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I suspect all depositors will be made whole. The bank had a liquidity crisis; it had reserves in excess of its liabilities. Every bank borrows short term (you

by gumby 4y ago

I suspect all depositors will be made whole. The bank had a liquidity crisis; it had reserves in excess of its liabilities. Every bank borrows short term (you can walk up and withdraw your money at any time) but lends long (e.g. mortgages, though SVB writes few of those). The recent management grabbed some very long federal bonds; as rates have risen the resale value of those long term assets (paying a lower interest rate) fell. They can't unwind that position and cover all possible demands. FDIC will transfer the accounts to another bank, guaranteeing the 250K at least (I believe SVBs own liquid assets could cover that) and may use its own asset base to cover the balance, siezing SVB's other assets and stuffing them into FDIC's piggy bank. It's not like those government bonds won't pay out...eventually.

bombcar 4y ago
The thing that's strange is FDIC took control and setup a receiving bank for liquidation. That's not normal; FDIC works quite hard to find a bank willing to take over - usually they can work out what the "cost" is to take over, and FDIC pays the receiving bank that amount to "eat" the dying one. If they don't announce they have a bank to assume SVP by Monday, it's quite abnormal.
- NordSteve 4y ago
  Most FDIC bank takeovers are slow moving crashes, allowing for a longer negotiation where buyers can evaluate the loan portfolio they are buying. This is a reaction to a classic run, so no time for that.
- czbond 4y ago
  Chase has wanted this bank for years. Either they are taking advantage (takeover) or <conspiracy theory unfounded> helped accelerate it.
  - gumby 4y ago
    Most of the good staff were poached by First Republic over the past few years. That caused me to bank my current startup at FR after more than 25 years of SVB. So I don’t think there was much for Chase to buy. SVB has been in decline for a while
    - ashwagary 4y ago
      Just saw a First Republic stock chart in crash territory, contagion?
      - everybodyknows 4y ago
        Today's price range: 45-95 https://www.cnbc.com/quotes/FRC?qsearchterm=first https://www.cnbc.com/quotes/FRC?qsearchterm=first
      - gumby 4y ago
        S&P bank sector is down across the board, but presume it will regress to the mean fairly soon. Aren't many other banks with exposure similar to SVB's.
      - alfalfasprout 4y ago
        First republic is in the same region and has a ton of tech clients. Collateral damage. So far it looks like they don't have the same exposure as SVB did though.
  - VirusNewbie 4y ago
    Interesting you say this, their stock is up despite rest of my portfolio being red
    - czbond 4y ago
      Flight to safety? Like when there was the Southwest Airlines December debacle - AAL skyrocketed for a bit.
- mikeyouse 4y ago
  So what I think is happening here is that if you take over a bank the traditional way, you need to mark-to-market all of the bank's assets -- so all of the losses from the long-dated MBS that would be perfectly fine if held to maturity would have to be recognized immediately, just crushing the balance sheet of anyone who bought it. Probably trying to line someone up who can either absorb that loss, figure out a way to recapitalize without recognizing the loss, or get access to some other lending facility.
  - t0mas88 4y ago
    But from what I read it's common for FDIC to "sell" to the acquiring bank at a price that wouldn't make a loss. So if you marked to market all those long term bonds and then sold SVB to a bigger bank at the resulting (possibly negative) valuation. Why wouldn't a big bank take that deal?
- mixdup 4y ago
  Exactly. The fact they didn't have a bank lined up points very heavily to the fact that they are not going to be made completely whole. In the past, the FDIC has found a buyer and as part of that process guarantees some amount of the losses. IE: Savior Bank buys Failed Bank for pennies on the dollar, or even for a negative amount. They get all deposits, insured or not, and all assets--meaning loans. Then, the FDIC guarantees they'll make Savior Bank whole some percentage of losses on assets that go bad. Sometimes 80% or more This arrangement usually results in all depositors being made whole, and the FDIC fund not taking any, or many, actually losses, because most of the loans will still pay back, at least partially They also do this before seizing the bank, so that it's all very orderly and calms any panics SVB was looking for a buyer on the open market and that failed--no surprise That the FDIC also could not find a buyer that they could subsidize and announce the same day as the seizure is very damning. I would be shocked if someone comes in later and tries to buy it Also, the fact the seizure happened in the middle of the business day, and not at the close of business yesterday points to a somewhat disorderly and rapidly deteriorating condition. I think maybe the run picked up a lot faster than they expected
  - bombcar 4y ago
    That's a really good point, FDIC usually swoops in Friday night; and this was closed on a Friday during business hours, that's actually insane; they couldn't hold on 8-10 more hours, the run must have been really bad. Even WAMU (a huge FDIC action) was done after banking hours closed on the west coast. https://en.wikipedia.org/wiki/Washington_Mutual https://en.wikipedia.org/wiki/Washington_Mutual
    - ashwagary 4y ago
      I just saw recent footage of 40-50 people standing in line outside an SVB branch waiting for service (withdrawals most likely). I would surmise that the news spread fast among the tech demographic the bank services and the run is really bad.
