because
| that's the way the Financial Accounting Standards Board
| says to do it."
| mcsoft wrote:
| Double-entry bookkeeping is essentially the law of
| conservation of energy applied to balance sheets. It's
| much more deep as it was invented some 5 centuries
| earlier than programming.
| dragonwriter wrote:
| > I think programmers find double-entry bookkeeping
| counterintuitive. It feels error-prone. In programming,
| you keep a single source of truth. Any time you copy the
| same data to two different places, one of them is always
| wrong.
|
| Double-entry bookkeeping is creating of an audit-
| trail/error-evident data store; which is the purpose of
| the apparent duplication. But it can be viewed as a
| _view_ of dataset reflecting a single source of truth,
| that documents value _flows_ ; every movement of value
| has a source and a sink, and the amount that moves _from_
| the source must equal the amount that moves _to_ the
| sink. Losing the redundancy that allows error-checking of
| records, you could view each accounting transaction as a
| triple of (source, sink, amount).
| jfengel wrote:
| I think if a programmer were designing accounting, they'd
| put the flows in the database, and build views out of
| that. They might materialize the views for performance
| reasons, but they'd treat those views as suspect and the
| first response to any bug would be "blow away the
| accounts and recreate them".
|
| You couldn't do bookkeping with actual books that way,
| and historically this way makes sense. Nor is it likely
| that the accountants are going to rethink their field
| from the ground up for the convenience of programmers.
| CPLX wrote:
| I mean, this is kind of how accounting does work. To a
| basic approximation a reconciliation is a line by line
| review of each of the flows, and an audit is "blow away
| the accounts and recreate them" and both happen all the
| time.
| btilly wrote:
| Double entry bookkeeping IS error prone - you have 2
| opportunities to make each mistake.
|
| However single entry bookkeeping is FRAUD prone. Just
| change one number and your theft is hard to track down!
|
| That is why the adoption of double entry bookkeeping was
| critical for allowing commercial institutions to outgrow
| a size where owners could individually trust all who were
| working for them with access to money.
| osculum wrote:
| That's an oversimplification. Saying that it's error
| prone because you have to write in two places is akin to
| saying that using a checksum is error prone: you have to
| write now the vale AND the checksum! More opportunities
| to make an error!
|
| Doble entry accounting is very similar to a checksum in
| that sense. It provides error detection. If you make a
| mistake in one of those two places, you will know
| immediately. As opposed to single entry, where you can
| carry that error indefinitely until somehow you catch it.
| rkhacker wrote:
| So, in essence, the single entry bookkeeping will be
| sound if the change is not allowed?
| moate wrote:
| This sounds like "0 code". No code is the best code
| because it never breaks, has 0 serve space requirements,
| will never need to be reformatted, etc.
| crdrost wrote:
| Yes, and once you get the programmer to realize this, it
| all makes sense.
|
| The ledgers are not the source of truth. No: this is a
| journaled filesystem; the transaction log is the ultimate
| source of truth. When you detect faults you recover from
| the journal, if something isn't completely written into
| the journal then it does not exist. The zero-sum property
| exists on every individual transaction and each
| transaction has an ID and the ledgers point at these IDs
| for auditing purposes.
|
| So why have the zero sum property? Well, for one thing,
| it creates a uniform access model, I can't just credit my
| account, I have to debit someone else's account and they
| can have rules that might prohibit me from doing so. By
| carefully setting up these accounts you can also do
| what's sometimes called "behavior anomaly detection."
|
| So for instance normal financial cards kind of work by
| opening up your entire wallet to a cash register and
| asking the cash register to pull out exactly the amount
| that you owe, understandably this might not be desirable
| if you are tracking some in-game-gold transactions in an
| internet game. You can get as elaborate as you want but
| think for example of a quick-consistency-check rule
| saying that "accounts starting 4xxx (player balances)
| never transfer directly to each other, instead users are
| expected to put the exact sum of money plus a little 5%
| padding into one of their 5xxx accounts and then give
| someone else a token permitting them to withdraw from
| that account." Stuff like that. A developer tries to code
| something up that doesn't go through this process and
| runs into errors in testing and has to conform their
| code's behavior to the less risky process so that nobody
| is ever opening their entire wallet to a griefer.
| spicybright wrote:
| I have a friend that's an accountant that tried to
| explain how it worked. I thought it was more or less
| being responsible for counting money, but I think my eyes
| glazed over a bit trying to understand it.
|
| But to be fair he did pretty much the same when I tried
| to explain programming.
|
| Always important to step outside your software bubble
| once and a while.
| lamontcg wrote:
| I'm trying to understand how to read older 10-Ks and
| apply the capitalization of operating leases to those
| reports (converting property that is leased into capital
| to get an accurate estimate of the capital employed at
| the business) and with my background in IT and physics it
| is still a bit hard to follow (what I'm slow at is
| language, and really this is just learning a foreign
| language).
| zestyping wrote:
| The name "double-entry" is a little bit misleading. The
| "double" part makes it sound like you are duplicating
| work, but that's not really what's happening.
|
| If you were accounting with pen and paper, you would
| write the transaction amount twice -- positive in one
| column and negative in another. This maintains the
| invariant that money cannot be created or destroyed.
|
| In terms of an abstract data model, though, each
| transaction is best thought of as a flow, or a weighted
| arrow. It has one amount and two ends: a source and a
| destination. The "double" in "double-entry" really just
| means that the arrow has two ends. Obviously every arrow
| has to have a head and a tail -- it doesn't make sense
| for there to be no source or no destination.
|
| The credit vs. debit thing confuses people a lot, and in
| my opinion is a red herring. If I could wave a magic
| wand, I would delete the words "credit" and "debit" from
| accounting because they are hopelessly inconsistent.
|
| All you have to do is think of the conservation of money
| like the conservation of mass -- when it moves, it leaves
| one place and arrives at another. The moment I stopped
| using the words "credit" and "debit", my understanding of
| accounting went from "I have no idea what I'm doing" to
| "Everything is intuitively obvious."
| hathawsh wrote:
| You'd think that the solution to that confusion would be
| database transactions (commit everything or nothing), but
| there are exceptions. In ACH, sometimes you have to send
| out a lone credit or debit with no matching entry. It
| feels very wrong, but it's necessary because it balances
| out some other entry in another file (that you might not
| have access to.)
|
| OTOH, once you have double-entry bookkeeping in your
| brain, you won't want to go back. I now feel that, from
| the perspective of a business or consumer, money is never
| created or destroyed, it only moves between accounts.
| WalterBright wrote:
| The reason for the invention of double entry bookkeeping
| was to detect arithmetic errors in summing the ledgers.
| tylerhou wrote:
| Programmers like a single source of truth -- until
| duplicating data is necessary for reliability
| (redundancy) or performance (replication).
|
| There is a reason why planes use 3+ CPUs running the same
| code, or why Google runs more than just one cluster of
| search.
| matteotom wrote:
| I've been running my own finances with double entry
| bookkeeping (via beancount) for about 4 years now, and
| it's ended up being super useful. As long as I'm 90% sure
| I got all the income, expenses, investment buys and
| sells, and transfers between accounts, I can add
| "balance" statements for a date and easily work backwards
| to find if I missed anything.
| mytailorisrich wrote:
| If by 'error' you mean the amount of a transaction then
| yes you enter it twice but that should not really
| increase errors.
|
| Now, on the other hand, it is especially designed to
| _account correctly_ for that amount in order to keep your
| accounts correct and balanced. It is be much easier to
| lose track of things with single-entry accounting.
| antoniuschan99 wrote:
| SVB is a commercial bank for tech/biotech, venture & private
| equity firms.
|
| FDIC insurance of 250k is a months salary for <25 engineers. Less
| than 3% of depositors hold less than 250k.
|
| FDIC takeover does not necessarily mean that SVB will cease
| operations permanently. I haven't yet read of depositors not
| being able to withdraw vs when FTX was collapsing. With FDIC
| taking over, seems they're going to liquidate more assets to pay
| off creditors and depositors. Or sell the bank to another
| financial institution. SVB is Top 20.
|
| Washington Mutual was also a top consumer bank that FDIC seized
| and was sold to JP Morgan. JP Morgan ended up assuming
| responsibility of the depositors.
| avelis wrote:
| If a company has a loan out to SVB does that get sold off to
| basically another lender?
| weatherlight wrote:
| So.... how many companies won't be able to make payroll in 5
| days?
| nostromo wrote:
| For comparison, Bear Stearns had $350b in assets in 2006 (and
| much less when they crashed in 2008).
|
| SVB had $210b in assets yesterday.
| Edmond wrote:
| Please reboot Silly-con Valley...I mean the show. With everything
| that has happened with crypto and the current mayhem I think two
| solid additional seasons can be made.
| Zealotux wrote:
| I loved that show, such fun to watch! They definitely could
| make a lot with the crypto-nonsense indeed.
| esalman wrote:
| We need a reboot featuring crypto+AI.
| pakyr wrote:
| Silicon Valley actually already had an ill-fated crypto scheme
| arc - remember PiedPiperCoin?
| adrr wrote:
| It didn't have NFTs or failed exchanges.
| dylan604 wrote:
| It would have to be with new players, as they pretty solidly
| tied a bow around that cast.
| tpmx wrote:
| Bring back the whole cast including TJ Miller (sober or not, he
| brings it) ... but not Middleditch.
|
| https://www.usatoday.com/story/entertainment/celebrities/202...
| [deleted]
| mbStavola wrote:
| It's kind of amazing how much optimism there was just an hour ago
| regarding SVB's position.
| treis wrote:
| What are you talking about? Pretty much everyone I've seen has
| called this a bank run and said to get your money out since SVB
| announced they were trying to raise money. Techcrunch called
| the announcement shooting yourself in the foot.
| fidgewidge wrote:
| Read the other threads.
| https://news.ycombinator.com/item?id=35088919
|
| "SVB is our bank, I got in touch with a member of the senior
| team there and got the following message to share. (My own
| interpretation is I'm comfortable and I'm not planning to
| pursue it further at the moment)"
| treis wrote:
| I see one person saying that and a bunch of other people
| telling them why they're wrong
| kgwgk wrote:
| << literally no one saw this coming a couple of [hours] ago. >>
| dylan604 wrote:
| are you quoting something from a couple of days ago?
| kgwgk wrote:
| https://news.ycombinator.com/item?id=35096247
|
| (I'm needlessly mean, I know.)
| johnbellone wrote:
| There's a strong correlation here to people who have deposits
| in SVB. This was all but certain yesterday.
| FormerBandmate wrote:
| Turns out Twitter making bank failure a meme didn't really help
| anything at all. It'll be very interesting to see what happens to
| uninsured depositors
| ofchnofc wrote:
| [dead]
| albatross13 wrote:
| Probably a dumb question, but what determines if a deposit is
| insured or not at an FDIC insured bank?
| [deleted]
| abofh wrote:
| Investment products are not FDIC insured; Accounts over 250k
| are not FDIC insured; In this case, that's probably the bulk
| of 'uninsured' - large accounts, or creatively sold
| investment products.
