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FDIC Takes over Silicon Valley Bank
- deleted 4y ago[deleted]
- hi 4y agoHeads 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
- mkmk 4y agoOldie but goodie on what actually happens when a bank is taken over. https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-takeover https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-t...
- PascLeRasc 4y agoThat's fascinating. I'd love to watch a documentary about that.
- khuey 4y agoThis 60 minutes segment from the Great Recession is the closest thing I know of to that. https://www.youtube.com/watch?v=TAE8i40A5uI https://www.youtube.com/watch?v=TAE8i40A5uI
- bgc 4y ago60 Minutes followed an FDIC takeover in 2009, including when the agents actually walked into the bank’s headquarters: https://youtu.be/TAE8i40A5uI https://youtu.be/TAE8i40A5uI
- TremendousJudge 4y agoThat 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.
- supernova87a 4y agoI 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.
- mikece 4y agoI 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).
- FormerBandmate 4y agoThis 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
- JumpCrisscross 4y ago> 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.
- dannyw 4y agoWhat stock holders? Market cap was 2.5 billion pre-market, a small fraction of the 175b of deposits (as of Dec 31, 2022).
- JumpCrisscross 4y ago> 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 4y agoPossibly 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.
- kgwgk 4y agoAs 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 4y agoThat's $23 billion of non-deposit liabilities that will be junior to the deposits.
- katmannthree 4y agoAre clawbacks a thing in this case for the people who did get [some] of their money out in time?
- dmoy 4y agono
- pclmulqdq 4y agoClawbacks 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 4y agonote 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 4y agoFrom 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-bank-branch-as-depositors-attempt-to-pull-cash-report/ https://nypost.com/2023/03/10/nypd-called-to-silicon-valley-...
- ellisv 4y agoI wonder if the FDIC is just as efficient but this situation is different.
- Kye 4y agoPossibly 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.
- Animats 4y agoWhen 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.
- ren_engineer 4y agowill 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 4y agoPipe, 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 4y agoWho do you think backs those Clearco loans?
- formerly_proven 4y agoYesterday I read on here that "xyz doesn't mean SVB is going under like FTX did five minutes after doing that".
- karpierz 4y agoThe difference is that SVB's depositors will see most of their money back, which is the point of the FDIC taking over.
- dannyw 4y agoWhen, though? If your company can't access your money to access payroll for X months, you might as well as be dead.
- w10-1 4y ago"When, though": now. The article says checks continue to clear, and branches open Monday, the next business day. And
- kasey_junk 4y agoThe 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 4y agoNot 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#:~:text=What%20Is%20an%20Advance%20Dividend,the%20receiver%20of%20its%20assets https://www.investopedia.com/terms/a/advance-dividend.asp#:~....
- rvz 4y agoOh 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 https://twitter.com/FedGuy12/status/1634038788468113408
- tarr11 4y agoDoes this mean that SVB customers are going to lose deposits over the FDIC limit (250k?)
- rekttrader 4y agoFor 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 4y agoOr better yet, don't listen to your VC's relationship people and put all of your money in one bank.
- roflyear 4y agoMany 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 4y ago> 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-products-insured/ https://www.fdic.gov/resources/deposit-insurance/financial-p...
- NordSteve 4y agoOnly 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.
- ncallaway 4y agoWhere'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?
- jb1991 4y ago> Only 3% of deposits in the bank are FDIC insured why is that?!
- synu 4y agoBecause the insurance is for $250k and most depositors had much more than that.
- mbStavola 4y agoIt's kind of amazing how much optimism there was just an hour ago regarding SVB's position.
- kgwgk 4y ago« literally no one saw this coming a couple of [hours] ago. »
- johnbellone 4y agoThere's a strong correlation here to people who have deposits in SVB. This was all but certain yesterday.
- treis 4y agoWhat 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 4y agoRead the other threads. https://news.ycombinator.com/item?id=35088919 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)"
- FormerBandmate 4y agoTurns 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
- albatross13 4y agoProbably a dumb question, but what determines if a deposit is insured or not at an FDIC insured bank?
- ncallaway 4y agoDeposits > $250k per depositor per bank are uninsured. https://www.fdic.gov/resources/deposit-insurance/faq/ https://www.fdic.gov/resources/deposit-insurance/faq/
- bagels 4y agoUp to 250k is insured, amounts beyond that are not.
- swift532 4y agoNot 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 €.
- albatross13 4y agoAwesome, that makes sense. Thanks!
- abofh 4y agoInvestment 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 4y agoInvestment 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.
- davidgerard 4y agoFirst actual FDIC takeover since 2020, I think.
- ellisv 4y ago| The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020. From the release.
- _delirium 4y agoThe 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/failed-bank-list/ https://www.fdic.gov/resources/resolutions/bank-failures/fai...
- sjkoelle 4y agostrong "days since last fatal accident" vibes from that sentence
- kerowak 4y agoFor comparison, alamena had 68m in deposits compared to SVB’s 175b https://www.fdic.gov/news/press-releases/2020/pr20119.html https://www.fdic.gov/news/press-releases/2020/pr20119.html
- megaman8 4y agoyes 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.
- game_the0ry 4y ago2008 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.
- yeahsure22 4y agoIt’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.
- game_the0ry 4y ago> 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.