      - toufka 4y ago
        And in this case, tech savy individuals are willing to send $XXM in 6 clicks, 3min after getting a slack message. That's a pretty quick kind of run relative to old-school 'stand in line for your personal life savings' kind of run.
- ecopoesis 4y ago
  When was the last US bank failure where depositors lost money?
  - silisili 4y ago
    Appears to be 2020, from a cursory Google search. https://money.stackexchange.com/questions/129772/has-anyone-ever-lost-money-over-the-fdic-limit https://money.stackexchange.com/questions/129772/has-anyone-... The oft quoted 'nobody has lost money' is from the FDIC, and specifically says 'insured deposits.'
- everybodyknows 4y ago
  What is "SVP"?
  - dredmorbius 4y ago
    I suspect a typo for SVB, "Silicon Valley Bank".
- kgwgk 4y ago
  The size of this failed bank is quite abnormal. The business of this failed bank is quite abnormal. The surprising thing may be that the find anyone willing to take it out of their hands - let alone by Monday.
tinco 4y ago
But by the time the depositors get their money all of their employees will have left, and some other company will have an N year lead on cornering the AI dog washing market.
fairity 4y ago
> I suspect all depositors will be made whole. Agreed. The FDIC report shows $209b in assets and $175b in deposits. Even if they took the full $15b estimated loss to liquidate their HTM bond portfolio, they'd have $20b to spare before not being able to cover deposits. Am I misunderstanding?
- anonuser123456 4y ago
  The assets may not be valued anywhere near market prices given the recent run up in interest rates. They don’t have to reprice the asset if they intend to hold it to maturity in the face of fluctuating rates.
engineeringwoke 4y ago
There's a $40 billion hole in their balance sheet...
- gumby 4y ago
  As fairity pointed out in a comment to this thread, "The FDIC report shows $209b in assets and $175b in deposits." Unfortunately much of their balance sheet is illiquid (consider loans they've made to venture-backed businesses, and of course a poor choice they made in government debt maturity). Thus a liquidity crisis; technically also insolvency, but not gross mismanagement and excessive leverage by any means. Unwinding it will be quite routine (see my reply to kmod).
tchalla 4y ago
93% of deposits are uninsured according to a recent regulatory filing. So, I doubt it will be “all depositors” that would be made whole. https://twitter.com/business/status/1634211584657571843?s=20 https://twitter.com/business/status/1634211584657571843?s=20
- tialaramex 4y ago
  FDIC means you get paid immediately regardless, but the bank will almost invariably turn out to be good for the rest, just not quickly.
  - mixdup 4y ago
    No, FDIC means you get paid up to $250,000 per insured account immediately Any amount over that you are not guaranteed to be able to withdraw. These people are a long way from regardless
    - rcme 4y ago
      > No, FDIC means you get paid up to $250,000 per insured account immediately Any amount over that you are not guaranteed to be able to withdraw. The first half is what FDIC insurance means. The FDIC helps distressed banks in a variety of ways, including insuring deposits under $250K, but typically all depositors are made mostly whole again.
      - aioprisan 4y ago
        > but typically all depositors are made mostly whole again Typically, but no guarantee. And on what time frame, nobody knows.
      - mixdup 4y ago
        Typically the FDIC finds another institution to buy the distressed bank, and backstops losses on bad assets. They were not able to do that in this case I suspect many depositors will be taking losses in this failure
      - 4y ago
bityard 4y ago
Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "take a haircut," for the reason you mentioned, plus a few others. Additionally: 1. Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. It's totally possible (and regularly done) to spread out cash among several financial institutions to protect against this very issue. 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k. 3. If spreading out your 6- or 7-figure assets to multiple institutions is too much of a burden, literally every business bank has special accounts or add-on features that either raise the FDIC default limit of 250k, or supplement it with external insurance. Again, if any startup's financial handlers didn't recommend this: fire them because they entirely failed to do their job.
- jabart 4y ago
  I don't think the signers count towards the limit like a personal joint account does and would keep a business account at $250k. https://www.usbank.com/bank-accounts/fdic-deposit-insurance-coverage.html https://www.usbank.com/bank-accounts/fdic-deposit-insurance-...
- kgwgk 4y ago
  > 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k. Is it typical for business accounts to be owned by someone other than the business?
- panarky 4y ago
  SVB is not a typical regional bank taking deposits from middle-class workers, where most accounts are under the 250k insurance limit. Banks that primarily serve ordinary workers typically have over 50% of total deposits in accounts that are under the limit, and are fully insured. But for SVB, less than 3% of deposits are in accounts with less than $250k. The cold, hard fact is that if the bank doesn't have sufficient assets to pay back depositors, no regulatory sleight of hand changes that fact. There's a reason why large deposits aren't insured, and that's because the rich have the knowledge and resources to take care of themselves, and shouldn't co-opt the power of the state to force ordinary people to subsidize them when their bets go bad. It would be hideously immoral to bail out fabulously wealthy VCs with funds from taxpayers and small depositors.