| bombcar wrote:
| Investment products can (and often are) FINRA and SIPC
| insured - but this is NOT an insurance against _loss_ (FDIC
| doesn 't insure your interest, just the principal which
| changes each time interest is paid, the moment FDIC steps
| in your interest-earning can go to zero) - it is insurance
| that you actually _own_ what the investment says it is.
|
| So if you buy stock via Vanguard, and Vanguard mismanages
| itself into death, you still own the stock and eventually
| it'll be at another broker.
| zeitgeistcowboy wrote:
| I'm not sure if this helps answer your question, but coverage
| is automatic if you have your funds in an FDIC insurance bank
| (most all of them) and if it's in a normal savings type
| account and then any amount 250k or less.
| ncallaway wrote:
| Deposits > $250k per depositor per bank are uninsured.
|
| https://www.fdic.gov/resources/deposit-insurance/faq/
| bagels wrote:
| Up to 250k is insured, amounts beyond that are not.
| ramses0 wrote:
| * Amount less than $250k * "Deposit Account" => not a "fancy
| investment interest account"
|
| Details: https://www.fdic.gov/resources/deposit-insurance/
|
| Not Covered: https://www.fdic.gov/resources/deposit-
| insurance/financial-p...
| swift532 wrote:
| Not a dumb question at all. AFAIK it is the amount, in the
| USA it's $250K. Other countries have similar situations, most
| of the EU is 100K EUR.
| albatross13 wrote:
| Awesome, that makes sense. Thanks!
| azinman2 wrote:
| > Silicon Valley Bank is the first FDIC-insured institution to
| fail this year.
|
| Wow FDIC is fully calling it a failed bank. Just yesterday they
| were releasing statements saying they're in a good position.
| Uncle Sam just fully opened Pandora's box and made the judgement
| public!
| NovaDudely wrote:
| It is fun (in a morbid kind of way) just seeing how quickly the
| confidence on these things turn.
|
| "Company is 200 years old and we will go for another 200 years
| more!"
|
| 2 Days later
|
| "Whoops, all the moneys gone. Bye!"
| purpleblue wrote:
| This is how quickly a bank run can happen. They announced they
| were seeking funding, people started withdrawing all their
| money, and the investors all pulled out, leaving SVB high and
| dry. Now it's dead.
| kasey_junk wrote:
| The FDIC calls them failed banks by definition. If they step
| in, you failed. They have a failed bank list and Sivb is going
| on it.
| Havoc wrote:
| That's pretty normal for confidence based stuff like this.
| There isn't really a point in regulators/insurers releasing a
| "well we're about half confident" message. So it flips from
| full confidence to zero confidence. Bit jarring but the sharp
| transition is not unexpected.
| tibbon wrote:
| Time to test if the regulation after Bear Sterns was sufficient.
| Surely it was enough to prevent issues as promised
| throwawayapples wrote:
| SVB's eventual consistency was a bit too eventual.
| ChicagoBoy11 wrote:
| Ha - got a nice chuckle out of that one. Good levity for a time
| that is needed, and nice and extremely topical CS joke to boot!
| roflyear wrote:
| So let's say you work at a startup that has all their cash at
| SVB. Are you basically without a job now?
| capableweb wrote:
| Depends on how big the startup is, how high the burn rate is
| and how on top of things the founder is and if they managed to
| pull the money before everything broke down. If the startup is
| small, you should be fine, $250K should be accessible
| relatively quickly, beyond that will be a process that can take
| long time and there is no guarantees.
|
| But a small scrappy startup with not super high burn rate might
| be hugely impacted. Large startups with high burn rate are
| pretty much screwed though and are gonna have to downsize
| pretty aggressively and quickly.
| standapart wrote:
| Probably safe to say: Stripe isn't going to be able to raise a
| couple bil to pay tax liabilities in this environment.
| rvz wrote:
| I'm having a feeling that Stripe is totally fucked and tangled
| in this situation.
|
| From Atlas, employee stock option taxes and it's IPO
| fundraising might be all on the line.
| whalesalad wrote:
| Well that escalated quickly. Glad I am banking w/ Mercury and
| hope they are not impacted by this.
| wonderingyogi wrote:
| Mercury isn't a bank, it uses Evolve Bank & Trust and Choice
| Financial Group.
| whalesalad wrote:
| True, I am just glad it isn't SVB.
| IndoorPatio wrote:
| https://arstechnica.com/tech-policy/2023/03/silicon-valley-b...
| davidgerard wrote:
| First actual FDIC takeover since 2020, I think.
| kerowak wrote:
| For comparison, alamena had 68m in deposits compared to SVB's
| 175b
|
| https://www.fdic.gov/news/press-releases/2020/pr20119.html
| megaman8 wrote:
| yes but if you look at the decade before that, it was pretty
| common about 3-10 or so bank takeovers per year, from the link
| below.
| ellisv wrote:
| | The last FDIC-insured institution to close was Almena State
| Bank, Almena, Kansas, on October 23, 2020.
|
| From the release.
| sjkoelle wrote:
| strong "days since last fatal accident" vibes from that
| sentence
| _delirium wrote:
| The FDIC also maintains a "failed bank list" that is kind of
| interesting to browse (goes back to 2000):
| https://www.fdic.gov/resources/resolutions/bank-
| failures/fai...
| game_the0ry wrote:
| 2008 bear sterns vibes.
|
| The fed's move in interests rates was bound to break something.
| This is the first big name and, while banks are taken over by the
| FDIC often and it never makes the news, this one will be
| especially interesting bc it is _Silicon Valley_ Bank. Naturally,
| people and the media will associate with the rest of silicon
| valley, bringing extra scrutiny to every brand name tech company,
| especially the ones that are still barely profitable.
|
| And any accounts over $250K, _poof_.
|
| Edit - this has been the first fdic takeover since 2020, so no,
| it does not happen often.
| Pasorrijer wrote:
| I mean, potentially.
|
| The reality is they try to protect as much of the assets as
| they can and even those over 250k will probably not lose as
| much as they would have without the FDIC
| 34679 wrote:
| Good luck to any companies with over 100 employees trying to
| make payroll and other obligations on $250k.
| version_five wrote:
| Re Bear Sterns, there were lots of political reasons it was
| allowed to fail while others were protected. If I remember
| right something about them not helping with the Long Term
| Capital Management collapse for example. There will have been
| people who had the opportunity to help SVB and collectively
| decided it was better to let it fail. It will be interesting to
| understand the decisions that were made when the dust settles
| fallingknife wrote:
| They did intervene with Bear. The JPM acquisition came with
| all sorts of backstops and guarantees from the Fed. Lehman
| was the one where they didn't intervene, which is why there
| was no acquisition.
| banku_brougham wrote:
| great callback. revenge on Jimmy Cayne for when genius
| failed.
|
| Dont forget it was Lehman that failed first, Bear got special
| treatment amongst the Citi, AIG, et al bailouts.
| alex_young wrote:
| Bear was sold at a %90 discount (so not a complete loss) 1
| week before Lehman failed.
| [deleted]
| Octokiddie wrote:
| Bear Stearns was the first shoe to drop. Intervening would
| have spooked the market. Later implosions were addressed
| because there was no alternative.
|
| Unless you experienced that time, it really hard to
| understand the pervasive denial of what was obviously
| happening.
|
| You'll see the same thing happen this time around, and will
| have an equally hard time conveying just how strong the
| denial was.
| Ancalagon wrote:
| When and where does the next shoe drop this time then?
| Octokiddie wrote:
| It's possible we haven't seen the first shoe yet, and
| bank failures like this one are just the canaries
| dropping dead.
|
| To speculate about where that first shoe might be in this
| case and who's wearing it, it might help to consider
| where the buck ultimately stops.
| mywittyname wrote:
| Edit - this has been the first fdic takeover since 2020, so no,
| it does not happen often.
|
| This chart of historic bank failures paints a different
| picture:
|
| https://www.fdic.gov/bank/historical/bank/
| ezekg wrote:
| And this chart paints an even different picture:
|
| https://twitter.com/alistairmbarr/status/1634275645235793920
| TaylorAlexander wrote:
| Is total assets a useful measure here? I would be more
| interested in a chart that showed budgetary shortfalls. It
| sounds like SVB is only short about 10% of total assets if
| I am remembering what I read earlier this morning.
| kmlx wrote:
| lehman brothers had total assets of $639B when it filed for
| bankruptcy on September 15, 2008. adjusted for inflation
| that's ~$800B.
| scythe wrote:
| Lehman was an investment bank -- they didn't take
| deposits. Wikipedia describes them as a "financial
| services firm".
| cableshaft wrote:
| Almost all of those are during The Great Recession or the
| aftermath of it, so I think it's not that crazy of a claim to
| make.
|
| Also means we may be about to start seeing a lot more of them
| again, assuming we're getting closer to the next big
| recession.
| dragonwriter wrote:
| > Also means we may be about to start seeing a lot more of
| them again, assuming we're getting closer to the next big
| recession.
|
| That's a _giant_ assumption.
| cableshaft wrote:
| It is. It's also a prediction that a lot of executives
| and CEO's and pundits and politicians and bank managers
| are marking right now.
|
| I'm not claiming it's definitely going to happen, but if
| it is about to happen, we can expect to see a lot more of
| these failures to start happening, based on that graph.
|
| I didn't realize there were that many bank failures
| during the Great Recession myself. I thought it was only
| a handful, just a few high profile ones.
| borski wrote:
| > And any accounts over $250K, poof.
|
| That's not quite true; the FDIC will pay uninsured depositors
| an advance dividend within the next week.
| eli wrote:
| And they'll probably get 90%+ back eventually. The bank's
| money isn't _gone_ it just isn 't liquid.
| om42 wrote:
| My finance-foo is quite weak, what does advance dividend mean
| in this context?
| ejb999 wrote:
| most likely a partial payment - i.e. you have 500K in the
| bank, 250K is insured and you know you will get it back -
| the other $250K nobody knows how much will be available
| when the dust settles, but maybe they (FDIC) feels
| confident they can give you 10% of that now, and keep
| making more payments as the picture becomes clearer on how
| much you can eventually get back. You won't get any final
| payments for many many months when everything is fully
| resolved.
| aobdev wrote:
| Management at the now FDIC-controlled bank will estimate
| the value of SVB's assets, such as loans and bonds, and
| give depositors a fraction of that value to be paid in
| advance of the sale of those assets. They do this to
| prevent the collapse of all those companies who were SVB
| clients, which would be bad for the economy.
| jffry wrote:
| From an FDIC guide [1] I found:
|
| "advance dividend: A payment made to an uninsured depositor
| after a bank or thrift failure. The amount of the advance
| dividend represents the FDIC's conservative estimate of the
| ultimate value of the receivership. Cash dividends
| equivalent to the board-approved advance dividend
| percentage (of total outstanding deposit claims) are paid
| to uninsured depositors, thereby giving them an immediate
| return of a portion of their uninsured deposit. Sometimes
| when it is projected that all depositor claims will be paid
| in full an advance dividend will be provided to unsecured
| creditors."
|
| [1] https://www.fdic.gov/bank/historical/reshandbook/glossa
| ry.pd...
| borski wrote:
| Early repayment of _some percentage_ of the uninsured
| deposits, prior to full liquidation and /or acquisition.
| Depositors have first access to funds either way.
