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2008 bear sterns vibes. The fed's move in interests rates was bound to break something. This is the first big name and, while banks are taken over by the FDIC

2008 bear sterns vibes. The fed's move in interests rates was bound to break something. This is the first big name and, while banks are taken over by the FDIC often and it never makes the news, this one will be especially interesting bc it is Silicon Valley Bank. Naturally, people and the media will associate with the rest of silicon valley, bringing extra scrutiny to every brand name tech company, especially the ones that are still barely profitable. And any accounts over $250K, poof. Edit - this has been the first fdic takeover since 2020, so no, it does not happen often.

yeahsure22 4y ago
It’s not interesting because of its name, it’s the 18th largest bank in the US. A domino that big usually doesn’t fall alone. Also, FDIC hasn’t taken over a bank since 2020. This isn’t exactly a common occurrence.
- 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 ago
    Note that FDIC has a precise meaning for a "bank failure" - many more "failures" occur but FDIC gets there early enough and arranges for another bank to "take over" - more or less quietly. These are usually tiny community banks.
  - pbourke 4y ago
    A failure in “First Community Bank of Left Buttcheek, GA” is not the same as the failure of a $200B institution.
- pbourke 4y ago
  It’s also the second largest U.S. bank failure. WaMu was considerably larger when adjusted for inflation - $300B in 2008 dollars (> $400B in 2023) vs SVB at $200B in 2023 dollars.
- Ekaros 4y ago
  I think big question really is has any other banks "invested" their deposits in similar manner. So could there be others that will go down if bank run is encouraged?
- subarctic 4y ago
  I know very little about this, but the wikipedia page says it's the second largest bank failure in the history of the US, so maybe you're underselling it a bit? https://en.wikipedia.org/wiki/Silicon_Valley_Bank https://en.wikipedia.org/wiki/Silicon_Valley_Bank
Pasorrijer 4y ago
I mean, potentially. The reality is they try to protect as much of the assets as they can and even those over 250k will probably not lose as much as they would have without the FDIC
- 34679 4y ago
  Good luck to any companies with over 100 employees trying to make payroll and other obligations on $250k.
  - Scoundreller 4y ago
    Maybe smart for orgs to do their payroll on a Tuesday or Wednesday instead of down to the wire on friday with everyone else. Sure you get to hold onto funds for a day or two later, but it also puts your payroll at risk if the bank is failing. (Seriously I worked for an org that changed payroll from Thursday to Friday and I’d be first to file with the labour board for missed employment payment if they blamed the weekend or bank failure for missing a payment).
version_five 4y ago
Re Bear Sterns, there were lots of political reasons it was allowed to fail while others were protected. If I remember right something about them not helping with the Long Term Capital Management collapse for example. There will have been people who had the opportunity to help SVB and collectively decided it was better to let it fail. It will be interesting to understand the decisions that were made when the dust settles
- Octokiddie 4y ago
  Bear Stearns was the first shoe to drop. Intervening would have spooked the market. Later implosions were addressed because there was no alternative. Unless you experienced that time, it really hard to understand the pervasive denial of what was obviously happening. You'll see the same thing happen this time around, and will have an equally hard time conveying just how strong the denial was.
  - Ancalagon 4y ago
    When and where does the next shoe drop this time then?
    - Octokiddie 4y ago
      It's possible we haven't seen the first shoe yet, and bank failures like this one are just the canaries dropping dead. To speculate about where that first shoe might be in this case and who's wearing it, it might help to consider where the buck ultimately stops.
- banku_brougham 4y ago
  great callback. revenge on Jimmy Cayne for when genius failed. Dont forget it was Lehman that failed first, Bear got special treatment amongst the Citi, AIG, et al bailouts.
  - alex_young 4y ago
    Bear was sold at a %90 discount (so not a complete loss) 1 week before Lehman failed.
borski 4y ago
> And any accounts over $250K, poof. That's not quite true; the FDIC will pay uninsured depositors an advance dividend within the next week.
- om42 4y ago
  My finance-foo is quite weak, what does advance dividend mean in this context?
  - aobdev 4y ago
    Management at the now FDIC-controlled bank will estimate the value of SVB’s assets, such as loans and bonds, and give depositors a fraction of that value to be paid in advance of the sale of those assets. They do this to prevent the collapse of all those companies who were SVB clients, which would be bad for the economy.
  - jffry 4y ago
    From an FDIC guide [1] I found: "advance dividend: A payment made to an uninsured depositor after a bank or thrift failure. The amount of the advance dividend represents the FDIC’s conservative estimate of the ultimate value of the receivership. Cash dividends equivalent to the board-approved advance dividend percentage (of total outstanding deposit claims) are paid to uninsured depositors, thereby giving them an immediate return of a portion of their uninsured deposit. Sometimes when it is projected that all depositor claims will be paid in full an advance dividend will be provided to unsecured creditors." [1] https://www.fdic.gov/bank/historical/reshandbook/glossary.pdf https://www.fdic.gov/bank/historical/reshandbook/glossary.pd...
  - borski 4y ago
    Early repayment of some percentage of the uninsured deposits, prior to full liquidation and/or acquisition. Depositors have first access to funds either way.
  - ejb999 4y ago
    most likely a partial payment - i.e. you have 500K in the bank, 250K is insured and you know you will get it back - the other $250K nobody knows how much will be available when the dust settles, but maybe they (FDIC) feels confident they can give you 10% of that now, and keep making more payments as the picture becomes clearer on how much you can eventually get back. You won't get any final payments for many many months when everything is fully resolved.
mywittyname 4y ago
Edit - this has been the first fdic takeover since 2020, so no, it does not happen often. This chart of historic bank failures paints a different picture: https://www.fdic.gov/bank/historical/bank/ https://www.fdic.gov/bank/historical/bank/
- ezekg 4y ago
  And this chart paints an even different picture: https://twitter.com/alistairmbarr/status/1634275645235793920 https://twitter.com/alistairmbarr/status/1634275645235793920
  - kmlx 4y ago
    lehman brothers had total assets of $639B when it filed for bankruptcy on September 15, 2008. adjusted for inflation that's ~$800B.
    - scythe 4y ago
      Lehman was an investment bank — they didn't take deposits. Wikipedia describes them as a "financial services firm".
  - TaylorAlexander 4y ago
    Is total assets a useful measure here? I would be more interested in a chart that showed budgetary shortfalls. It sounds like SVB is only short about 10% of total assets if I am remembering what I read earlier this morning.
    - paulddraper 4y ago
      No one really knows. And banks usually aren't crazy amounts short. But they're short enough to got under.
- cableshaft 4y ago
  Almost all of those are during The Great Recession or the aftermath of it, so I think it's not that crazy of a claim to make. Also means we may be about to start seeing a lot more of them again, assuming we're getting closer to the next big recession.