- mywittyname 4y ago"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/ https://www.fdic.gov/bank/historical/bank/
- bombcar 4y agoNote 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.
- Octokiddie 4y ago> 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 4y agoYep, $250k.
- boeingUH60 4y agoIn my whole life, I have never seen a bank run from start to finish, but here we are. Interesting times!
- rozap 4y agoA bank run powered by memes. We truly live in a world.
- OldManAndTheCpp 4y agoBank 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 4y ago[deleted]
- katmannthree 4y agoYikes. 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 https://www.mollywhite.net/etc/ftx-contagion
- TechBro8615 4y ago40% of startups just had their bank accounts cut down to $250k, so... a lot.
- tedivm 4y agoI'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.
- e1g 4y agoThe 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 4y ago> 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.
- chollida1 4y agosome 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 4y ago>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.
- briandear 4y agoWhen 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.
- ejstronge 4y ago> 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/banking-profits-and-losses-name/ https://courses.lumenlearning.com/wm-macroeconomics/chapter/... And another more reputable source: https://www.investopedia.com/terms/b/bank-deposits.asp https://www.investopedia.com/terms/b/bank-deposits.asp
- Zetice 4y agolol so the fact that we didn’t have $250k of runway ends up being a good thing?
- ElfinTrousers 4y agoI 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 4y agoDoes 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 4y agoThat is correct.
- FireBeyond 4y agoTechnically yes, but the FDIC is also working to release as much uninsured funds as possible as an "advance dividend".
- idlewords 4y agoNow we just need an "incredible journey" blog post from SVB spinning this acquisition as a great win for both customers and investors.
- colpabar 4y agoBonus points if they mention effective altruism, and how great it is, but how also it can be bad sometimes.
- hef19898 4y agoA pitty FTX went under before, just imagine SBF announcing he is bailing out SVB!
- jollyllama 4y agoIf you bail him out of jail, he'll bail out your bank, and then he'll bail out of the country.
- huslage 4y agoThat's not really possible. SVB as an entity no longer exists once the FDIC steps in.
- NordSteve 4y agoNot 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.
- khazhoux 4y agoOr 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."
- 4y ago
- testfoobar 4y agoWhat 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?s=20 https://twitter.com/88888sAccount/status/1634028258500169731...
- banku_brougham 4y agoIts so funny until you realize your seed-round investment in a friends company used SVB. Gonna be quite a show, this.
- idlewords 4y agoThat makes it even funnier, though. At least to the rest of us.
- andrewmcwatters 4y agoUnrelated 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.
- woeirua 4y agoLMAO. 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.
- briandear 4y agoI 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.
- JumpCrisscross 4y ago> a lot of VCs had significant money in that bank Everyone I know pulled yesterday.
- eddsh1994 4y agoIn a fractional reserve people can't all win
- eddsh1994 4y agoDon'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 4y agoEveryone 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.
- resters 4y agoThe knowledge that this would happen is why it happened in the first place. SVB execs won't take a pay cut.
- itg 4y agoSo 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.
- HDThoreaun 4y ago250k on march 13th. The rest of the account will be released as the FDIC sells the banks assets, which will probably take months.
- NordSteve 4y agoThe "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 4y agoProbably 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.
- tedivm 4y agoI'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.
- delfinom 4y ago$250k is guaranteed by FDIC insurance. The rest is limbo until the bank is liquidated and the remaining money is distributed.
- senttoschool 4y agoWhat happens to the deposits above $250k in this case? Ouch for startups that didn't pull.
- hijinks 4y agothey 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 4y agoIsn'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?
- hijinks 4y agobasically 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
- ncallaway 4y agoFrom 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.
- Eumenes 4y agoWhy did startups use SVB over larger commercial banks? Every place I've worked has used them for some reason. I don't get it.
- xt00 4y agocommon wisdom held that it made it easier for investors to get you money -- especially from the usual sand hill road folks..
- Eumenes 4y agoI could understand like, getting the funds deposited to SVB, then managing your corporate funds in a larger more regulated bank
- nemothekid 4y agoBefore 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".
- azinman2 4y ago> 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!
- kasey_junk 4y agoThe 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 4y agoThat'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.
- purpleblue 4y agoThis 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.
- NovaDudely 4y agoIt 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!"
- whalesalad 4y agoWell that escalated quickly. Glad I am banking w/ Mercury and hope they are not impacted by this.
- wonderingyogi 4y agoMercury isn't a bank, it uses Evolve Bank & Trust and Choice Financial Group.
- whalesalad 4y agoTrue, I am just glad it isn't SVB.
- davidw 4y agoWhat's the best brief summary of what has happened so far?
- NordSteve 4y agoDuring 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.
- rafaelero 4y agoThat'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.
- beefield 4y agoI'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?
- EVa5I7bHFq9mnYK 4y agoSo they did exactly the same thing that FTX did - gambled with clients' money and lost.
- foreigner 4y agoThat is what all banks do.
- davidw 4y agoInteresting, 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?
- berkle4455 4y agoThat’s a whole lot of startups not making payroll or their SaaS payments
- mynameishere 4y agoAnyone 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.
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- weatherlight 4y agoSo.... how many companies won't be able to make payroll in 5 days?
- wonderingyogi 4y agoI wonder how many startups its going to affect.
- bagels 4y agoAll of them that need to fundraise.
- tlb 4y agoThe 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.