| yeahsure22 wrote:
| It's not interesting because of its name, it's the 18th largest
| bank in the US. A domino that big usually doesn't fall alone.
| Also, FDIC hasn't taken over a bank since 2020. This isn't
| exactly a common occurrence.
| mywittyname wrote:
| "Since 2020" is not a great metric, since a lot happened in
| 2020.
|
| Here is a chart that shows the number of bank failures over
| the past decade [0]. As you can see, having a year with 0
| failures is actually the outlier. The average annual bank
| failure over the past 20 years is roughly 20 per year and the
| median number is 8 per year.
|
| [0] https://www.fdic.gov/bank/historical/bank/
| pbourke wrote:
| A failure in "First Community Bank of Left Buttcheek, GA"
| is not the same as the failure of a $200B institution.
| bombcar wrote:
| Note that FDIC has a precise meaning for a "bank failure" -
| many more "failures" occur but FDIC gets there early enough
| and arranges for another bank to "take over" - more or less
| quietly. These are usually tiny community banks.
| game_the0ry wrote:
| > It's not interesting because of its name, it's the 18th
| largest bank in the US.
|
| Given how much media attention silicon valley gets, for
| better or worse, the name of the bank would have some affect.
|
| Tech and fintwit are both blowing up on SVB, there are like 4
| SVB related posts on HN front page, I even some reddit posts.
|
| This will be big in the media, and therefore the public
| conscience.
| pbourke wrote:
| It's also the second largest U.S. bank failure. WaMu was
| considerably larger when adjusted for inflation - $300B in
| 2008 dollars (> $400B in 2023) vs SVB at $200B in 2023
| dollars.
| fairity wrote:
| The bigger story here will probably be the follow-on effects,
| assuming it takes a long time for uninsured deposits to be
| recouped.
|
| I wonder how many businesses will be forced into a fire sale due
| to inability to raise cash to cover short-term liabilities. I'm
| sure some private equity firms' mouths are watering right now.
| chernevik wrote:
| I don't understand why anyone would park any sum larger than,
| say, $5mm in a bank deposit for more than a minute.
|
| It isn't hard to dump those funds into a money market fund backed
| by short-term commercial paper or even short-term Treasury bills.
| Or to just buy the Treasury bills outright. Such holdings are
| quite liquid and can be absolutely secure.
|
| Use the bank account for clearing, keep a couple million in it
| and sell assets as needed to top-up the account or to prepare for
| known cash outflows.
|
| I'm sure there are cost and complexity trade-offs. But "don't
| lose the cash" would seem to be priority #1 and worth some
| trouble.
|
| I suppose the idea was that SVB managed all that for you. But one
| look at its financials shows the asset/liability term mismatch,
| and interest rate risk, so the risk of loss of cash was nonzero.
| So they were NOT managing maturity risk for these large
| depositors, and, well, now look where they are.
| timdaub wrote:
| Would love to understand if this is actually good financial
| advice here. My bank plays broker for all the assets I own and
| tbills are part of that.
|
| FDIC wrote:
|
| > As the FDIC sells the assets of Silicon Valley Bank, future
| dividend payments may be made to uninsured depositors.
|
| So to me that sounds like those ,,risk-free" assets will get
| liquidated too.
|
| I'd love to hear an actual professional confirm/deny this.
| Because if it's true, then the real risk-free assets are gold,
| in your teeth, real-estate and BTC.
| kgwgk wrote:
| The bank's assets will be liquidated. If you have a
| securities account at a bank those are your assets, not the
| bank's.
| cglace wrote:
| If you take an SVB loan you have to keep your money in SVB.
| johng wrote:
| https://open.spotify.com/track/6j1D7df1BqtulVza3iIL6c?si=EuQ...
| ozten wrote:
| I was wondering how us tax payers would end up paying into the
| crypto ponzi scheme.
| beebmam wrote:
| Maybe the federal reserve should slow down its rate increases
| before we cause a crisis.
| nemo44x wrote:
| Agreed. It has become cargo cult like at this point. The Fed
| needs to pay attention to more than inflation and consider the
| time aspect of money and interest rates. Creating unpredictable
| chaos to optimize around a single (important) metric is not
| going to create a desirable effect.
| Zetice wrote:
| lol so the fact that we didn't have $250k of runway ends up being
| a good thing?
| ElfinTrousers wrote:
| I mean, you could argue that relatively speaking you're better
| off, since you're probably not suddenly trying to satisfy
| champagne tastes on a malt liquor budget.
| benjaminwootton wrote:
| Does this mean that depositors have lost access to their funds
| until the bankruptcy process, with the exception of $250k which
| will be available on Monday?
| NordSteve wrote:
| That is correct.
| FireBeyond wrote:
| Technically yes, but the FDIC is also working to release as
| much uninsured funds as possible as an "advance dividend".
| dangerboysteve wrote:
| SVB is one of the banks Stripe uses for its Atlas program.
| havkom wrote:
| If someone has both a loan from and an account with Silicon
| Valley Bank, can they skip paying the difference of the amount
| they are compensated and their account balance towards the loan?
| kmod wrote:
| IANAL but I think yes and no? I think you're still obligated to
| pay your loan payments, but there's also a concept of "netting"
| where in certain circumstances you are entitled to what you
| describe.
|
| Definitely don't take my word for it, just throwing this out
| there as maybe a starting point for more research.
| ulrashida wrote:
| The biggest joke has to be all the "analysts" who chimed in with
| neutral or buy ratings as recently as yesterday.
|
| I wonder what, if any, consequences fall their way other than the
| obvious professional embarrassment of a missed call.
| diimdeep wrote:
| It's 17 largest bank in US that is $0.25 trillion assets that is
| basically collapsed. It is a big sign of possible hyper inflation
| and much larger banking system problems for the entire world,
| that is still relying on USD.
| formvoltron wrote:
| Sorry but why didn't the VCs get together and bail this bank out
| themselves???
| gumby wrote:
| I suspect all depositors will be made whole. The bank had a
| liquidity crisis; it had reserves in excess of its liabilities.
|
| Every bank borrows short term (you can walk up and withdraw your
| money at any time) but lends long (e.g. mortgages, though SVB
| writes few of those). The recent management grabbed some very
| long federal bonds; as rates have risen the resale value of those
| long term assets (paying a lower interest rate) fell. They can't
| unwind that position and cover all possible demands.
|
| FDIC will transfer the accounts to another bank, guaranteeing the
| 250K at least (I believe SVBs own liquid assets could cover
| _that_ ) and may use its own asset base to cover the balance,
| siezing SVB's other assets and stuffing them into FDIC's piggy
| bank. It's not like those government bonds _won 't_ pay
| out...eventually.
| fairity wrote:
| > I suspect all depositors will be made whole.
|
| Agreed. The FDIC report shows $209b in assets and $175b in
| deposits.
|
| Even if they took the full $15b estimated loss to liquidate
| their HTM bond portfolio, they'd have $20b to spare before not
| being able to cover deposits.
|
| Am I misunderstanding?
| anonuser123456 wrote:
| The assets may not be valued anywhere near market prices
| given the recent run up in interest rates. They don't have to
| reprice the asset if they intend to hold it to maturity in
| the face of fluctuating rates.
| kmod wrote:
| These statements seem pretty contradictory:
|
| - "it had reserves in excess of its liabilities" - "They can't
| unwind that position and cover all possible demands"
|
| I'm guessing that you're thinking of some sort of valuation of
| their assets that says something like "well they're _really_
| worth more than they 're currently valued at", which is a
| common claim on this story but it's a pretty bold one?
| gumby wrote:
| That's a good question. The key is where I wrote that it was
| a _liquidity_ crisis.
|
| An analogy: you (hypothetically) keep your money in some
| 6-month CDs, with about a month's worth of expenses in your
| savings account in case something unexpected comes up. Then
| you lose your job and by the end of the month you haven't
| found a new job. You could liquidate your CDs, but the early-
| liquidation penalty might mean you still won't have enough to
| pay your bills. If only you could wait for maturity.
|
| So yes, at mark-to-market firesale prices that means SVB
| can't pay out in full _today_ to every account holder and so
| FDIC has to step in. But FDIC (who has a very large balance
| sheet) also seizes those assets. They give the accounts to
| another bank. Then FDIC can unwind those seized assets in
| whatever timely fashion it wants.
|
| There's a second factor: in a secular banking crisis they may
| pay out only the guarantee (currently $250K; for a while
| (during the GFC IIRC) it was temporarily $500K. But we are
| not in a secular banking crisis; not only has the Fed
| completely restructured bank reserve requirements in response
| to the GFC but SVB is a single, small bank, not even a
| regional one, with a run-of-the-mill crisis. This is the kind
| of failure that you put all the new hires on because they can
| learn without any up-to-the-minute crisis stress. This is
| what they learned during onboarding :-). In such a situation
| it's better to pay out move than the $250K, probably several
| million, to prevent any "contagion" (since SVB has "Silicon
| Valley" in its name).
|
| I have no special knowledge of FDIC's internal thinking: they
| could make them whole now, or make up to $250K whole now and
| pay out some later, or yes, they could force a few people to
| take a haircut. Those (small number of) panicing VCs would be
| better off calling their senators than their portfolio
| companies.
|
| PS: BTW hypothetical you has more options than those above:
| you could take out credit card debt, perhaps tap a HELOC you
| might already have in place, etc. SVB had similar options:
| they did have a $15B fire sale and got an investment from
| General Atlantic. It wasn't enough.
| ummonk wrote:
| They're just saying that many of the assets are
| insufficiently liquid to be instantly sold off to cover all
| the withdrawals during a bank run.
| kmod wrote:
| I don't think anyone is saying this? The decrease in value
| is due to wrong-way interest rate exposure, not due to a
| fire sale
| bagels wrote:
| Well, it's going to be both. Dumping 200b of bonds isn't
| going to yield premium prices.
| engineeringwoke wrote:
| There's a $40 billion hole in their balance sheet...
| gumby wrote:
| As fairity pointed out in a comment to this thread, "The FDIC
| report shows $209b in assets and $175b in deposits."
|
| Unfortunately much of their balance sheet is illiquid
| (consider loans they've made to venture-backed businesses,
| and of course a poor choice they made in government debt
| maturity).
|
| Thus a liquidity crisis; technically also insolvency, but not
| gross mismanagement and excessive leverage by any means.
| Unwinding it will be quite routine (see my reply to kmod).
| tchalla wrote:
| 93% of deposits are uninsured according to a recent regulatory
| filing. So, I doubt it will be "all depositors" that would be
| made whole.
|
| https://twitter.com/business/status/1634211584657571843?s=20
| tialaramex wrote:
| FDIC means you get paid immediately regardless, but the bank
| will almost invariably turn out to be good for the rest, just
| not quickly.
| mixdup wrote:
| No, FDIC means you get paid up to $250,000 per insured
| account immediately Any amount over that you are not
| guaranteed to be able to withdraw. These people are a long
| way from regardless
| notafraudster wrote:
| It looks like since 1/1/2014 (convenient stopping point
| for my scrape), FDIC takeovers resulted in an average of
| 76% of what's owed paid out (range 0%-98%). My guess is
| the <50% payouts were mostly fraud rather than a
| situation like this where it's a more traditional
| liquidity event, so I'd suspect it'll be above average,
| probably in the 80-90% range.