dahdum 4y ago
DFPI specifically called them insolvent in their release today, does that change your opinion on depositors being made whole? https://dfpi.ca.gov/2023/03/10/california-financial-regulator-takes-possession-of-silicon-valley-bank/ https://dfpi.ca.gov/2023/03/10/california-financial-regulato...
- dragonwriter 4y ago
  > DFPI specifically called them insolvent in their release today, does that change your opinion on depositors being made whole? If the asset/deposits balance hasn't changed much since December (which I'm not sure is the case), depositors are likely to eventually be made whole for the deposit amounts, but liquidity issues and facilitating sale of assets to make that happen may result in substantial delays. For depository accounts businesses relied on for regular operations, that...may still create substantial additional costs that will not be compensated. So, in a more holistic sense, it seems likely that depositors will not be made truly whole for the impacts, even if they eventually recover deposits.
  - kgwgk 4y ago
    Being made whole several years down the line may not be better than getting liquidated as soon as possible. In a extreme example, getting $100 in 10 years is not as good as getting $70 next month.
- gumby 4y ago
  See my reply to kmod for further explanation on my statement.
kmod 4y ago
These statements seem pretty contradictory: - "it had reserves in excess of its liabilities" - "They can't unwind that position and cover all possible demands" I'm guessing that you're thinking of some sort of valuation of their assets that says something like "well they're really worth more than they're currently valued at", which is a common claim on this story but it's a pretty bold one?
- ummonk 4y ago
  They're just saying that many of the assets are insufficiently liquid to be instantly sold off to cover all the withdrawals during a bank run.
  - kmod 4y ago
    I don't think anyone is saying this? The decrease in value is due to wrong-way interest rate exposure, not due to a fire sale
    - bagels 4y ago
      Well, it's going to be both. Dumping 200b of bonds isn't going to yield premium prices.
    - ummonk 4y ago
      The decrease in value was due to exposure to long duration securities yes. The closure of the bank was due to a classic bank run after depositors panicked upon hearing of the decrease in value. They had 45 billion in withdrawals in a single day, out of ~175 billion in deposits. No bank could survive that.
- gumby 4y ago
  That's a good question. The key is where I wrote that it was a liquidity crisis. An analogy: you (hypothetically) keep your money in some 6-month CDs, with about a month's worth of expenses in your savings account in case something unexpected comes up. Then you lose your job and by the end of the month you haven't found a new job. You could liquidate your CDs, but the early-liquidation penalty might mean you still won't have enough to pay your bills. If only you could wait for maturity. So yes, at mark-to-market firesale prices that means SVB can't pay out in full today to every account holder and so FDIC has to step in. But FDIC (who has a very large balance sheet) also seizes those assets. They give the accounts to another bank. Then FDIC can unwind those seized assets in whatever timely fashion it wants. There's a second factor: in a secular banking crisis they may pay out only the guarantee (currently $250K; for a while (during the GFC IIRC) it was temporarily $500K. But we are not in a secular banking crisis; not only has the Fed completely restructured bank reserve requirements in response to the GFC but SVB is a single, small bank, not even a regional one, with a run-of-the-mill crisis. This is the kind of failure that you put all the new hires on because they can learn without any up-to-the-minute crisis stress. This is what they learned during onboarding :-). In such a situation it's better to pay out move than the $250K, probably several million, to prevent any "contagion" (since SVB has "Silicon Valley" in its name). I have no special knowledge of FDIC's internal thinking: they could make them whole now, or make up to $250K whole now and pay out some later, or yes, they could force a few people to take a haircut. Those (small number of) panicing VCs would be better off calling their senators than their portfolio companies. PS: BTW hypothetical you has more options than those above: you could take out credit card debt, perhaps tap a HELOC you might already have in place, etc. SVB had similar options: they did have a $15B fire sale and got an investment from General Atlantic. It wasn't enough.
purpleblue 4y ago
No, I think you're wrong. The reason why depositors are going to lose money I think is because the fire-sale valuation of the assets << valuation on the books. I think depositors will lose a fairly big chunk of their money, maybe 10-30% if not more. Their money was not sitting around in cash. It was in bonds which lost a lot of value in the last several months. They also have more exotic investments in the startups they work with, which depending on how it works, could get a really bad valuation as well.
- gumby 4y ago
  See my reply to kmod in regards to this. It's the FDIC's current balance sheet we're talking about, not SVB's. In a liquidity crisis you don't have access to your capital. So FDIC spends theirs, and takes control of SVB's balance sheet. Also SVB is a small bank.
  - purpleblue 4y ago
    The only way things are okay is if FDIC makes SVB whole on all its assets, which doesn't make sense. They are only on the hook for the 250k, everything above and beyond will get paid out by selling assets, much of which might be considerably impaired, because of accounting differences. You're telling me that if SVC had $1 billion in 0.1% 10 year bonds, they would pay them face value for that now? That's not how it works at all. SVB was the 15th largest bank in the US. That's not a small bank.