- mynameisjonny_ 4y agoThere'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 4y agoAll 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.
- sneak 4y agoIt is absolutely ridiculous for someone with more than a few million sitting in checking to, well, have it sitting in checking. Not only is there the 250k FDIC limit, but that's leaving money on the table. At least put it in highly liquid and stable securities of some kind so you're not bleeding it. And, of course, accounts can get locked out. Anything over a couple million should be split across two different institutions minimum.
- anon291 4y ago
- hintymad 4y agoWill startups have problems paying salaries now?
- fullshark 4y agoGood question and to me it seems the answer can only be yes.
- severingties 4y agoIf 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 4y agoI 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 4y ago250k 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.
- jossclimb 4y agook, this is my Euro brain's fault, we have a monthly payroll.
- preinheimer 4y agoI 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-partners-with-stripe-to-help-more-entrepreneurs-get-started https://www.svb.com/news/company-news/silicon-valley-bank-pa...
- bagels 4y agoThey had three choices. Mercury and one other.
- deleted 4y ago[deleted]
- reducesuffering 4y agoDoes this mean $SIVB stock holders who had $265 shares two days ago now have worthless shares? JFC no wonder bank stocks are priced so low compared to earnings... You're just hoping the dividends pay out enough before the inevitable implosion.
- boringg 4y agoThey will be getting something but probably close to pennies on the dollar. Depends on how it gets repackaged and sold.
- muzz 4y agoThe depositors, creditors, employees etc. all have to be paid first. I would be surprised if they can even do that, much less have anything left over for stockholders
- abofh 4y agoWell, they were 38$ this morning, but yeah, probably going to approach zero
- ejb999 4y agopretty much.
- rootusrootus 4y agoIn 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.
- tonetheman 4y ago[dead]
- preinheimer 4y agoAdam 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 https://www.netflix.com/ca/title/81037116
- omgomgomgomg 4y agoHold on, what happens if someone raised money from them for an incorporation? They have to pay backbas usual, right?
- Macha 4y agoYes, 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.
- boringg 4y ago"Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959." At least its toll free...
- tpmx 4y agoA 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-was-hit-by-a-bank-run-and-where-it-could-lead-quicktake https://www.bloomberg.com/news/articles/2023-03-10/why-svb-w...
- DLarsen 4y agoI think I'm going to start asking potential employers where they do their banking.
- capableweb 4y agoI don't think it should be like this, but most surely your profile will be flagged as "suspicious" if you ask such questions.
- kube-system 4y agoThere 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.
- ShamelessC 4y agoI'm fairly certain that would be A-okay with the person you responded to.
- zamnos 4y agoAsking 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 https://github.com/viraptor/reverse-interview
- steve76 4y ago[dead]
- hw 4y agoAre there any public companies that bank with SVB? Startups that went public in recent times?
- nostromo 4y agoFor comparison, Bear Stearns had $350b in assets in 2006 (and much less when they crashed in 2008). SVB had $210b in assets yesterday.
- roflyear 4y agoSo let's say you work at a startup that has all their cash at SVB. Are you basically without a job now?
- capableweb 4y agoDepends 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.
- ulrashida 4y agoThe 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.
- gumby 4y agoI 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.
- bombcar 4y agoThe 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 4y agoMost 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.
- czbond 4y agoChase has wanted this bank for years. Either they are taking advantage (takeover) or <conspiracy theory unfounded> helped accelerate it.
- gumby 4y agoMost 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
- zenmacro 4y agoWow, 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.
- delfinom 4y agoBecause 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.
- bigbillheck 4y agoThere were a whole lot more banks that failed in 2008 beyond Bear Stearns.
- chasd00 4y agowell 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?
- rrmm 4y agoFrom 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.
- yieldcrv 4y ago!remindme 2 months
- MrMan 4y agoyour last sentence is demonstrably false!
- calgarymicro 4y ago
- perihelions 4y agoHN 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)
- johng 4y agohttps://open.spotify.com/track/6j1D7df1BqtulVza3iIL6c?si=EuQdm6l0RE-Rc_zdJEdCxw&app_destination=copy-link https://open.spotify.com/track/6j1D7df1BqtulVza3iIL6c?si=EuQ...
- dangerboysteve 4y agoSVB is one of the banks Stripe uses for its Atlas program.
- nnx 4y agoBut 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 4y agoExcept 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 4y agoWhen 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.
- cp9 4y ago... 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
- UncleOxidant 4y ago> regulations do not work That's quite a lot of extrapolation from one bank failure.
- unity1001 4y ago> And that over-regulated bank sector was totally safe? SVB got an exemption from those regulations.
- saos 4y agoHow bad is this for wide economy? I’m scared.
- temp2022account 4y agoUnless you had your money there the only change in your life will be the headlines you glaze over.
- xnx 4y agoA 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/documents/your-insured-deposits-english.pdf https://www.fdic.gov/resources/deposit-insurance/brochures/d...
- zamnos 4y agoIf 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_Registry_Service https://en.wikipedia.org/wiki/Certificate_of_Deposit_Account...
- NordSteve 4y agoIt 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 https://en.wikipedia.org/wiki/Resolution_Trust_Corporation
- Ancalagon 4y agoYikes what a sucker punch to tech in a downed market. This sucks
- m00dy 4y agoSorry to say but the depression is on our way.