| rcme wrote:
| > No, FDIC means you get paid up to $250,000 per insured
| account immediately Any amount over that you are not
| guaranteed to be able to withdraw.
|
| The first half is what _FDIC insurance_ means. The FDIC
| helps distressed banks in a variety of ways, including
| insuring deposits under $250K, but typically all
| depositors are made mostly whole again.
| aioprisan wrote:
| > but typically all depositors are made mostly whole
| again
|
| Typically, but no guarantee. And on what time frame,
| nobody knows.
| mixdup wrote:
| Typically the FDIC finds another institution to buy the
| distressed bank, and backstops losses on bad assets. They
| were not able to do that in this case
|
| I suspect many depositors will be taking losses in this
| failure
| pirate787 wrote:
| IndyMac depositors got 50 cents on the dollar above the
| insured amount in the 2008 collapse.
|
| https://www.ocregister.com/2009/03/20/depositor-losses-
| final...
| tinco wrote:
| But by the time the depositors get their money all of their
| employees will have left, and some other company will have an N
| year lead on cornering the AI dog washing market.
| bityard wrote:
| Agreed. Lots of people here in the comments are making
| assumptions about a system they don't understand. Depositors
| with > $250k aren't necessarily going to "take a haircut," for
| the reason you mentioned, plus a few others. Additionally:
|
| 1. Any financial advisor who recommended to these startups that
| they should keep >250k in a regular bank account should be
| fired. It's totally possible (and regularly done) to spread out
| cash among several financial institutions to protect against
| this very issue.
|
| 2. Any regular account with two or more signers (very typical
| for a business account) is insured up to 500k.
|
| 3. If spreading out your 6- or 7-figure assets to multiple
| institutions is too much of a burden, literally every business
| bank has special accounts or add-on features that either raise
| the FDIC default limit of 250k, or supplement it with external
| insurance. Again, if any startup's financial handlers didn't
| recommend this: fire them because they entirely failed to do
| their job.
| roguecoder wrote:
| It seems like SVB was exploiting the lack of sophistication
| among early startups, and now it is going to bite all those
| startups in the ass.
|
| Wealthfront offers me as an individual better tools for
| managing risk that it sounds like people who banked with SVB
| were getting.
| VagueMag wrote:
| For Pete's sake, 1 month Treasury bills are yielding more
| than almost every bank account. Just set up a TreasuryDirect
| account and be done with it.
| panarky wrote:
| SVB is not a typical regional bank taking deposits from
| middle-class workers, where most accounts are under the 250k
| insurance limit.
|
| Banks that primarily serve ordinary workers typically have
| over 50% of total deposits in accounts that are under the
| limit, and are fully insured.
|
| But for SVB, _less than 3% of deposits are in accounts with
| less than $250k_.
|
| The cold, hard fact is that if the bank doesn't have
| sufficient assets to pay back depositors, no regulatory
| sleight of hand changes that fact.
|
| There's a reason why large deposits aren't insured, and
| that's because the rich have the knowledge and resources to
| take care of themselves, and shouldn't co-opt the power of
| the state to force ordinary people to subsidize them when
| their bets go bad.
|
| It would be hideously immoral to bail out fabulously wealthy
| VCs with funds from taxpayers and small depositors.
| fairity wrote:
| > The cold, hard fact is that the bank doesn't have
| sufficient assets to pay back depositors.
|
| That's not true. As of December 31, 2022, Silicon Valley
| Bank had approximately $209.0 billion in total assets and
| about $175.4 billion in total deposits. Even if liquidating
| assets forced a 15% haircut, depositors will be made whole.
|
| If a bail out is necessary, it's likely in the form of a
| short-term loan to make depositors whole sooner rather than
| later. And, such a bail out can/should be structured as a
| loan with significant interest in which case it's not
| really a cost to taxpayers.
| panarky wrote:
| That $209 billion number was not marked to market. Their
| assets weren't worth that much then, and they're worth
| less now.
|
| The cold, hard fact is that if the bank had sufficient
| assets to let depositors withdraw their cash, then they
| wouldn't be in receivership now.
|
| You can argue that they actually do have sufficient
| assets, but they just can't access them right now, and we
| just need to wait ten years for bonds to mature.
|
| But that argument only makes sense if you also say that
| large depositors should wait ten years to get their money
| out.
|
| Naturally, a dollar that you might receive ten years from
| now is worth a lot less than a dollar you can actually
| spend today, and if regulatory sleight of hand obscures
| that essential fact to bail out the 1% of the 1%, that
| would be extraordinarily unjust.
| fairity wrote:
| Once again, my point is that your following statement is
| untrue: The cold, hard fact is that the bank doesn't have
| sufficient assets to pay back depositors.
|
| It is not a cold, hard fact that they don't have
| sufficient assets. It's entirely possible that after
| liquidating their assets (on the time scale of months),
| they can make depositors whole even after factoring in
| the time cost of money.
| SilasX wrote:
| Not unless interest rates plummet, no. The bulk of
| portfolio losses is from long term bonds losing value
| with the increase in interest rates. Allowing more time
| to sell doesn't help you there, especially if you have to
| pay prevailing interest rates on any delay.
| panarky wrote:
| Of course you're correct, nobody knows the future.
|
| It's possible the $80 billion in mortgage-backed
| securities they bought yielding 1% and maturing in 10
| years might be salvaged. They're now worth far less than
| they paid because interest rates are up to 5% and nobody
| wants to buy bonds that yield 1%.
|
| Maybe this receivership will bork a thousand startups,
| throw a bunch more people out of work, and cascade into a
| larger recession, driving interest rates back down to 1%,
| and restoring the value of the mortgage-backed
| securities, and making the bank solvent again!
| kiratp wrote:
| You're basically saying the employees at a non-tribal
| number of startups should not be paid payroll because "fat
| cat VCs".
| panarky wrote:
| No, I'm saying let the fat cat VCs fund the payroll, not
| a quasi-governmental fund backed by taxpayers that
| explicitly said uninsured deposits are not insured.
| 015a wrote:
| > The cold, hard fact is that the bank doesn't have
| sufficient assets to pay back depositors
|
| This is not obvious at this time. This is not a cold hard
| fact. They absolutely, undeniably had assets in excess of
| depositor liabilities at the end of Dec 2022. They incurred
| losses since then. The accountants are still accounting.
|
| > and no regulatory sleight of hand changes that fact.
|
| There _literally_ is regulatory "sleight of hand" to do
| this, and the FDIC has a demonstrated history of doing it,
| many times. When banks like this fail, they shop the assets
| and existing customers around to other banks, and
| critically: will _pay_ the acquiring bank to close the gap
| between assets and liabilities + provide liquidity while
| assets mature.
|
| > There's a reason why large deposits aren't insured, and
| that's because the rich have the knowledge and resources to
| take care of themselves, and shouldn't force ordinary
| people to subsidize them when their bets go bad.
|
| The FDIC is _entirely_ funded by insurance premiums paid
| for by the banks themselves. They are not tax payer funded.
|
| Your fear is causing you to spread misinformation and scare
| people more than necessary.
| panarky wrote:
| _> ... absolutely, undeniably ..._
|
| Were these assets marked to market, or were there
| billions in unrealized losses even then?
|
| _> regulatory "sleight of hand"_
|
| When claims on the FDIC exceed premiums paid, they are
| absolutely backed up by taxpayers.
|
| There's a cap on what deposits are insured, it's not a
| secret. Large depositors knew their funds were not
| insured.
|
| It's not "sleight of hand" to shop the assets in the
| market, maximize recovery, and make all depositors whole
| if possible. By all means do this!
|
| But using FDIC funds to bail out uninsured depositors, or
| monkey business with quasi-government agencies backed by
| taxpayers paying above-market prices for securities, or
| agreeing to accept below-market interest rates on loans
| is definitely "sleight of hand" to obscure a direct
| subsidy to extraordinarily wealthy people.
|
| By no means should insurance premiums paid on insured
| deposits be misappropriated to bail out uninsured
| depositors.
| roguecoder wrote:
| Being able to trust in the stability of banks is
| subsidizing the economy, not just wealthy individuals. It
| isn't CEOs who got tossed out of work in 2008, it was't
| wealthy individuals who had a 27% unemployment rate.
|
| Wealthy individuals constantly try to game the system.
| Not letting the games they play hurt the rest of us is an
| entirely proper role for the government to take on.
| kelnos wrote:
| I think the problem is when those games don't hurt the
| individuals playing them. After 2008, most of those
| banking executives who screwed things up saw few
| consequences.
|
| I agree that it's a good move for the government to use
| taxpayer money to prevent an economic collapse. But
| that's still the lesser of two evils: the government
| should be working harder to disincentivize the kind of
| behaviors that make wealthy individuals think that
| playing these sorts of games is worth the risk.
|
| I'm not sure what "working harder" should entail (I'm no
| expert on this sort of thing; others are), but I think
| it's pretty clear they're falling short.
| roflyear wrote:
| > 3. If spreading out your 6- or 7-figure assets to multiple
| institutions is too much of a burden, literally every
| business bank has special accounts or add-on features that
| either raise the FDIC default limit of 250k, or supplement it
| with external insurance. Again, if any startup's financial
| handlers didn't recommend this: fire them because they
| entirely failed to do their job.
|
| Contractual obligations often prevent this, btw. Many SVB
| customers had loans with SVB, which prevented them from using
| other banks.
| kgwgk wrote:
| > 2. Any regular account with two or more signers (very
| typical for a business account) is insured up to 500k.
|
| Is it typical for business accounts to be owned by someone
| other than the business?
| jabart wrote:
| I don't think the signers count towards the limit like a
| personal joint account does and would keep a business account
| at $250k.
|
| https://www.usbank.com/bank-accounts/fdic-deposit-
| insurance-...
| bjornsing wrote:
| > It's not like those government bonds won't pay
| out...eventually.
|
| Does that really matter though? Anyone can buy and hold to
| maturity. The market price indicates that that's not good
| business.
| nr378 wrote:
| SVB held $21bn of 'available for sale' bonds and $91bn of 'held
| to maturity' bonds on its balance sheet, that were actually
| only worth $19bn an $76bn respectively on a mark-to-market
| basis, which means a total unrecognised hole its in balance
| sheet of $17bn. SVB's total equity was only $16bn[1][2]
|
| That means it didn't have a liquidity crisis, and it didn't
| have reserves in excess of it's liabilities, it had a solvency
| crisis, and it has more liabilities than it has assets (before
| even considering the haircut it's assets will suffer at
| liquidation prices).
|
| The crux of the issue here is that, for many types of assets,
| banks are able to test whether they meet capital requirements
| based on the price they paid for the assets, rather than the
| price the assets are currently worth. So SVB was sailing along
| nicely whilst it's bond portfolio slipped further and further
| under water, and wasn't required to recapitalise when it should
| have done.
|
| [1] https://ir.svb.com/financials/annual-reports-and-
| proxies/def... [2] https://www.wsj.com/articles/bond-losses-
| push-silicon-valley...
| RC_ITR wrote:
| People keep talking about how 'this is a solvency crisis
| because if SVB had to sell everything today, they wouldn't
| cover liabilities' when that is _the definition_ of a
| liquidity crisis.