    - gumby 4y ago
      That's not how FDIC works. Its job is to protect account holders, not banks. SVB is dead; its shareholders and bondholders will be wiped out, includng the money they raised from General Atlantic this week. The account holders' accounts, and likely all the loan portfolio, will go to another bank. The new bank will adjust its reserves from the Fed in the usual way, and may get some capital from the FDIC (warning: I am not au courant how the latter works post the GFC). The FDIC uses its own large (and augmentable by congress, not that it matters in this case) balance sheet to back some or all of the deposits. It seizes all of SVB's assets and unwinds them as it decides to...with the proceeds going to FDIC.. Whether it dumps them on the market or holds to maturity is the FDIC's decision and has nothing to do with what happens to SVB. The people who went to SVB HQ and the people who decide what to do with SVB's assets are completely different people. Read my reply to kmod. > SVB was the 15th largest bank in the US. That's not a small bank. The money center banks are the ones that matter. Most retail deposits are held by a handful of banks. Being the 15th largest bank is not like being the 15th university in the rankings (i.e. not that different from the top 10) but more like being the 15th biggest car company. I wouldn't call FDIC's balance sheet "enormous" but it can handle SVB without breaking a sweat.
martythemaniak 4y ago
Yeah, it seems companies should be mostly fine. Like you had 10 million in cash yesterday, but now you get 10m in 10y TBills, which you have to sell for $9m to get your cash back. It sucks but it shouldn't change the trajectory of your startup.
opportune 4y ago
The conundrum with underwater bonds/mbs is that you can make depositors whole, or give depositors money back now, but not necessarily both. If I had $1m in my account and it was invested 100% in MBS around in 2021, it could take 10 years to actually get the whole $1m back, and only be worth like $800k now. I have effectively lost that 20% because you could just give me $800k now and I could put it in a MBS myself to get the same results.
nr378 4y ago
SVB held $21bn of 'available for sale' bonds and $91bn of 'held to maturity' bonds on its balance sheet, that were actually only worth $19bn an $76bn respectively on a mark-to-market basis, which means a total unrecognised hole its in balance sheet of $17bn. SVB's total equity was only $16bn[1][2] That means it didn't have a liquidity crisis, and it didn't have reserves in excess of it's liabilities, it had a solvency crisis, and it has more liabilities than it has assets (before even considering the haircut it's assets will suffer at liquidation prices). The crux of the issue here is that, for many types of assets, banks are able to test whether they meet capital requirements based on the price they paid for the assets, rather than the price the assets are currently worth. So SVB was sailing along nicely whilst it's bond portfolio slipped further and further under water, and wasn't required to recapitalise when it should have done. [1] https://ir.svb.com/financials/annual-reports-and-proxies/default.aspx https://ir.svb.com/financials/annual-reports-and-proxies/def... [2] https://www.wsj.com/articles/bond-losses-push-silicon-valley-bank-parent-to-raise-capital-125e89d4 https://www.wsj.com/articles/bond-losses-push-silicon-valley...
- RC_ITR 4y ago
  People keep talking about how 'this is a solvency crisis because if SVB had to sell everything today, they wouldn't cover liabilities' when that is the definition of a liquidity crisis. EDIT: To be clear, think of it this way. I have a piece of paper saying you'll give me $100 in 1 year plus 1% interest that I bought for $98. No-one buys that piece of paper for $98 today, because they can get the same deal with better interest. But that doesn't change the fact that I will get $100 for it. If deposits hadn't shrunk, $100 would go to SVB in 1 year and everything would be fine, it's the fact that they have to sell it so far ahead of maturity that's the problem, we just didn't notice this phenomenon in the past few decades b/c rates fell and prices went up. This is not because SVB has a particularly risky book (we're talking treasuries here), it's because they didn't account for declining deposits (itself a very stupid, but unique bad decision unrelated to their risk tolerance).
  - SftwrSvior81 4y ago
    > People keep talking about how 'this is a solvency crisis because if SVB had to sell everything today, they wouldn't cover liabilities' when that is the definition of a liquidity crisis. I don't think that's right. It would be a liquidity crisis if the market value of everything they own is higher than their liabilities but they can't find a buyer at this time. You are saying that a liquidity crisis is when they can find a buyer but everything they have is worth less than their liabilities. That's not the case.
bjornsing 4y ago
> It's not like those government bonds won't pay out...eventually. Does that really matter though? Anyone can buy and hold to maturity. The market price indicates that that's not good business.
FollowingTheDao 4y ago
> It's not like those government bonds won't pay out...eventually. You go ahead and think that... https://www.svbsecurities.com/team/joseph-gentile/ https://www.svbsecurities.com/team/joseph-gentile/ Joseph Gentile is the Chief Administrative Officer at SVB Securities. Prior to joining the firm in 2007, Mr. Gentile served as the CFO for Lehman Brothers’ Global Investment Bank where he directed the accounting and financial needs within the Fixed Income division.