- jossclimb 4y agoFor tech workers who were part of the overtired 2021 cohort, sure, however most other industries remain isolated to this.
- purpleblue 4y agoThe 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?
- kmlx 4y agoSilicon 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_UK&linkId=204871208 https://www.svb.com/press/release?Channel=45991&Account=SVB_...
- prennert 4y agoFor posterity: https://web.archive.org/web/20230310175421/https://www.svb.com/press/release?Channel=45991&Account=SVB_UK&linkId=204871208 https://web.archive.org/web/20230310175421/https://www.svb.c...
- rvnx 4y agoThe 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 4y agoTheir regulatory framework and finances are independent not the company itself
- rvnx 4y agoYeah, and now, the "independent and safe" UK branch is preventing people to take their money. "SVB Online Banking (US, UK, Canada Branch Accounts) will be unavailable throughout the weekend."
- hintymad 4y agoJust heard that the payroll company Ripping is down, as they use SVB as their partner. What a rippling effect...
- mosfets 4y agoWhat does the "takeover" mean? Will people's deposit still stay intact?
- m00dy 4y ago[flagged]
- mewse-hn 4y agoYeah famously the feds step in and cover your deposits when a crypto exchange collapses
- antibasilisk 4y agoYou're not supposed to keep your money in exchanges
- telotortium 4y agoWhat's the famous slogan? "You are your own bank!"
- stouset 4y agoYeah 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 4y agojust don't do those things and keep backups, it's not that hard unless you're a cryptobro larper
- willmadden 4y agoWhy 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!
- ajhurliman 4y ago
- avelis 4y agoIf a company has a loan out to SVB does that get sold off to basically another lender?
- Edmond 4y agoPlease 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.
- dylan604 4y agoIt would have to be with new players, as they pretty solidly tied a bow around that cast.
- Zealotux 4y agoI loved that show, such fun to watch! They definitely could make a lot with the crypto-nonsense indeed.
- calgarymicro 4y agoSilicon Valley actually already had an ill-fated crypto scheme arc - remember PiedPiperCoin?
- adrr 4y agoIt didn't have NFTs or failed exchanges.
- tpmx 4y agoBring back the whole cast including TJ Miller (sober or not, he brings it) ... but not Middleditch. https://www.usatoday.com/story/entertainment/celebrities/2021/03/22/thomas-middleditch-accused-sexual-misconduct-hollywood-nightclub/4798382001/ https://www.usatoday.com/story/entertainment/celebrities/202...
- primitivesuave 4y agoThomas Middleditch shouldn't earn a living ever again because he made a woman at a nightclub feel uncomfortable?
- esalman 4y agoWe need a reboot featuring crypto+AI.
- deleted 4y ago[deleted]
- ozten 4y agoI was wondering how us tax payers would end up paying into the crypto ponzi scheme.
- NordSteve 4y agoFor 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/2008/10/092608-overview-fdicasconvervator-receiver.pdf https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/0... Someone holding a receivership certificate likely can sell it or borrow against it.
- dahdum 4y ago> 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.
- tiffanyh 4y agoStripe? 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 4y agoStripe's money is not there
- tiffanyh 4y agoQuestion 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 4y agoStripe doesn't have the assets to acquire SVB. As it is they're looking for funding to pay employees' stock tax bills.
- xeeeeeeeeeeenu 4y agoIn 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 https://www.youtube.com/watch?v=KIh6NEBL8BU It's pretty interesting.
- bmon 4y agoThank you for that link, it was really fascinating. The Australian government guarantees deposits in the same way, but I never realised this was also true in the US. I had assumed during the mortgage crisis that people lost their deposited money when their banks failed.
- deleted 4y ago[deleted]
- college_physics 4y agoFor 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/failed-bank-list/ https://www.fdic.gov/resources/resolutions/bank-failures/fai...
- armatav 4y agoThose mortgage backed securities will get you every time
- nodesocket 4y agoI 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.
- zackmorris 4y agoLooks 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-to-fdic-coverage-limits/ 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 4y ago'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 4y ago>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.
- bgc 4y agoAn 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-fallout-from-svb?cursorId=640B693B68900000 https://www.bloomberg.com/news/live-blog/2023-03-10/the-fall...
- christkv 4y agoHow many of companies will loose access to liquidity and face bankruptcy next?
- deleted 4y ago[deleted]
- cissou 4y agoThat'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 4y agoIn my circle of founders, it appears JPMC is winning out. We are currently on Brex via lending club and monitoring the situation closely.
- AndreLock 4y agoI 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.
- anonuser123456 4y agoThis made Nouriel Roubini’s morning.
- neom 4y agoIf 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
- 650REDHAIR 4y agoYou’re a good egg.
- serf 4y ago>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 https://warmline.org/warmdir.html#directory
- deleted 4y ago[deleted]
- marban 4y agoUnbank the banked.
- dcow 4y agoIt seems like anybody can find any way to light standing cash on fire. Not just crypto poster children. So...
- deleted 4y ago[deleted]
- danielmarkbruce 4y agoMost 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.
- knodi123 4y ago> 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.
- kuczmama 4y agoWhat 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 4y agoThere 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.
- noncoml 4y agoIf 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 4y ago
- deleted 4y ago[deleted]
- nsxwolf 4y agoI had never even heard of the Silicon Valley Bank. It sounds fake. Is this really a contagion risk?