|
| EDIT: To be clear, think of it this way. I have a piece of
| paper saying you'll give me $100 in 1 year plus 1% interest
| that I bought for $98.
|
| No-one buys that piece of paper for $98 today, because they
| can get the same deal with better interest. _But that doesn
| 't change the fact that I will get $100 for it._
|
| If deposits hadn't shrunk, $100 would go to SVB in 1 year and
| everything would be fine, it's the fact that they have to
| sell it so far ahead of maturity that's the problem, we just
| didn't notice this phenomenon in the past few decades b/c
| rates fell and prices went up.
|
| This is _not_ because SVB has a particularly risky book (we
| 're talking treasuries here), it's because they didn't
| account for declining deposits (itself a very stupid, but
| unique bad decision unrelated to their risk tolerance).
| purpleblue wrote:
| No, I think you're wrong.
|
| The reason why depositors are going to lose money I think is
| because the fire-sale valuation of the assets << valuation on
| the books. I think depositors will lose a fairly big chunk of
| their money, maybe 10-30% if not more.
|
| Their money was not sitting around in cash. It was in bonds
| which lost a lot of value in the last several months. They also
| have more exotic investments in the startups they work with,
| which depending on how it works, could get a really bad
| valuation as well.
| gumby wrote:
| See my reply to kmod in regards to this. It's the FDIC's
| current balance sheet we're talking about, not SVB's. In a
| liquidity crisis you don't have access to your capital. So
| FDIC spends theirs, and takes control of SVB's balance sheet.
| Also SVB is a small bank.
| purpleblue wrote:
| The only way things are okay is if FDIC makes SVB whole on
| all its assets, which doesn't make sense. They are only on
| the hook for the 250k, everything above and beyond will get
| paid out by selling assets, much of which might be
| considerably impaired, because of accounting differences.
| You're telling me that if SVC had $1 billion in 0.1% 10
| year bonds, they would pay them face value for that now?
| That's not how it works at all.
|
| SVB was the 15th largest bank in the US. That's not a small
| bank.
| gumby wrote:
| That's not how FDIC works. Its job is to protect account
| holders, not banks. SVB is dead; its shareholders and
| bondholders will be wiped out, includng the money they
| raised from General Atlantic this week.
|
| The account holders' accounts, and likely all the loan
| portfolio, will go to another bank. The new bank will
| adjust its reserves from the Fed in the usual way, and
| may get some capital from the FDIC (warning: I am not _au
| courant_ how the latter works post the GFC).
|
| The FDIC uses its own large (and augmentable by congress,
| not that it matters in this case) balance sheet to back
| some or all of the deposits. It seizes all of SVB's
| assets and unwinds them as it decides to... _with the
| proceeds going to FDIC._. Whether it dumps them on the
| market or holds to maturity is the FDIC 's decision and
| has nothing to do with what happens to SVB. The people
| who went to SVB HQ and the people who decide what to do
| with SVB's assets are completely different people.
|
| Read my reply to kmod.
|
| > SVB was the 15th largest bank in the US. That's not a
| small bank.
|
| The money center banks are the ones that matter. Most
| retail deposits are held by a handful of banks. Being the
| 15th largest bank is not like being the 15th university
| in the rankings (i.e. not that different from the top 10)
| but more like being the 15th biggest car company. I
| wouldn't call FDIC's balance sheet "enormous" but it can
| handle SVB without breaking a sweat.
| [deleted]
| dahdum wrote:
| DFPI specifically called them insolvent in their release today,
| does that change your opinion on depositors being made whole?
|
| https://dfpi.ca.gov/2023/03/10/california-financial-regulato...
| dragonwriter wrote:
| > DFPI specifically called them insolvent in their release
| today, does that change your opinion on depositors being made
| whole?
|
| If the asset/deposits balance hasn't changed much since
| December (which I'm not sure is the case), depositors are
| _likely_ to _eventually_ be made whole for the deposit
| amounts, but liquidity issues and facilitating sale of assets
| to make that happen may result in substantial delays. For
| depository accounts businesses relied on for regular
| operations, that...may still create substantial additional
| costs that will not be compensated.
|
| So, in a more holistic sense, it seems likely that depositors
| will not be made truly _whole_ for the impacts, even if they
| _eventually_ recover deposits.
| kgwgk wrote:
| Being made whole several years down the line may not be
| better than getting liquidated as soon as possible.
|
| In a extreme example, getting $100 in 10 years is not as
| good as getting $70 next month.
| gumby wrote:
| See my reply to kmod for further explanation on my statement.
| opportune wrote:
| The conundrum with underwater bonds/mbs is that you can make
| depositors whole, or give depositors money back now, but not
| necessarily both.
|
| If I had $1m in my account and it was invested 100% in MBS
| around in 2021, it could take 10 years to actually get the
| whole $1m back, and only be worth like $800k now. I have
| effectively lost that 20% because you could just give me $800k
| now and I could put it in a MBS myself to get the same results.
| bombcar wrote:
| The thing that's strange is FDIC took control and setup a
| receiving bank for liquidation.
|
| That's not normal; FDIC works _quite hard_ to find a bank
| willing to take over - usually they can work out what the
| "cost" is to take over, and FDIC pays the receiving bank that
| amount to "eat" the dying one.
|
| If they don't announce they have a bank to assume SVP by
| Monday, it's quite abnormal.
| NordSteve wrote:
| Most FDIC bank takeovers are slow moving crashes, allowing
| for a longer negotiation where buyers can evaluate the loan
| portfolio they are buying. This is a reaction to a classic
| run, so no time for that.
| mixdup wrote:
| Exactly. The fact they didn't have a bank lined up points
| very heavily to the fact that they are not going to be made
| completely whole. In the past, the FDIC has found a buyer and
| as part of that process guarantees some amount of the losses.
| IE: Savior Bank buys Failed Bank for pennies on the dollar,
| or even for a negative amount. They get all deposits, insured
| or not, and all assets--meaning loans. Then, the FDIC
| guarantees they'll make Savior Bank whole some percentage of
| losses on assets that go bad. Sometimes 80% or more
|
| This arrangement usually results in all depositors being made
| whole, and the FDIC fund not taking any, or many, actually
| losses, because most of the loans will still pay back, at
| least partially
|
| They also do this before seizing the bank, so that it's all
| very orderly and calms any panics
|
| SVB was looking for a buyer on the open market and that
| failed--no surprise
|
| That the FDIC also could not find a buyer that they could
| subsidize and announce the same day as the seizure is very
| damning. I would be shocked if someone comes in later and
| tries to buy it
|
| Also, the fact the seizure happened in the middle of the
| business day, and not at the close of business yesterday
| points to a somewhat disorderly and rapidly deteriorating
| condition. I think maybe the run picked up a lot faster than
| they expected
| elliekelly wrote:
| It seems like there's a lot of uncertainty around the
| dollar amount of the deposits in excess of FDIC limits
| which would make it difficult to figure out a deal.
| bombcar wrote:
| That's a really good point, FDIC usually swoops in Friday
| night; and this was closed on a Friday during business
| hours, that's actually insane; they couldn't hold on 8-10
| more hours, the run must have been really bad.
|
| Even WAMU (a huge FDIC action) was done after banking hours
| closed on the west coast.
| https://en.wikipedia.org/wiki/Washington_Mutual
| ashwagary wrote:
| I just saw recent footage of 40-50 people standing in
| line outside an SVB branch waiting for service
| (withdrawals most likely).
|
| I would surmise that the news spread fast among the tech
| demographic the bank services and the run is really bad.
| toufka wrote:
| And in this case, tech savy individuals are willing to
| send $XXM in 6 clicks, 3min after getting a slack
| message. That's a pretty quick kind of run relative to
| old-school 'stand in line for your personal life savings'
| kind of run.
| timr wrote:
| It doesn't really work this way. It takes time to set up
| acquisitions, even by the FDIC, and the "FDIC
| stormtroopers sell bank overnight" is apocryphal. They do
| weeks of legwork leading up to the actual handover of the
| bank.
|
| We don't know the timeline here, but speculating that "it
| must be bad" because things didn't happen overnight isn't
| really responsible.
| everybodyknows wrote:
| What is "SVP"?
| dredmorbius wrote:
| I suspect a typo for SVB, "Silicon Valley Bank".
| mikeyouse wrote:
| So what I think is happening here is that if you take over a
| bank the traditional way, you need to mark-to-market all of
| the bank's assets -- so all of the losses from the long-dated
| MBS that would be perfectly fine if held to maturity would
| have to be recognized immediately, just crushing the balance
| sheet of anyone who bought it. Probably trying to line
| someone up who can either absorb that loss, figure out a way
| to recapitalize without recognizing the loss, or get access
| to some other lending facility.
| t0mas88 wrote:
| But from what I read it's common for FDIC to "sell" to the
| acquiring bank at a price that wouldn't make a loss.
|
| So if you marked to market all those long term bonds and
| then sold SVB to a bigger bank at the resulting (possibly
| negative) valuation. Why wouldn't a big bank take that
| deal?
| czbond wrote:
| Chase has wanted this bank for years. Either they are taking
| advantage (takeover) or <conspiracy theory unfounded> helped
| accelerate it.
| gumby wrote:
| Most of the good staff were poached by First Republic over
| the past few years. That caused me to bank my current
| startup at FR after more than 25 years of SVB.
|
| So I don't think there was much for Chase to buy. SVB has
| been in decline for a while
| ashwagary wrote:
| Just saw a First Republic stock chart in crash territory,
| contagion?
| everybodyknows wrote:
| Today's price range: 45-95
|
| https://www.cnbc.com/quotes/FRC?qsearchterm=first
| gumby wrote:
| S&P bank sector is down across the board, but presume it
| will regress to the mean fairly soon. Aren't many other
| banks with exposure similar to SVB's.
| alfalfasprout wrote:
| First republic is in the same region and has a ton of
| tech clients. Collateral damage. So far it looks like
| they don't have the same exposure as SVB did though.
| VirusNewbie wrote:
| Interesting you say this, their stock is up despite rest of
| my portfolio being red
| kgwgk wrote:
| The size of this failed bank is quite abnormal. The business
| of this failed bank is quite abnormal. The surprising thing
| may be that the find anyone willing to take it out of their
| hands - let alone by Monday.
| ecopoesis wrote:
| When was the last US bank failure where depositors lost
| money?
| silisili wrote:
| Appears to be 2020, from a cursory Google search.
|
| https://money.stackexchange.com/questions/129772/has-
| anyone-...
|
| The oft quoted 'nobody has lost money' is from the FDIC,
| and specifically says 'insured deposits.'
| martythemaniak wrote:
| Yeah, it seems companies should be mostly fine. Like you had 10
| million in cash yesterday, but now you get 10m in 10y TBills,
| which you have to sell for $9m to get your cash back. It sucks
| but it shouldn't change the trajectory of your startup.
| rhacker wrote:
| I read SVB and for some reason my mind kept thinking SBF.. is
| there some connection outside my mind?
| zenmacro wrote:
| Wow, the government acted incredibly swiftly and decisively to
| crush the possibility of a general bank panic. The current US
| banking system is very different from the 2008 system.