yeahsure22 4y ago

It’s not interesting because of its name, it’s the 18th largest bank in the US. A domino that big usually doesn’t fall alone. Also, FDIC hasn’t taken over a bank since 2020. This isn’t exactly a common occurrence.

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 ago
  Note that FDIC has a precise meaning for a "bank failure" - many more "failures" occur but FDIC gets there early enough and arranges for another bank to "take over" - more or less quietly. These are usually tiny community banks.
- pbourke 4y ago
  A failure in “First Community Bank of Left Buttcheek, GA” is not the same as the failure of a $200B institution.
pbourke 4y ago
It’s also the second largest U.S. bank failure. WaMu was considerably larger when adjusted for inflation - $300B in 2008 dollars (> $400B in 2023) vs SVB at $200B in 2023 dollars.
Ekaros 4y ago
I think big question really is has any other banks "invested" their deposits in similar manner. So could there be others that will go down if bank run is encouraged?
subarctic 4y ago
I know very little about this, but the wikipedia page says it's the second largest bank failure in the history of the US, so maybe you're underselling it a bit? https://en.wikipedia.org/wiki/Silicon_Valley_Bank https://en.wikipedia.org/wiki/Silicon_Valley_Bank

Pasorrijer 4y ago

I mean, potentially. The reality is they try to protect as much of the assets as they can and even those over 250k will probably not lose as much as they would have without the FDIC

34679 4y ago
Good luck to any companies with over 100 employees trying to make payroll and other obligations on $250k.
- Scoundreller 4y ago
  Maybe smart for orgs to do their payroll on a Tuesday or Wednesday instead of down to the wire on friday with everyone else. Sure you get to hold onto funds for a day or two later, but it also puts your payroll at risk if the bank is failing. (Seriously I worked for an org that changed payroll from Thursday to Friday and I’d be first to file with the labour board for missed employment payment if they blamed the weekend or bank failure for missing a payment).