- deleted 4y ago[deleted]
- somenameforme 4y agoAn 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 https://twitter.com/jamiequint/status/1633956163565002752
- BlandDuck 4y ago"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.
- lkbm 4y agoHe meant solvency issue. Someone else called this out downthread and he confirmed. Definitely felt like it should've been corrected more prominently, though.
- tibbon 4y agoTime to test if the regulation after Bear Sterns was sufficient. Surely it was enough to prevent issues as promised
- standapart 4y agoProbably safe to say: Stripe isn't going to be able to raise a couple bil to pay tax liabilities in this environment.
- rvz 4y agoI'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.
- diimdeep 4y agoIt'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.
- nemo44x 4y agoThis 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.
- fairity 4y agoThe 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.
- plandis 4y agoMy wife is a fan of these emotional baby toys called Slumberkins and she noticed that they appear to have this problem: https://www.instagram.com/p/CpopLR2OxRU https://www.instagram.com/p/CpopLR2OxRU
- entwife 4y agoAre there any other banks that might be affected by interest-rate risk?
- eddsh1994 4y agoMortgage-backed securities strike again https://twitter.com/jamiequint/status/1633956163565002752 https://twitter.com/jamiequint/status/1633956163565002752
- chernevik 4y agoI 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.
- cglace 4y agoIf you take an SVB loan you have to keep your money in SVB.
- fundad 4y agoSVB is a closely held organization in these funding terms. All the more reason VCs should be on the hook for the losses because managing risk is their business, their venture if you will.
- timdaub 4y agoWould 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 4y agoThe bank's assets will be liquidated. If you have a securities account at a bank those are your assets, not the bank's.
- notShabu 4y agoFrom 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.
- cjbgkagh 4y agoDoes 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 4y agoReplying 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.
- deleted 4y ago[deleted]
- Animats 4y agoThe 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/ https://www.svb.com/
- RaSoJo 4y agoSo SVB's problem was that they had too much of money?
- throwawayapples 4y agoSVB's eventual consistency was a bit too eventual.
- ChicagoBoy11 4y agoHa - 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!
- Animats 4y agoRippling, 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 https://twitter.com/parkerconrad/status/1634237386564730882
- vagab0nd 4y agoWhy can't this bank borrow from the Fed overnight lending market to fulfill the withdraws?
- havkom 4y agoI 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 4y agoI 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.
- rhacker 4y agoI read SVB and for some reason my mind kept thinking SBF.. is there some connection outside my mind?
- hn_throwaway_99 4y agoQuestion 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 4y agoShareholders 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
- jasmer 4y agoThe 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.
- dpweb 4y agoMay 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 4y agoEventually, 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?
- IndoorPatio 4y agohttps://arstechnica.com/tech-policy/2023/03/silicon-valley-bank-shut-down-by-us-banking-regulators/ https://arstechnica.com/tech-policy/2023/03/silicon-valley-b...
- jojosbuddy 4y agoQuestion 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?
- champagnepapi 4y agothis is terrible. Many people will lose their jobs... due to liquidity issues at their companies :(
- voytec 4y agoFresh email from Alpaca (YC W19) on the matter: https://news.ycombinator.com/item?id=35099518 https://news.ycombinator.com/item?id=35099518
- imstil3earning 4y ago[flagged]
- deleted 4y ago[deleted]
- hnburnsy 4y agoWow, this guy called it in January...https://twitter.com/RagingVentures/status/1615826088038473733 https://twitter.com/RagingVentures/status/161582608803847373...
- MrMan 4y agowow very solid. you could have found SVB in screen just by the LTD ration and HTM percentages and zoomed in from there.
- elzbardico 4y agoSo 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*
- dang 4y agoRelated ongoing thread: The Demise of Silicon Valley Bank - https://news.ycombinator.com/item?id=35098607 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 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 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 https://news.ycombinator.com/item?id=35087666 - March 2023 (9 comments) Bank run on Silicon Valley Bank? - https://news.ycombinator.com/item?id=35086836 https://news.ycombinator.com/item?id=35086836 - March 2023 (791 comments)
- fintechjock 4y agoYou’re doing some really great work through all of this
- dang 4y agoThat's nice of you! but that list is hopelessly out of date now.
- ignoramous 4y agoSell off in US bank stocks after SVB solvency scare https://news.ycombinator.com/item?id=35091505 https://news.ycombinator.com/item?id=35091505 - March 2023 (22 comments)
- ETHisso2017 4y agoWhere can we find a list of startups that have large quantities of deposits at SVB?
- seizethecheese 4y agoSo, 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.
- mupuff1234 4y agoAny recommendations for analysts/blogs/etc to understand how this might unravel?
- firstfewshells 4y agoI 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.
- havkom 4y agoIf 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 4y agoIANAL 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.
- eftychis 4y agoJust 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-solvency-ratios-vs-liquidity-ratios 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 4y agoThe 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.
- twelve40 4y agoSo 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://twitter.com/msuster/status/1634203251758469120 https://www.linkedin.com/pulse/few-thoughts-svb-jeremy-solomon/ https://www.linkedin.com/pulse/few-thoughts-svb-jeremy-solom...
- opportune 4y agoThis, 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.
- alfalfasprout 4y agoHere'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.