by gumby 4y ago

bombcar 4y ago

The thing that's strange is FDIC took control and setup a receiving bank for liquidation. That's not normal; FDIC works quite hard to find a bank willing to take over - usually they can work out what the "cost" is to take over, and FDIC pays the receiving bank that amount to "eat" the dying one. If they don't announce they have a bank to assume SVP by Monday, it's quite abnormal.

NordSteve 4y ago
Most FDIC bank takeovers are slow moving crashes, allowing for a longer negotiation where buyers can evaluate the loan portfolio they are buying. This is a reaction to a classic run, so no time for that.
czbond 4y ago
Chase has wanted this bank for years. Either they are taking advantage (takeover) or <conspiracy theory unfounded> helped accelerate it.
- gumby 4y ago
  Most of the good staff were poached by First Republic over the past few years. That caused me to bank my current startup at FR after more than 25 years of SVB. So I don’t think there was much for Chase to buy. SVB has been in decline for a while
  - ashwagary 4y ago
    Just saw a First Republic stock chart in crash territory, contagion?
    - everybodyknows 4y ago
      Today's price range: 45-95 https://www.cnbc.com/quotes/FRC?qsearchterm=first https://www.cnbc.com/quotes/FRC?qsearchterm=first
    - gumby 4y ago
      S&P bank sector is down across the board, but presume it will regress to the mean fairly soon. Aren't many other banks with exposure similar to SVB's.
    - alfalfasprout 4y ago
      First republic is in the same region and has a ton of tech clients. Collateral damage. So far it looks like they don't have the same exposure as SVB did though.
- VirusNewbie 4y ago
  Interesting you say this, their stock is up despite rest of my portfolio being red
  - czbond 4y ago
    Flight to safety? Like when there was the Southwest Airlines December debacle - AAL skyrocketed for a bit.
mikeyouse 4y ago
So what I think is happening here is that if you take over a bank the traditional way, you need to mark-to-market all of the bank's assets -- so all of the losses from the long-dated MBS that would be perfectly fine if held to maturity would have to be recognized immediately, just crushing the balance sheet of anyone who bought it. Probably trying to line someone up who can either absorb that loss, figure out a way to recapitalize without recognizing the loss, or get access to some other lending facility.
- t0mas88 4y ago
  But from what I read it's common for FDIC to "sell" to the acquiring bank at a price that wouldn't make a loss. So if you marked to market all those long term bonds and then sold SVB to a bigger bank at the resulting (possibly negative) valuation. Why wouldn't a big bank take that deal?
mixdup 4y ago
Exactly. The fact they didn't have a bank lined up points very heavily to the fact that they are not going to be made completely whole. In the past, the FDIC has found a buyer and as part of that process guarantees some amount of the losses. IE: Savior Bank buys Failed Bank for pennies on the dollar, or even for a negative amount. They get all deposits, insured or not, and all assets--meaning loans. Then, the FDIC guarantees they'll make Savior Bank whole some percentage of losses on assets that go bad. Sometimes 80% or more This arrangement usually results in all depositors being made whole, and the FDIC fund not taking any, or many, actually losses, because most of the loans will still pay back, at least partially They also do this before seizing the bank, so that it's all very orderly and calms any panics SVB was looking for a buyer on the open market and that failed--no surprise That the FDIC also could not find a buyer that they could subsidize and announce the same day as the seizure is very damning. I would be shocked if someone comes in later and tries to buy it Also, the fact the seizure happened in the middle of the business day, and not at the close of business yesterday points to a somewhat disorderly and rapidly deteriorating condition. I think maybe the run picked up a lot faster than they expected
- bombcar 4y ago
  That's a really good point, FDIC usually swoops in Friday night; and this was closed on a Friday during business hours, that's actually insane; they couldn't hold on 8-10 more hours, the run must have been really bad. Even WAMU (a huge FDIC action) was done after banking hours closed on the west coast. https://en.wikipedia.org/wiki/Washington_Mutual https://en.wikipedia.org/wiki/Washington_Mutual
  - ashwagary 4y ago
    I just saw recent footage of 40-50 people standing in line outside an SVB branch waiting for service (withdrawals most likely). I would surmise that the news spread fast among the tech demographic the bank services and the run is really bad.
    - toufka 4y ago
      And in this case, tech savy individuals are willing to send $XXM in 6 clicks, 3min after getting a slack message. That's a pretty quick kind of run relative to old-school 'stand in line for your personal life savings' kind of run.
ecopoesis 4y ago
When was the last US bank failure where depositors lost money?
- silisili 4y ago
  Appears to be 2020, from a cursory Google search. https://money.stackexchange.com/questions/129772/has-anyone-ever-lost-money-over-the-fdic-limit https://money.stackexchange.com/questions/129772/has-anyone-... The oft quoted 'nobody has lost money' is from the FDIC, and specifically says 'insured deposits.'
everybodyknows 4y ago
What is "SVP"?
- dredmorbius 4y ago
  I suspect a typo for SVB, "Silicon Valley Bank".
kgwgk 4y ago
The size of this failed bank is quite abnormal. The business of this failed bank is quite abnormal. The surprising thing may be that the find anyone willing to take it out of their hands - let alone by Monday.