| yieldcrv wrote:
| !remindme 2 months
| chasd00 wrote:
| well they got a finger in the dam leak at least. The question
| is, is it the only leak or are other cracks going to appear
| with more leaks?
| MrMan wrote:
| your last sentence is demonstrably false!
| rrmm wrote:
| From what I recall of the last set of bank failures this is
| pretty much the FDIC's SOP. They swoop in on Friday with little
| notice, close the bank, work through the weekend and open up
| for business on Monday. It apparently made for some interesting
| work environments.
| delfinom wrote:
| Because SVB was an actual bank with deposits that is FDIC
| insured. This is their job and they always acted timely in any
| situation, even before 2008.
|
| Bear Stearns in 2008 was an investment bank, they were not
| hawking FDIC insured accounts.
| jaxomlotus wrote:
| We bank with SVB and our funds are now frozen. This is going to
| be an incredibly painful weekend of waiting for news. For anyone
| else impacted, wishing you the best - stay strong.
| voytec wrote:
| Fresh email from Alpaca (YC W19) on the matter:
|
| https://news.ycombinator.com/item?id=35099518
| perihelions wrote:
| HN has "ample capacity" to serve its readers "with one exception:
| If everybody tries to refresh this comment thread at the same
| time, that will be a challenge."
|
| (I think it helps to log out? If you're in read-only mode)
| jojosbuddy wrote:
| Question now, with other regional banks getting some contagion
| from this... For all those that pulled yesterday, where are they
| parking their withdraws? National banks (e.g. BoA), other asset
| classes, mattress?
| anonuser123456 wrote:
| This made Nouriel Roubini's morning.
| Octokiddie wrote:
| > At the time of closing, the amount of deposits in excess of the
| insurance limits was undetermined.
|
| What are the insurance limits for companies? Same as individuals?
| I get the sense that most of SVB's deposits were from startups
| and small companies. And I also get the sense that $250K is not
| much room for a startup trying to make payroll to employees with
| Silicon Valley wages.
| ncallaway wrote:
| Yep, $250k.
| NordSteve wrote:
| For those who want to geek out, here's a great memo that
| describes the liquidation process in great detail:
| https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/0...
|
| Someone holding a receivership certificate likely can sell it or
| borrow against it.
| boeingUH60 wrote:
| In my whole life, I have never seen a bank run from start to
| finish, but here we are. Interesting times!
| rozap wrote:
| A bank run powered by memes.
|
| We truly live in a world.
| OldManAndTheCpp wrote:
| Bank runs are always caused by memes -- the change is bank
| runs powered by image macros, but memetic spread of the idea
| "this bank may fail" is always what causes a run.
| [deleted]
| davidw wrote:
| What's the best brief summary of what has happened so far?
| NordSteve wrote:
| During the last couple years, SVB got a ton of deposits, and
| they didn't have matching loan demand. So they invested the
| money in bonds. Unfortunately they make a bet that interest
| rates would stay low, and bought longer duration (~10 year)
| bonds.
|
| Interest rates have gone up, so the bonds they bought have lost
| value. They tried this week to fix that by selling part of the
| portfolio and raising capital, but did it in a ham-handed way
| and triggered a bank run.
| dragonwriter wrote:
| Its worth pointing out that bonds are just debt instruments
| and that their recoverable value responds to changes in the
| economic environment in pretty much the same way as direct
| loans with similar term would.
| rafaelero wrote:
| That's some terrible risk management. I can't believe they
| thought Fed' action during the covid crisis wouldn't cause
| inflation and prompt them to increase interest rates.
| EVa5I7bHFq9mnYK wrote:
| So they did exactly the same thing that FTX did - gambled
| with clients' money and lost.
| foreigner wrote:
| That is what all banks do.
| colinmorelli wrote:
| I think an important backdrop here is the initial catalyst
| for this (to my understanding) was a decline in VC funding
| and elevated cash burn in their clients, leading to a net
| outflow of deposits, which is ultimately what necessitated
| selling securities in the first place.
|
| When the economy is generally healthy and your clients are
| diversified, deposits remain fairly stable. If this had
| happened, SVB likely would not have needed to sell the low-
| yield mortgage backed securities to cover liquidity. SVB is
| very exposed to the venture community and very impacted by
| the changing climate.
| beefield wrote:
| I'm a bit confused. (Haven't followed in detail) Did they not
| mark to market the bonds they bought and ended up insolvent
| in reality but not in their books? Shouldn't the regulators
| have pulled the trigger earlier, then? Or is this just a
| liquidity issue and the bank is solvent, but the assets need
| to be sold?
| davidw wrote:
| Interesting, thanks. What with the bad bet being some fairly
| boring bonds... that should mean their investment didn't,
| say, lose 90% of its value or something. Just that the 10%
| (or whatever it was) it dropped was enough to put them over
| the edge. But if they sell off those bonds that's still a
| fair amount of money that can be recovered... right?
| loeg wrote:
| They made some bad-in-hindsight bets on low-interest, medium-
| duration debt, rates went up 4%+, and also startups have less
| cash in this environment, so they were obligated to realize
| losses on the debt to pay withdrawals. The end result being
| they were undercapitalized or at least not well-capitalized.
| They attempted to raise funds by selling equity but this
| incited a run on the bank.
| neom wrote:
| If you're struggling, email is in the bio, happy to chat. I've
| heard a few folk are really in trouble right now and we don't
| need anyone doing anything permanent, this too shall pass. Happy
| to talk! There is a way forward! :) :)
|
| If you need to talk to someone immediately: 800-273-8255
| serf wrote:
| >If you need to talk to someone immediately: 800-273-8255
|
| it's an 800 number, perhaps you should be clear to where you're
| directing people: the American National Suicide Prevention
| Lifeline.
|
| I get that you're trying to be light-footed around the topic,
| but I feel as if I must point out that not all people that need
| to talk to someone even have the concept of self-harm on their
| mind.
|
| If you actually _just need to talk to someone_ , try a
| Warmline. [0]
|
| [0]: https://warmline.org/warmdir.html#directory
| 650REDHAIR wrote:
| You're a good egg.
| notShabu wrote:
| From reading the comments it's interesting how the failure seems
| to have occurred.
|
| Not crypto hype, not bad loans, but long term bonds... It's
| sounds very conservative and responsible.
| berkle4455 wrote:
| That's a whole lot of startups not making payroll or their SaaS
| payments
| mynameishere wrote:
| Anyone know what the fire drill is on this? I imagine SV CFOs
| on the phone with Goldman Sachs trying to get a 5 million
| dollar credit line by COB today. Or shutting down operations.
| [deleted]
| [deleted]
| champagnepapi wrote:
| this is terrible. Many people will lose their jobs... due to
| liquidity issues at their companies :(
| artur_makly wrote:
| So what happens to all the startups that were created via
| Stripe/ATLAS with an SVB account currently less than 250k in cash
| balances? Should they move their $ to a new bank? if so which one
| is recommended? thanks!
| mtoner23 wrote:
| All those accounts are 100% totally fine, the fdic will move
| their money to a new bank. YOu can google how this works but
| its 100% seamless
| cjbgkagh wrote:
| Does the US and SVB have bail-in laws? There is a huge difference
| between a preferred creditor and being at the back of the line.
| As SVB has a rather low percentage of FDIC insured coverage at
| ~5.69% compared to a more normal 40-60% they can't rely on FDIC
| to get the more typical 90c on the dollar. But then again SVB
| might have been healthier than other banks so maybe the dilution
| won't be so bad. Historically depositors were first in line but
| bail-in laws (depending on how they're written) has the
| depositors balances converted to equity which is last in line.
| Such laws are totally crazy but didn't have an impact because few
| people knew about them so depositors were taking big risks and
| not knowing about it there by not demanding the interest rates
| needed to cover such risk. In effect it decreased the risk to the
| prefered debtors, preference shares, bonds, etc lowering the
| interest cost to the bank. Basically by transferring risk to
| those who don't know better the bank makes free money. The idea
| is sold as a win-win for taxpayers and bank health but only works
| as long as depositors stay ignorant. If SVB is bailed-in with
| conversion to equity then knowledge about that risk will spread
| quickly and the follow on effects could be very substantial. I
| think that can't be allowed to happen, which is probably why even
| with such laws depositors tend to be a bit blase. But if that
| does happen then holy shit look out.
| cjbgkagh wrote:
| Replying since I can't edit: FDIC is issuing a Receivership
| Certificate which I am assuming has first cut priority so it
| does not appear to be a bail-in. Debtors and equity will get
| hosed, as it should be, hopefully they can avoid a bail-out as
| well.
|
| Edit: I just noticed that it says that in the link of the
| thread. I'm tired and I didn't read it carefully, my mistake.
| eftychis wrote:
| Just because there is a whole lot of misuse of terms that makes
| it hard to understand certain comments and debate over if SIVB is
| insolvent or illiquid, here are some definitions:
|
| https://www.investopedia.com/terms/s/solvencyratio.asp#toc-s...
|
| Defn. (informal) A company is illiquid if they can not service
| short term liabilities/debt as it comes due. This includes the
| ability to quickly sell assets to raise cash.
|
| According to what we hear Silicon Valley Bank is/was illiquid:
| They were struggling to _liquidate_ at well below the maturity
| value of the MBS to serve their liabilities -- withdrawals. They
| were not able to service the withdrawal rate (there were
| withdrawals/wires frozen for hours yesterday).
|
| In essence, driving themselves towards the insolvent side
| (hopefully not, because if they are insolvent now (discounting
| the equity value) we are going to have contagion.
| opportune wrote:
| The maturity value of a bond/mbs is not really the true value
| at a given time between it being issued and maturing. You can
| treat it that way as a person holding the bond if you pinky-
| promise to yourself to not sell until maturity, but since banks
| need to periodically sell these to let customers get their
| deposits, that fiction doesn't work for them.
|
| These things trade on the open market and adjust to interest
| rate changes. What really happened is that they bought a bunch
| of securities backed by depositors that lost value at mark-to-
| market. This is poor risk management, not some unfortunate
| unavoidable issue caused by a bank run. They are insolvent at
| market prices - illiquidity would be more like they have a
| bunch of contracts or snowflake assets (like buildings, or a
| security that doesn't trade on the open market).
|
| As a depositor, saying "in 10 years you will get the full value
| of your deposit back" is bullshit: you could give me the actual
| reduced value now, and I could invest it in the same kind of
| instrument, and in 10 years I'd also have the full value back -
| but I could do other things with it too, which may be
| preferable considering it's _my_ deposit that I may need to
| spend now rather than in 10 years.
|
| The fear is that many other banks are in the same position,
| that they are technically underwater and vulnerable to runs
| because the true value of their deposit-backed assets have
| decreased due to interest rate increases, but that SVB was
| affected first because their customer base of VC-backed
| businesses just happened to have their withdrawal:deposit ratio
| increase the most.
| eftychis wrote:
| The regulation to my knowledge does require marking to
| maturity. Yes as I have commented elsewhere in this post, all
| banks do this.
|
| SVB had the unique situation of being the canary in the mine,
| as they had to get a lot of MBS during low interest rates of
| 2021/2020. Your question is the jackpot one, yes: how many
| other banks are following closely by.