- Randalthorro 4y ago
- blastonico 4y agoBetter call Gavin Belson.
- deleted 4y ago[deleted]
- garbagecoder 4y agoCrypto is the 2008ish version of 2000.
- antoniuschan99 4y agoSVB 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.
- WalterBright 4y agoThe WSJ lays much blame on the way regulators regulate banks: https://www.wsj.com/articles/washington-is-the-systemic-risk-e4453fa https://www.wsj.com/articles/washington-is-the-systemic-risk...
- Apocryphon 4y agoAnd NYT calls out the weakening of Dodd-Frank: https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html https://www.nytimes.com/2023/03/10/business/silicon-valley-b...
- beebmam 4y agoMaybe the federal reserve should slow down its rate increases before we cause a crisis.
- nemo44x 4y agoAgreed. 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.
- nickrubin 4y agoGarry 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 https://twitter.com/garrytan/status/1634286688922132481
- ecf 4y agoSo 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 4y agoIf 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.
- deleted 4y ago[deleted]
- cybersol 4y agoHN thread on this is here: https://news.ycombinator.com/item?id=35100743 https://news.ycombinator.com/item?id=35100743
- mherdeg 4y agoDoes YC hire a lobbyist?
- computing 4y agoLibertarian, "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.
- muzz 4y agoThere are many ways to avoid that. Agreed with the first part, amazing how quickly Tan and Sacks turned to government for a handout. If they get one, that will only incentivize bigger problems next time.
- arnonejoe 4y agoSo that's it, all 6500 employees are out of work? Is there any severance in this situation?
- bagels 4y agoThey may get to continue to work for the bank in the short term, under new management.
- sam345 4y agolots 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 https://archive.is/tetbD Here's a good thread https://news.ycombinator.com/item?id=35094447 https://news.ycombinator.com/item?id=35094447. on affect to startups
- formvoltron 4y agoSorry but why didn't the VCs get together and bail this bank out themselves???
- egiops 4y agoUmm 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 4y agoWorse 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.
- egiops 4y agoThanks for your opinion, this makes me feel a little bit better apart from all the doom and gloom
- havkom 4y agoIs 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?
- havkom 4y agoI dont see why this was downvoted looking at some historical examples: * IndyMac Bank: In 2008, IndyMac Bank, a large savings and loan association, failed and was taken over by the FDIC. At the time of its failure, IndyMac had $1 billion in uninsured deposits. The FDIC estimated that it would be able to recover only 50 to 80 cents on the dollar from the bank's assets. As a result, the FDIC paid advance on uninsured funds of 50% of the uninsured amount, or $500 million, to the bank's depositors. * Washington Mutual: In 2008, Washington Mutual, a large bank, failed and was taken over by the FDIC. At the time of its failure, Washington Mutual had $4 billion in uninsured deposits. The FDIC estimated that it would be able to recover only 30 to 50 cents on the dollar from the bank's assets. As a result, the FDIC paid advance on uninsured funds of 30% of the uninsured amount, or $1.2 billion, to the bank's depositors. * First National Bank of Nevada: In 2008, the First National Bank of Nevada failed and was taken over by the FDIC. At the time of its failure, the bank had $200 million in uninsured deposits. The FDIC estimated that it would be able to recover only 90% of the uninsured amount from the bank's assets. As a result, the FDIC paid advance on uninsured funds of 90% of the uninsured amount, or $180 million, to the bank's depositors. The question basically asks humbly what factors may be special now and are important in this specific case and queries others humbly on how to think about this.
- artur_makly 4y agoSo 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 4y agoAll 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
- arthurofbabylon 4y agoI am most curious about the decision to park so much capital in such a low-yielding and long-term investment. Why?
- bluecalm 4y agoWhy 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.
- tbarbugli 4y agoDumb question perhaps: why only SVB crashed? I imagine all banks in US had an influx on money deposited in the same period as SVB
- b0tch7 4y agoGood q, wondering the same..
- DonsDiscountGas 4y agoPresumably they did a better job managing liquidity risk. Or maybe the recent tech downturn has disproportionately affected startups, so a bank for startups would have issues. Then again, you never know what tomorrow/next week/next month will bring. It may not only be SVB, it may be that they just happened to be first.
- 1970-01-01 4y agoI've seen double black diamond slopes with less of a drop: https://www.google.com/finance/quote/SIVB:NASDAQ https://www.google.com/finance/quote/SIVB:NASDAQ
- ecf 4y agoWith so many banks dropping 20%+ I don’t see how this doesn’t result in an economic catastrophe.
- jaxomlotus 4y agoWe 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.
- sneak 4y agoTwo is one and one is none. I am an individual person with no payroll to run and I bank in three US retail banks because they fail closed so often (most frequently from card use while traveling, but also for myriad other reasons).
- theonething 4y agoIf you don't have more that 250k cash in there you should be good.
- jetpks 4y agoUnless they needed to pay their employees or vendors today.
- morpheuskafka 4y agoSupposedly checks drawn on the old bank will still clear (presumably only up to the insured amount, though it doesn't say that) according to the FDIC. And the non-insured amount will be available in branches tomorrow via the FDIC-operated DINB. So in theory you would be looking at at most one business day late for payments if you are only concerned with the $250k part.