tinco 4y ago

But by the time the depositors get their money all of their employees will have left, and some other company will have an N year lead on cornering the AI dog washing market.

fairity 4y ago

> I suspect all depositors will be made whole. Agreed. The FDIC report shows $209b in assets and $175b in deposits. Even if they took the full $15b estimated loss to liquidate their HTM bond portfolio, they'd have $20b to spare before not being able to cover deposits. Am I misunderstanding?

anonuser123456 4y ago
The assets may not be valued anywhere near market prices given the recent run up in interest rates. They don’t have to reprice the asset if they intend to hold it to maturity in the face of fluctuating rates.

engineeringwoke 4y ago

There's a $40 billion hole in their balance sheet...

gumby 4y ago
As fairity pointed out in a comment to this thread, "The FDIC report shows $209b in assets and $175b in deposits." Unfortunately much of their balance sheet is illiquid (consider loans they've made to venture-backed businesses, and of course a poor choice they made in government debt maturity). Thus a liquidity crisis; technically also insolvency, but not gross mismanagement and excessive leverage by any means. Unwinding it will be quite routine (see my reply to kmod).

tchalla 4y ago

93% of deposits are uninsured according to a recent regulatory filing. So, I doubt it will be “all depositors” that would be made whole. https://twitter.com/business/status/1634211584657571843?s=20 https://twitter.com/business/status/1634211584657571843?s=20

tialaramex 4y ago
FDIC means you get paid immediately regardless, but the bank will almost invariably turn out to be good for the rest, just not quickly.
- mixdup 4y ago
  No, FDIC means you get paid up to $250,000 per insured account immediately Any amount over that you are not guaranteed to be able to withdraw. These people are a long way from regardless
  - rcme 4y ago
    > No, FDIC means you get paid up to $250,000 per insured account immediately Any amount over that you are not guaranteed to be able to withdraw. The first half is what FDIC insurance means. The FDIC helps distressed banks in a variety of ways, including insuring deposits under $250K, but typically all depositors are made mostly whole again.
    - aioprisan 4y ago
      > but typically all depositors are made mostly whole again Typically, but no guarantee. And on what time frame, nobody knows.
    - mixdup 4y ago
      Typically the FDIC finds another institution to buy the distressed bank, and backstops losses on bad assets. They were not able to do that in this case I suspect many depositors will be taking losses in this failure
    - 4y ago

bityard 4y ago

Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "take a haircut," for the reason you mentioned, plus a few others. Additionally: 1. Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. It's totally possible (and regularly done) to spread out cash among several financial institutions to protect against this very issue. 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k. 3. If spreading out your 6- or 7-figure assets to multiple institutions is too much of a burden, literally every business bank has special accounts or add-on features that either raise the FDIC default limit of 250k, or supplement it with external insurance. Again, if any startup's financial handlers didn't recommend this: fire them because they entirely failed to do their job.

jabart 4y ago
I don't think the signers count towards the limit like a personal joint account does and would keep a business account at $250k. https://www.usbank.com/bank-accounts/fdic-deposit-insurance-coverage.html https://www.usbank.com/bank-accounts/fdic-deposit-insurance-...
kgwgk 4y ago
> 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k. Is it typical for business accounts to be owned by someone other than the business?
panarky 4y ago
SVB is not a typical regional bank taking deposits from middle-class workers, where most accounts are under the 250k insurance limit. Banks that primarily serve ordinary workers typically have over 50% of total deposits in accounts that are under the limit, and are fully insured. But for SVB, less than 3% of deposits are in accounts with less than $250k. The cold, hard fact is that if the bank doesn't have sufficient assets to pay back depositors, no regulatory sleight of hand changes that fact. There's a reason why large deposits aren't insured, and that's because the rich have the knowledge and resources to take care of themselves, and shouldn't co-opt the power of the state to force ordinary people to subsidize them when their bets go bad. It would be hideously immoral to bail out fabulously wealthy VCs with funds from taxpayers and small depositors.