|
| If the Fed continues or increases the rate hike I would be
| surprised if we don't hear more -- assuming no other action.
|
| The silver lining might be that SVB might give the heads up
| for the Fed, FDIC and government to act.
| opportune wrote:
| Sure that is the regulation, but just because it's a
| regulation doesn't mean it's all you should do for risk
| management, it's just the bare minimum.
|
| If the present value of a bank's assets are lower than the
| present value of deposits, that is insolvency: calling it
| illiquidity just because the bank doesn't want to sell its
| actually-liquid underwater assets right now is a cop-out.
| elzbardico wrote:
| So SVB suddenly had too much money and too few people to loan
| this money to, so they had to buy a dangerous asset that could
| have exactly this problem with a raise on interest rates, where
| every sane person in 2021 would know that all that stimulus money
| would lead to inflation down the road and consequently a tax hike
| from the FED.
|
| _" The cheapness of capital gives facilities to speculation,
| just in the same way as the cheapness of beef and of beer gives
| facilities to gluttony and drunkenness" _ MARX,
| Karl Capital Vol. III Part V - Division of Profit into
| Interest and Profit of Enterprise. Interest-Bearing
| Capital Chapter 25. Credit and Fictitious Capital*
| katmannthree wrote:
| Yikes. Does anyone have an idea of which orgs have significant
| exposure (like Molly White's FTX contagion graph[0])?
|
| [0] https://www.mollywhite.net/etc/ftx-contagion
| TechBro8615 wrote:
| 40% of startups just had their bank accounts cut down to $250k,
| so... a lot.
| [deleted]
| tedivm wrote:
| I'm not sure how true this is. I worked at a startup that
| took in over $100m in investment, and I was curious so I
| asked the cofounder how they protected that. According to him
| the money was divided up into chunks smaller than $249k,
| pushed off to a custom entity made just for the purpose, and
| then invested in bonds or CDs on a rotating basis.
|
| I'm sure a lot of startups will be in trouble, but those that
| are working with decent investors probably had help
| protecting the assets.
| [deleted]
| [deleted]
| e1g wrote:
| The FDIC covers $250k per _depositor_ , not per _account_ ,
| and specifically does not cover bond investments. Either
| your startup created 200+ entities to pull this off (good
| luck with the rest of compliance) and didn't do bonds at
| all, or the founder is misled.
| tedivm wrote:
| > Either they created 200+ entities to pull this off
|
| That's literally what they told me they did, and what I
| was trying to say happened here. It's possible he was
| misled, but he seemed pretty knowledgeable about this.
| The money initially came from Softbank, who helped with
| the process.
|
| Also, $250k per depository per bank. You can also
| distribute the money across multiple banks to get higher
| insurance levels.
| postexitus wrote:
| They either made the story up based on what they read on
| reddit or you are making it up now based on what you have
| read on reddit. There is a third possibility that that
| person being incredibly dumb and they actually believed
| what they read - but I give that a slim chance.
| from wrote:
| Why would someone lie about that? Having 30 bank accounts
| does not confer any prestige upon you. There are
| companies that do this for people (https://en.wikipedia.o
| rg/wiki/Certificate_of_Deposit_Account...) and if you
| Google "FDIC sweep" or "insured cash sweep" there are a
| bunch of banks talking about how they support
| automatically moving money out when an account gets more
| than $250000 in it.
| zamnos wrote:
| What's more likely being lost in translation is that they
| have an insured cash sweep account and explained how
| _that_ works, and who exactly is creating the 30 bank
| accounts is what 's being misunderstood in this game of
| telephone.
| costco wrote:
| Why didn't they just use https://en.m.wikipedia.org/wiki/
| Certificate_of_Deposit_Accou...? I haven't used it I just
| read about it in a Taleb book but it seems like it would
| be much easier than creating all the accounts yourself
| and you can interact with just one bank account instead.
| tedivm wrote:
| I'll be honest, there's a chance that this is exactly
| what they did but that they didn't understand it or
| describe it properly. My main point was that there are
| ways to get protection beyond the FDIC limit, and your
| link shows a pretty reasonable way to do that.
| e1g wrote:
| Assuming legitimate operations, this strategy is highly
| atypical in corporate finance. There is no scenario where
| this setup has less cumulative risk than keeping cash
| reserves spread evenly across the top 2-3 banks. For a
| startup, this is a red flag about the founders'
| priorities, risk management, and ability to find
| professional advice.
|
| As an intuitive measure, extrapolate this idea to Apple
| or Microsoft, which keep ~$10B in cash on hand and also
| need to protect it.
| tome wrote:
| > extrapolate this idea to Apple or Microsoft, which keep
| ~$10B in cash on hand
|
| Literally cash, as in deposits? Or highly liquid assets
| such as T-Bills?
| tedivm wrote:
| To be fair the founder was really incompetent, and the
| money was pretty much wasted. When the company finally
| sold it was well worth what my strike price was.
| squeaky-clean wrote:
| Per bank. You can use something like IntraFi to
| distribute your deposits across multiple banks
| automatically.
| bombcar wrote:
| At the $100m amount people may confuse FDIC with SIPC -
| https://www.sipc.org
|
| What SIPC does is similar to FDIC but it basically comes
| down to "If you buy stocks via Vanguard, Vanguard
| guarantees that those stocks actually exist and that if
| they fail you get them, and SIPC helps with that".
| notyourday wrote:
| This is literally the primary job of the CFO:
|
| Making sure that if there's X in cash or cash equivalent
| at noon on March 9th, 2023 PST there's still X in cash or
| cash equivalents at noon on March 10th, 2023
| a-r-t wrote:
| Just a clarification: it's per depositor per bank.
| majani wrote:
| Chipper Cash raised $150m from FTX and $100m from SVB. Ouch
| flutas wrote:
| Potential contagion: https://imgur.com/a/Xh6Kudp
|
| These are companies, sorted by PPP loan size who had SVB as
| their servicer.
| mydriasis wrote:
| Holy cow, O'Reilly in the top ten. That doth not bode well.
| nnx wrote:
| But I thought only crypto was risky? And that over-regulated bank
| sector was totally safe?
|
| Imho, this is a great argument for the return of Free banking
| (including crypto) as we see time and again that regulations do
| not work. Fail early and fast, let the market innovate and pick
| its winners and losers.
| ehhthing wrote:
| Except in this case, when SVB fails their customers will get
| the vast majority of their money back as the FDIC liquidates
| all of SVB's assets. When FTX fell, nobody got squat.
| jitl wrote:
| When a bank fails, it gets put into receivership and you get
| (some of) your money back. There's enormous protection working
| in your favor provided by the FDIC. When a crypto token enters
| free-fall, there's no one to stop the market, and no one to
| help you get your money back. It's gone.
| UncleOxidant wrote:
| > regulations do not work
|
| That's quite a lot of extrapolation from one bank failure.
| cp9 wrote:
| ... my guy what are you talking about. the regulations _saved_
| the depositors. if the FDIC wasn't around the little guy would
| be getting screwed right now, as it is, the big guys are the
| ones taking the brunt of the damage. if this had been crypto it
| would *all* be gone and the little guy would be the one holding
| the bag
| nickrubin wrote:
| Garry Tan: "30% of YC companies exposed through SVB can't make
| payroll in the next 30 days. If you or your company are affected,
| I recommend that you reach out to your local congressman to get
| this on their radar TODAY."
|
| https://twitter.com/garrytan/status/1634286688922132481
| ecf wrote:
| So is this going to be a "privatized profits, socialized
| losses" type scenario? Are taxpayers going to be bailing out
| this bank and the companies that use them?
| justin66 wrote:
| If the bank's failure doesn't represent a systemic risk to
| the economy, such that the executive branch would be
| justified in propping them up, we're talking about a
| popularity contest. _Who does the American public like less,
| nerds or bankers?_ might not play in congress quite the way
| the OP is hoping.
|
| It might not come to that, since the specifics of the bank's
| financials will determine whether everyone eventually gets
| their money back.
| cybersol wrote:
| HN thread on this is here:
| https://news.ycombinator.com/item?id=35100743
| [deleted]
| computing wrote:
| Libertarian, "small govt" VCs squealing for govt intervention...
| It would be funny if not for tens of thousands of people who
| might not receive their paycheck next week.
| saos wrote:
| How bad is this for wide economy? I'm scared.
| temp2022account wrote:
| Unless you had your money there the only change in your life
| will be the headlines you glaze over.
| ETHisso2017 wrote:
| Where can we find a list of startups that have large quantities
| of deposits at SVB?
| arthurofbabylon wrote:
| I am most curious about the decision to park so much capital in
| such a low-yielding and long-term investment. Why?
| marban wrote:
| Unbank the banked.
| [deleted]
| NordSteve wrote:
| It should not take too long to find out roughly what the
| uninsured depositors will receive. The investment portfolio is
| straightforward to liquidate. The loan portfolio will take a bit
| longer to sell, but it's a well-worn process. If you haven't read
| about Resolution Trust Corporation, it's worth a couple minutes
| -- this is how the assets of failed savings and loan companies
| were liquidated 40 years ago.
|
| https://en.wikipedia.org/wiki/Resolution_Trust_Corporation
| imstil3earning wrote:
| test
| chollida1 wrote:
| some note i've been taking
|
| > To protect insured depositors, the FDIC created a new entity
| called the Deposit Insurance National Bank of Santa Clara, or
| DINB. DINB will maintain Silicon Valley Bank's normal business
| hours, with banking activities resuming no later than Monday,
| including online banking and other services, the FDIC said.
| Customers with accounts in excess of $250,000 are being told to
| contact FDIC direclty
|
| > The company's main office and all Silicon Valley Bank branches
| will reopen on Monday,
|
| > Uninsured depositors will get a receivership certificate for
| the remaining amount of their uninsured funds, the FDIC said
|
| Keep in mind 93% of SVB's assest were not FDIC insured.
|
| > Silicon Valley Bank Had About $209.0B in Assets
|
| > Svb Is First FDIC-Insured Institution to Fail This Year
|
| Their recent attempt to raise money via shares and debt sales
| failed,
| ejstronge wrote:
| >Keep in mind 93% of SVB's assest were not FDIC insured.
|
| >> Silicon Valley Bank Had About $209.0B in Assets
|
| I'm not an expert, but aren't deposits in a bank _liabilities_?
| Assets are things like treasury bills and loans held by the
| bank.
| dragontamer wrote:
| When Alice deposits $100 into a bank, the bank gains a $100
| liability (owes Alice $100), and then a $100 asset (the
| cash). The asset is likely traded for a bond of some kind, in
| this case a US 10Y treasury.
|
| The 10Y treasury was worth $100 in 2021, but today is only
| worth $80. The bank still owes Alice $100 (a $100 liability),
| but the asset's value has declined. This has caused...
| issues... culminating in the past week of events.
| roflyear wrote:
| It's somewhat confusing to me, because a $100 treasury note
| is only worth less than $100 if you try to sell it today.
| You still will get your $100 back if it matures.
| toast0 wrote:
| $100 today and $100 in a year are not the same thing.
|
| If I deposit $100 into a demand account, I expect to get
| $100 when I demand it.
|
| If you want to sell me $100 in the future for less today,
| that's something worth considering, but that wasn't the
| deal depositors had.