- anon291 4y ago> And the non-insured amount will be available in branches tomorrow via the FDIC-operated DINB. Why do you believe this? The FDIC said it will provide certificates that you had deposits. These certificates help you make claims in court proceedings as they liquidate.
- steponlego 4y agoWe basically only have petty cash now at my small startup. LOL luckily everybody is WFH and we can always switch to paying in stock again like in the early days.
- consumer451 4y agoWow: > Some banking experts on Friday pointed out that a bank as large as Silicon Valley Bank might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package, put in place after the 2008 crisis, not been rolled back under President Trump. > In 2018, Mr. Trump signed a bill that lessened regulatory scrutiny for many regional banks. Silicon Valley Bank’s chief executive, Greg Becker, was a strong supporter of the change, which removed the requirement that banks with assets under $250 billion submit to stress testing by the Fed, and changed requirements for the amount of cash they had to keep on their balance sheets to protect against shocks. https://www.nytimes.com/2023/03/10/business/silicon-valley-bank-stock.html https://www.nytimes.com/2023/03/10/business/silicon-valley-b...
- subarctic 4y agoThis was new information for me, but somehow I don't share your surprise that there's a NY Times article that mentions that Trump is to blame.
- consumer451 4y agoMy surprise was not partisan in nature. But that information is not going to come from Fox News, so the system is working as intended then?
- dragonwriter 4y agoI mean, really Clinton is to blame for Glass-Steagall repeal, but Trump weakened the measures put into place that partially mitigated the risk from the Clinton policy. Just as Clinton threw out the risk mitigation measure put into place after the Great Depression, Trump undermined the partial replacement put into place after the Great Recession. If Trump deserves more blame, its because the reason the idea was bad was much more fresh at the time of his action.
- consumer451 4y agoThey can both be wrong in my book.
- Animats 4y ago"System Maintenance Notice" "SVB Online Banking (US, UK, Canada Branch Accounts) will be unavailable throughout the weekend, but will resume next week in accordance with the guidance provided by the FDIC. Please check this page again next week for availability. Our apologies for any inconvenience this may cause." That's the current login page for Silicon Valley Bank. The main page still doesn't show they're down.
- hinkley 4y agoIf we’re going to treat the US government like an underwriter, maybe we should allow the FDIC to charge fees that look a bit more like insurance. We won’t stop you from doing X, but the fees are higher because you’re more likely to default. As things are every time so thing like this happens either taxes go up, the national debt goes up, or we trigger inflation to solve it.
- mouse_ 4y agoFDIC -is- insurance, and it's not supposed to make money, it's supposed to cost money. It's a safety net for when shit hits the fan. There should, in fact, be things you're not allowed to do as a traditional banking establishment. And I'm sure this event will be precedent for more.
- hinkley 4y agoIt uses a pretty fixed set of rules though. So every fifteen years or so someone finds a new way to go bankrupt while following “the rules” and the FDIC and the public get to foot the bill because they technically did everything right. That’s not how underwriters work. They look at your behavior and your business and they grieve you a quote based on how crazy you seem. And they do that with a bunch of legal verbiage about what they will cover.
- auntienomen 4y agoFDIC is entirely supported by fees it charges banks. It doesn't get money from the US taxpayers.
- ecshafer 4y agoI am naive in this area. But what I don't really understand is.. why are all of these start ups using Silicon Valley Bank? It's a relatively small regional bank, that happens to have a ton of cash. Why aren't start ups using Bank of America, Wells Fargo, etc. It's odd to me that >90% of a sector uses this one regional bank.
- sneak 4y agoAs I understand it, it was a matter of personal connection. Also, if most/all of your vendors and customers are there, payments settle faster (historically).
- NegativeLatency 4y agoSome startups do use those other banks
- bumbledraven 4y agohttps://www.fastcompany.com/90864382/silicon-valley-bank-wasnt-your-typical-bank-which-is-why-its-closure-presents-such-a-big-risk https://www.fastcompany.com/90864382/silicon-valley-bank-was... : > In many cases, startups exclusively banked with SVB because doing so was listed as a covenant of their debt! > So CEOs across the tech sector on March 9 faced a hard choice: You can pull your deposits from the bank in order to save them, but then you would be in breach of covenant, and at risk of default on your venture debt. Of course, the alternative was that you risked losing everything if the bank failed. Many chose to hold tight as SVB’s outright failure seemed outlandish even a few short hours ago.
- hayd 4y ago> doing so was listed as a covenant of their debt! why??
- im_down_w_otp 4y agoWe used to keep all our operating capital in a different bank, but then we did a venture debt deal to bring some AR cash forward, and the terms placed on us by the venture debt lender required us to move all our money to SVB, where they already had systems & experience in being able to monitor the accounts. The irony is, if this doesn’t resolve itself relatively soon, we won’t be able to pay down the loan precisely _and only_ because of the terms of the loan that they set in the first place. I don’t know yet how it’s all going to shake out, but I’m pretty excited to have the experience of trying to navigate through all of it.
- woeirua 4y agoFor those saying that depositors will probably only take a small haircut, it’s all going to come down to the recoverable value of SVBs outstanding loans. 40% of their assets were loans made to startups, their founders, etc. The value of those loans is inextricably tied to those startups accessing their funds at SVB. Even _if_ depositors are made whole those loans could still be called in and wreck a lot of startups.