dahdum 4y ago

DFPI specifically called them insolvent in their release today, does that change your opinion on depositors being made whole? https://dfpi.ca.gov/2023/03/10/california-financial-regulator-takes-possession-of-silicon-valley-bank/ https://dfpi.ca.gov/2023/03/10/california-financial-regulato...

dragonwriter 4y ago
> DFPI specifically called them insolvent in their release today, does that change your opinion on depositors being made whole? If the asset/deposits balance hasn't changed much since December (which I'm not sure is the case), depositors are likely to eventually be made whole for the deposit amounts, but liquidity issues and facilitating sale of assets to make that happen may result in substantial delays. For depository accounts businesses relied on for regular operations, that...may still create substantial additional costs that will not be compensated. So, in a more holistic sense, it seems likely that depositors will not be made truly whole for the impacts, even if they eventually recover deposits.
- kgwgk 4y ago
  Being made whole several years down the line may not be better than getting liquidated as soon as possible. In a extreme example, getting $100 in 10 years is not as good as getting $70 next month.
gumby 4y ago
See my reply to kmod for further explanation on my statement.

kmod 4y ago

These statements seem pretty contradictory: - "it had reserves in excess of its liabilities" - "They can't unwind that position and cover all possible demands" I'm guessing that you're thinking of some sort of valuation of their assets that says something like "well they're really worth more than they're currently valued at", which is a common claim on this story but it's a pretty bold one?

ummonk 4y ago
They're just saying that many of the assets are insufficiently liquid to be instantly sold off to cover all the withdrawals during a bank run.
- kmod 4y ago
  I don't think anyone is saying this? The decrease in value is due to wrong-way interest rate exposure, not due to a fire sale
  - bagels 4y ago
    Well, it's going to be both. Dumping 200b of bonds isn't going to yield premium prices.
  - ummonk 4y ago
    The decrease in value was due to exposure to long duration securities yes. The closure of the bank was due to a classic bank run after depositors panicked upon hearing of the decrease in value. They had 45 billion in withdrawals in a single day, out of ~175 billion in deposits. No bank could survive that.
gumby 4y ago
That's a good question. The key is where I wrote that it was a liquidity crisis. An analogy: you (hypothetically) keep your money in some 6-month CDs, with about a month's worth of expenses in your savings account in case something unexpected comes up. Then you lose your job and by the end of the month you haven't found a new job. You could liquidate your CDs, but the early-liquidation penalty might mean you still won't have enough to pay your bills. If only you could wait for maturity. So yes, at mark-to-market firesale prices that means SVB can't pay out in full today to every account holder and so FDIC has to step in. But FDIC (who has a very large balance sheet) also seizes those assets. They give the accounts to another bank. Then FDIC can unwind those seized assets in whatever timely fashion it wants. There's a second factor: in a secular banking crisis they may pay out only the guarantee (currently $250K; for a while (during the GFC IIRC) it was temporarily $500K. But we are not in a secular banking crisis; not only has the Fed completely restructured bank reserve requirements in response to the GFC but SVB is a single, small bank, not even a regional one, with a run-of-the-mill crisis. This is the kind of failure that you put all the new hires on because they can learn without any up-to-the-minute crisis stress. This is what they learned during onboarding :-). In such a situation it's better to pay out move than the $250K, probably several million, to prevent any "contagion" (since SVB has "Silicon Valley" in its name). I have no special knowledge of FDIC's internal thinking: they could make them whole now, or make up to $250K whole now and pay out some later, or yes, they could force a few people to take a haircut. Those (small number of) panicing VCs would be better off calling their senators than their portfolio companies. PS: BTW hypothetical you has more options than those above: you could take out credit card debt, perhaps tap a HELOC you might already have in place, etc. SVB had similar options: they did have a $15B fire sale and got an investment from General Atlantic. It wasn't enough.

purpleblue 4y ago

No, I think you're wrong. The reason why depositors are going to lose money I think is because the fire-sale valuation of the assets << valuation on the books. I think depositors will lose a fairly big chunk of their money, maybe 10-30% if not more. Their money was not sitting around in cash. It was in bonds which lost a lot of value in the last several months. They also have more exotic investments in the startups they work with, which depending on how it works, could get a really bad valuation as well.