| ellisv wrote:
| Yes but many people want their money today, not in 10
| years.
| roflyear wrote:
| That's a bank run tho not "normal operating" status.
| Jensson wrote:
| Bank runs happens when you create conditions that can't
| handle bank runs. Nobody would worry about keeping assets
| at a Bank that wouldn't get destroyed if people started
| asking for their money.
|
| Therefore although bank runs aren't normal, they will
| almost surely happen to you if you put yourself in a
| situation where a bank run would destroy you. So you have
| to work as if bank runs are normal, or they will be
| normal.
| dragontamer wrote:
| Damn near the entire customer base of Silicon Valley Bank
| withdrew their money yesterday (Thursday), forcing SIVB
| to sell those 10-year notes.
| twoodfin wrote:
| Right, but Alice and all of her friends want their money
| back now, and it's your job as a solvent bank to give
| them their money when they ask for it.
| Octokiddie wrote:
| This is the crux of the problem. SVB may have _intended_
| to hold to maturity, but the market forced it to sell to
| raise cash.
|
| You may hold 100K in treasuries today, but if your
| employer can't make payroll, you're gonna sell to pay
| rent.
| slymon99 wrote:
| @danaris - if you are a bank and people want to withdraw
| money, you need cash to pay them. By "the market" we mean
| the banks depositors who withdrew their case (partially
| due to these very concerns, hence why bank runs are
| called bank runs)
| jojosbuddy wrote:
| Aside from all those tech founders (today's LP VCs) from
| 2008-2020 likely held equity/deposits at SVB, and the
| sheer call out by them to make a run on the bank
| yesterday just broke the bank. The speed of fintech makes
| it feel coordinated.
|
| Funny it seems like VC GPs were on the horn yesterday to
| withdraw, and I know a number of LPs telling me last
| Sun/Mon they'll be "out of the country" next month. Looks
| like some folks had early info.
| danaris wrote:
| > but the market forced it to sell to raise cash.
|
| Can you clarify this part?
|
| I'm not super familiar with the intricacies of banking,
| so my guess is that this is simply due to part of it I
| don't know about, but...given all the "creative financial
| instruments" I've heard about since the runup to the 2008
| crash, I have to wonder if this "market force" was at
| least partly due to something SVB was doing that wasn't
| terribly wise.
| dragontamer wrote:
| > was at least partly due to something SVB was doing that
| wasn't terribly wise.\\\\\
|
| A startup-focused bank probably shouldn't have been
| investing into 10Y, 20Y, or 30Y US Treasuries, when their
| customers might only have 2 or 3 years worth of life in
| them.
|
| So yeah, there's a bit of stupidity here for sure. But
| its the kind of stupid that I can imagine a lot of banks
| making.
| briandear wrote:
| When someone opens a bank account and makes a cash deposit,
| he/she surrenders the legal title to the cash, and it becomes
| an asset of the bank.
| bell-cot wrote:
| It's an Accounting 101 situation (
| https://en.wikipedia.org/wiki/Accounting_equation ) -
|
| The (say) $100 cash I deposited to the bank becomes both an
| asset (they have "my" $100 in the vault) and a liability
| (they own me $100). So the accounting equation still
| balances.
| ejstronge wrote:
| > When someone opens a bank account and makes a cash
| deposit, he/she surrenders the legal title to the cash, and
| it becomes an asset of the bank.
|
| I think this is Google's first hit when one searches this,
| but I do not believe this is correct. Here is a source
| saying the opposite, as an example.
|
| A liability, in general terms, is something owed to another
| (e.g., a deposit)
|
| https://courses.lumenlearning.com/wm-
| macroeconomics/chapter/...
|
| And another more reputable source:
|
| https://www.investopedia.com/terms/b/bank-deposits.asp
| nordsieck wrote:
| > I think this is Google's first hit when one searches
| this, but I do not believe this is correct.
|
| So, I think the person you are responding to is trying to
| explain the distinction between a bailment and a loan.
|
| Let's pretend that someone had a safety deposit box with
| $1B at SVB. They'd get to keep the full amount, because
| that is a bailment. The money never becomes the bank's.
|
| In contract, if someone deposited $1B at SVB, then the
| actual money becomes the property of SVB. And the
| depositor then is a creditor to SVB - they have an
| unsecured load to SVB of that amount. But after SVB gets
| taken over by the feds, they have to stand in line with
| the other creditors and get what they get. They aren't
| guaranteed to be made whole.
| briandear wrote:
| The another, more reputable source says exactly what I
| said.
|
| "The deposit itself is a liability owed by the bank to
| the depositor. Bank deposits refer to this liability
| rather than to the actual funds that have been deposited.
| When someone opens a bank account and makes a cash
| deposit, he surrenders the legal title to the cash, and
| it becomes an asset of the bank. In turn, the account is
| a liability to the bank."
|
| The ACCOUNT is the liability, the CASH is the asset.
| mytailorisrich wrote:
| Not sure about banking rules but in general accounting
| terms: The deposited amount is an asset (the bank has got
| the cash) and a liability (the bank owes that amount to
| the person who made the deposit) and neutral on the
| balance sheet.
|
| Edit: Seems that this is what's explained in the
| investopedia article you linked to:
|
| " _When someone opens a bank account and makes a cash
| deposit, he surrenders the legal title to the cash, and
| it becomes an asset of the bank. In turn, the account is
| a liability to the bank._ "
| ejstronge wrote:
| Yes, but the OP comment conflated assets (cash and
| securities as you mention) with FDIC insurance which only
| concerns liabilities due to depositors who qualify for
| FDIC insurance.
| [deleted]
| mhuffman wrote:
| For a bank deposits are liabilities and loans are assets.
|
| edit: Judging by a quick downvote trigger-finger, there
| seems to be some folks having trouble believing this; check
| this out from the source:
| https://www.federalreserve.gov/releases/h8/current/ ...
| look at the category names of where deposits and loans are
| listed.
| bob1029 wrote:
| The semantics of this are very cumbersome.
|
| The deposit itself is not a liability. The deposit
| _account_ is. There are many ways to get money into a
| DDA. The bank will never give you your original paper
| currency back.
| mhuffman wrote:
| I agree with everything you say, but at a high level they
| "owe" you the money that you deposited. Which is a
| liability. They (generally) are not allowed to just go
| spend your money on anything they like (in the same way
| you could if you got a business loan, which is an asset
| and a liability), but it is prescribed how they can
| create assets with the deposits.
| [deleted]
| bell-cot wrote:
| Clearer to read it in the article:
|
| > As of December 31, 2022, Silicon Valley Bank had
| approximately $209.0 billion in total assets and about $175.4
| billion in total deposits. At the time of closing, the amount
| of deposits in excess of the insurance limits was
| undetermined. The amount of uninsured deposits will be
| determined once the FDIC obtains additional information from
| the bank and customers.
| UnpossibleJim wrote:
| So, first off, I am not very literate when it comes to the
| comings and goings of banking procedures, so forgive me if this
| is a dumb question.
|
| Would an incident like this make other banks shore up their
| defenses about this sort of thing happening to them, or will
| more banks fall due to market conditions in general?
| e-clinton wrote:
| Both would be my guess. I'm expecting more smaller banks to
| fall.
| tinco wrote:
| Well a defense might be to increase their liquidity by
| selling those treasury bills, which would drive their price
| even lower, making other banks also be illiquid on paper.
|
| So yeah I imagine all the banks nervously looking at
| eachother. Who is going to pussy out the first and cause them
| all to tumble over.
| adrr wrote:
| Fed could buy it and set a price floor on it.
| [deleted]
| SkyMarshal wrote:
| _> Svb Is First FDIC-Insured Institution to Fail This Year_
|
| Was Silvergate bank not FDIC-Insured?
| bombcar wrote:
| Silvergate is apparently doing a controlled liquidation of
| itself, this is an FDIC-forced liquidation.
| Eumenes wrote:
| Why did startups use SVB over larger commercial banks? Every
| place I've worked has used them for some reason. I don't get it.
| nemothekid wrote:
| Before the rise of mercury/column/stripe they were also way
| more amicable to get access to certain banking products. I
| remember at one point a company I worked for wanted to start
| doing ACH payments out of their account. Wells Fargo had some
| incredibly hoops we had to go through whereas SVB was just like
| "we would give you access, but you need to make us your primary
| bank".
| xt00 wrote:
| common wisdom held that it made it easier for investors to get
| you money -- especially from the usual sand hill road folks..
| Eumenes wrote:
| I could understand like, getting the funds deposited to SVB,
| then managing your corporate funds in a larger more regulated
| bank
| Ancalagon wrote:
| Yikes what a sucker punch to tech in a downed market. This sucks
| dcow wrote:
| It seems like anybody can find any way to light standing cash on
| fire. Not just crypto poster children. So...
| garbagecoder wrote:
| Crypto is the 2008ish version of 2000.
| [deleted]
| xnx wrote:
| A lot of talk about the $250K FDIC insurance limit in this
| thread. It took me a long time to learn that you can have up to
| $1.25 million insured at an institution if you designate multiple
| beneficiaries: https://www.fdic.gov/resources/deposit-
| insurance/brochures/d...
| zamnos wrote:
| If that's of interest to you, you might also want to look up
| "FDIC sweep" or "insured cash sweep". Basically your bank makes
| accounts at other banks, and each sub-account only has up to
| $250k in it, so you're totally covered.
|
| https://en.wikipedia.org/wiki/Certificate_of_Deposit_Account...
| hn_throwaway_99 wrote:
| Question regarding SIVB shares. So now that the bank is in
| receivership, are all of those shares worthless (I'm assuming
| they are)?
|
| Looking at a graph of SIVB share price, this definitely seems
| like yet another blow to efficient market hypothesis. Many of
| SIVB's woes have been known for months. While it's obviously
| difficult to predict a bank run, to see a stock go from a share
| price of ~270 to 0 in 2 days, with many billions in equity value
| wiped out, is astounding.
| manquer wrote:
| Shareholders are last in the line of creditors, shares will be
| worthless only if bank is insolvent not illiquid as it
| currently is.
|
| While it may emerge that bank is indeed insolvent after the
| accounting that is not yet the case , so the value is only
| unknown not necessarily zero.
|
| Also the market value includes the estimated risk which is very
| higher when there is lack of clear information and uncertainty.
|
| After the dust settles , risk is becomes better understood with
| more information then shares can be better priced
|
| Alternatively the assets are fully liquidated with which all
| depositors and bond holders are made whole anywhere between
| $45B and zero would be left
| Animats wrote:
| The FDIC hasn't taken over the SVB web site yet.[1]
|
| _" Through our relationships with more than 50% (approximate) of
| all venture backed companies in the US, and with funds and
| corporations across the globe, SVB Capital's family of investment
| solutions give you unmatched access to this unique asset class."_
|
| Their online operations have to be drastically changed. Did their
| ATM cards stop working yet?
|
| The FDIC usually takes over banks at the close of business on a
| Friday, using the weekend to audit and reorganize. That this
| happened at the end of Thursday hints that the situation was bad,
| so bad that another day of withdrawals would have been too much.
|
| [1] https://www.svb.com/
| [deleted]
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