- bhawks 4y agoI would be very surprised that SVB would be able to write terms into their loans that gave them the option to demand immediate loan repayment (these would be puts not calls). Those terms would have to come with much lower interest rates for borrowers and in a low interest environment I don't think it'd make sense. They may try to sell their loan books to another bank in order to meet withdrawal- which may be very challenging in the current environment. SVB did exactly this with some of it's mortgage backed securities (a much deeper market) and took a significant hair cut to par value. This was the move that kicked off the bank run. If they tried to do it with corporate loans it'd be even more bloody.
- woeirua 4y agoI agree that its unlikely that SVB can call in the loans at any moment. The bigger issue is that the loans that they made are not properly collateralized because SVB accepted startup equity as the collateral. After all, startups and their founders typically don't have a ton of assets to offer up as collateral on loans at the beginning. If the startups are unable to operate because they no longer have access to their funds, then the value of that collateral is unknowable and the borrower has limited (if any) ability to make regular payments. That would mean that any institution interested in purchasing the loans from SVB would have to go through on a case-by-case basis to assess the true risk associated with each loan. IMO, that makes it very unlikely that we'll see a major institution step in over the weekend. Over time, perhaps those loans will eventually make it to stronger banks, but it will take time, that many startups don't have.
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- throwawaydollar 4y ago[flagged]
- ccorxi 4y agoFunny there're still people and companies trusting bank with everything they got. Hopefully lesson learned
- borgchick 4y agoSo when every country in the world started printing money like it's going out of style in the prime of COVID years, to help stimulate the economy, they effectively wrote the first few chapters of this story?
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- vivegi 4y agoFrom SVB Financial Group's latest 10-K filing (Source: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d7-9459-41d7-9e3d-2c468971b386.pdf https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d..., p12, Jan 31, 2023): > Liquidity Requirements. Category IV organizations with greater than $50 billion in WSTWF, as well as Category I-III organizations, are subject to LCR and net stable funding ratio (“NSFR”) requirements and must maintain high-quality liquid assets in accordance with specific quantitative requirements. However, the above-mentioned Category IV organizations, as well as Category III organizations with less than $75 billion in WSTWF, are subject to reduced LCR and NSFR requirements. Category III organizations with greater than $75 billion in WSTWF and all Category I-II organizations are subject to the full LCR and NSFR requirements. As of December 31, 2022, we have less than $50 billion in WSTWF, therefore, we are currently not subject to LCR and NSFR requirements. Any other financial institutions that was exempted under same conditions as SVB should also be looking at the quality of their liquid assets.
- dhosek 4y agoIt seems to me that there is an upper limit to a bank where they just cannot do business efficiently. If a bank has more deposits than they can grow their loan book, they’ve crossed that line. This bumps up against the too-big-to-fail problem we had in 2008 as well. If the banks can’t manage their growth, perhaps they should be broken up and/or have limits placed on their size.
- dhosek 4y agoAnd if you think about it in terms of what deposits look like from the bank side, every deposit a bank takes in is effectively money they’re borrowing. SVB borrowed more money than they could afford to borrow.
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- afinlayson 4y agoI’d love to see a list of startups who bank with svb. If I worked for them I’d be saving my money
- sacnoradhq 4y agoFriends of mine who were acquired by VMware used SVB 2010-2015 because their investors preferred it. 20/20 hindsight: they were too niche and not diversified. It would've been a slam-dunk to send out flyers to local property owners in the South Bay Area and Santa Cruz Mountains. For my consulting LLC, I went with Comerica because I figured SVB had the issues of being like a credit union but without CU behind it. If I were in a founder's shoes today, I would stick to a credit union because they're potentially more flexible and it promotes a local co-op rather than a corporation out to monetize customers with an unknown risk profile.
- bravo22 4y agoComerica doesn't look so great these days either. I expect something to pop off there in the next little while. I would diversify away from them as well.
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- bluefqcebaby 4y agoидиотизм
- kbrkbr 4y agoWeren’t the events that lead to this a massive multiplayer prisoner‘s dilemma, with a large defect wave?
- deleted 4y ago[deleted]
- djfobbz 4y agoPrior to joining SVB, CEO Gentile was CFO for Lehman Brothers GIB - https://news.ycombinator.com/item?id=35110431 https://news.ycombinator.com/item?id=35110431
- chris123 4y agoFiat and fractional reserve ponzi. Watch them get bailed out, privatize the profits, socialize the losses. Same as ever. Let's see.
- readonthegoapp 4y agoIf you knew your bank was going to fail in about six months, what would be your plan of action? set up your stock sales. hire a risk officer. what else?
- graderjs 4y agoI was just thinking it would be cool if FDIC posted status reports like an incident update thing…when you have you know a technical issue or an outage this kind of like a running stream of commentary and updates posted by the company if they’re handling it well. 9 am We’re currently experiencing a liquidity issue with our SVB partner and are investigating 11 am Access to 23% of accounts is now restored 12 noon The issue is worse than we first thought. We are taking remediary steps to prevent contagion of the issue 1 pm We aim to have access to under-250k accounts back up by Monday Eastern 9am. Status of larger accounts is unclear as we assess the scope of the damage Etc… It’ll be cool if FDIC was posting this kind of info over the weekend…but they probably want to avoid that because it just be fueling the social media speculation mill but it would be good I think.