gumby 4y ago
See my reply to kmod in regards to this. It's the FDIC's current balance sheet we're talking about, not SVB's. In a liquidity crisis you don't have access to your capital. So FDIC spends theirs, and takes control of SVB's balance sheet. Also SVB is a small bank.
- purpleblue 4y ago
  The only way things are okay is if FDIC makes SVB whole on all its assets, which doesn't make sense. They are only on the hook for the 250k, everything above and beyond will get paid out by selling assets, much of which might be considerably impaired, because of accounting differences. You're telling me that if SVC had $1 billion in 0.1% 10 year bonds, they would pay them face value for that now? That's not how it works at all. SVB was the 15th largest bank in the US. That's not a small bank.
  - gumby 4y ago
    That's not how FDIC works. Its job is to protect account holders, not banks. SVB is dead; its shareholders and bondholders will be wiped out, includng the money they raised from General Atlantic this week. The account holders' accounts, and likely all the loan portfolio, will go to another bank. The new bank will adjust its reserves from the Fed in the usual way, and may get some capital from the FDIC (warning: I am not au courant how the latter works post the GFC). The FDIC uses its own large (and augmentable by congress, not that it matters in this case) balance sheet to back some or all of the deposits. It seizes all of SVB's assets and unwinds them as it decides to...with the proceeds going to FDIC.. Whether it dumps them on the market or holds to maturity is the FDIC's decision and has nothing to do with what happens to SVB. The people who went to SVB HQ and the people who decide what to do with SVB's assets are completely different people. Read my reply to kmod. > SVB was the 15th largest bank in the US. That's not a small bank. The money center banks are the ones that matter. Most retail deposits are held by a handful of banks. Being the 15th largest bank is not like being the 15th university in the rankings (i.e. not that different from the top 10) but more like being the 15th biggest car company. I wouldn't call FDIC's balance sheet "enormous" but it can handle SVB without breaking a sweat.

martythemaniak 4y ago

Yeah, it seems companies should be mostly fine. Like you had 10 million in cash yesterday, but now you get 10m in 10y TBills, which you have to sell for $9m to get your cash back. It sucks but it shouldn't change the trajectory of your startup.

opportune 4y ago

The conundrum with underwater bonds/mbs is that you can make depositors whole, or give depositors money back now, but not necessarily both. If I had $1m in my account and it was invested 100% in MBS around in 2021, it could take 10 years to actually get the whole $1m back, and only be worth like $800k now. I have effectively lost that 20% because you could just give me $800k now and I could put it in a MBS myself to get the same results.

nr378 4y ago

SVB held $21bn of 'available for sale' bonds and $91bn of 'held to maturity' bonds on its balance sheet, that were actually only worth $19bn an $76bn respectively on a mark-to-market basis, which means a total unrecognised hole its in balance sheet of $17bn. SVB's total equity was only $16bn[1][2] That means it didn't have a liquidity crisis, and it didn't have reserves in excess of it's liabilities, it had a solvency crisis, and it has more liabilities than it has assets (before even considering the haircut it's assets will suffer at liquidation prices). The crux of the issue here is that, for many types of assets, banks are able to test whether they meet capital requirements based on the price they paid for the assets, rather than the price the assets are currently worth. So SVB was sailing along nicely whilst it's bond portfolio slipped further and further under water, and wasn't required to recapitalise when it should have done. [1] https://ir.svb.com/financials/annual-reports-and-proxies/default.aspx https://ir.svb.com/financials/annual-reports-and-proxies/def... [2] https://www.wsj.com/articles/bond-losses-push-silicon-valley-bank-parent-to-raise-capital-125e89d4 https://www.wsj.com/articles/bond-losses-push-silicon-valley...

RC_ITR 4y ago
People keep talking about how 'this is a solvency crisis because if SVB had to sell everything today, they wouldn't cover liabilities' when that is the definition of a liquidity crisis. EDIT: To be clear, think of it this way. I have a piece of paper saying you'll give me $100 in 1 year plus 1% interest that I bought for $98. No-one buys that piece of paper for $98 today, because they can get the same deal with better interest. But that doesn't change the fact that I will get $100 for it. If deposits hadn't shrunk, $100 would go to SVB in 1 year and everything would be fine, it's the fact that they have to sell it so far ahead of maturity that's the problem, we just didn't notice this phenomenon in the past few decades b/c rates fell and prices went up. This is not because SVB has a particularly risky book (we're talking treasuries here), it's because they didn't account for declining deposits (itself a very stupid, but unique bad decision unrelated to their risk tolerance).
- SftwrSvior81 4y ago
  > People keep talking about how 'this is a solvency crisis because if SVB had to sell everything today, they wouldn't cover liabilities' when that is the definition of a liquidity crisis. I don't think that's right. It would be a liquidity crisis if the market value of everything they own is higher than their liabilities but they can't find a buyer at this time. You are saying that a liquidity crisis is when they can find a buyer but everything they have is worth less than their liabilities. That's not the case.

bjornsing 4y ago

> It's not like those government bonds won't pay out...eventually. Does that really matter though? Anyone can buy and hold to maturity. The market price indicates that that's not good business.

FollowingTheDao 4y ago

> It's not like those government bonds won't pay out...eventually. You go ahead and think that... https://www.svbsecurities.com/team/joseph-gentile/ https://www.svbsecurities.com/team/joseph-gentile/ Joseph Gentile is the Chief Administrative Officer at SVB Securities. Prior to joining the firm in 2007, Mr. Gentile served as the CFO for Lehman Brothers’ Global Investment Bank where he directed the accounting and financial needs within the Fixed Income division.