version_five 4y ago

Re Bear Sterns, there were lots of political reasons it was allowed to fail while others were protected. If I remember right something about them not helping with the Long Term Capital Management collapse for example. There will have been people who had the opportunity to help SVB and collectively decided it was better to let it fail. It will be interesting to understand the decisions that were made when the dust settles

Octokiddie 4y ago
Bear Stearns was the first shoe to drop. Intervening would have spooked the market. Later implosions were addressed because there was no alternative. Unless you experienced that time, it really hard to understand the pervasive denial of what was obviously happening. You'll see the same thing happen this time around, and will have an equally hard time conveying just how strong the denial was.
- Ancalagon 4y ago
  When and where does the next shoe drop this time then?
  - Octokiddie 4y ago
    It's possible we haven't seen the first shoe yet, and bank failures like this one are just the canaries dropping dead. To speculate about where that first shoe might be in this case and who's wearing it, it might help to consider where the buck ultimately stops.
banku_brougham 4y ago
great callback. revenge on Jimmy Cayne for when genius failed. Dont forget it was Lehman that failed first, Bear got special treatment amongst the Citi, AIG, et al bailouts.
- alex_young 4y ago
  Bear was sold at a %90 discount (so not a complete loss) 1 week before Lehman failed.

borski 4y ago

> And any accounts over $250K, poof. That's not quite true; the FDIC will pay uninsured depositors an advance dividend within the next week.

om42 4y ago
My finance-foo is quite weak, what does advance dividend mean in this context?
- aobdev 4y ago
  Management at the now FDIC-controlled bank will estimate the value of SVB’s assets, such as loans and bonds, and give depositors a fraction of that value to be paid in advance of the sale of those assets. They do this to prevent the collapse of all those companies who were SVB clients, which would be bad for the economy.
- jffry 4y ago
  From an FDIC guide [1] I found: "advance dividend: A payment made to an uninsured depositor after a bank or thrift failure. The amount of the advance dividend represents the FDIC’s conservative estimate of the ultimate value of the receivership. Cash dividends equivalent to the board-approved advance dividend percentage (of total outstanding deposit claims) are paid to uninsured depositors, thereby giving them an immediate return of a portion of their uninsured deposit. Sometimes when it is projected that all depositor claims will be paid in full an advance dividend will be provided to unsecured creditors." [1] https://www.fdic.gov/bank/historical/reshandbook/glossary.pdf https://www.fdic.gov/bank/historical/reshandbook/glossary.pd...
- borski 4y ago
  Early repayment of some percentage of the uninsured deposits, prior to full liquidation and/or acquisition. Depositors have first access to funds either way.
- ejb999 4y ago
  most likely a partial payment - i.e. you have 500K in the bank, 250K is insured and you know you will get it back - the other $250K nobody knows how much will be available when the dust settles, but maybe they (FDIC) feels confident they can give you 10% of that now, and keep making more payments as the picture becomes clearer on how much you can eventually get back. You won't get any final payments for many many months when everything is fully resolved.

mywittyname 4y ago

Edit - this has been the first fdic takeover since 2020, so no, it does not happen often. This chart of historic bank failures paints a different picture: https://www.fdic.gov/bank/historical/bank/ https://www.fdic.gov/bank/historical/bank/

ezekg 4y ago
And this chart paints an even different picture: https://twitter.com/alistairmbarr/status/1634275645235793920 https://twitter.com/alistairmbarr/status/1634275645235793920
- kmlx 4y ago
  lehman brothers had total assets of $639B when it filed for bankruptcy on September 15, 2008. adjusted for inflation that's ~$800B.
  - scythe 4y ago
    Lehman was an investment bank — they didn't take deposits. Wikipedia describes them as a "financial services firm".
- TaylorAlexander 4y ago
  Is total assets a useful measure here? I would be more interested in a chart that showed budgetary shortfalls. It sounds like SVB is only short about 10% of total assets if I am remembering what I read earlier this morning.
  - paulddraper 4y ago
    No one really knows. And banks usually aren't crazy amounts short. But they're short enough to got under.
cableshaft 4y ago
Almost all of those are during The Great Recession or the aftermath of it, so I think it's not that crazy of a claim to make. Also means we may be about to start seeing a lot more of them again, assuming we're getting closer to the next big recession.