5 ms·

You most definitely will. SVB already fire-sold 21Bn in MBS and took a 1.8Bn loss on that. Someone is eating that loss.... Separately, this is going to cause a

You most definitely will. SVB already fire-sold 21Bn in MBS and took a 1.8Bn loss on that. Someone is eating that loss.... Separately, this is going to cause a lot of finance vultures to look at other banks who also have MBS portfolios on their books. The show's only beginning.

timr 4y ago
No, this isn't true. SVB has some unknown amount of cash and other assets on hand. We have no idea what that is right now, or what percentage this is of the shortfall. Someone will buy SVB, and they will put capital in as part of the purchase.
- hnthrowaway0315 4y ago
  I wonder if anyone has Bloomberg terminal access can take a look and check whether there are disruptions in MBS and its hedging tools.
  - vitorsr 4y ago
    I have access to Refinitiv. I think it looks fine? https://workspace.refinitiv.com/web/cms/?pageId=mbshome https://workspace.refinitiv.com/web/cms/?pageId=mbshome
    - hnthrowaway0315 4y ago
      Thanks. Do not have an account but I get it.
hef19898 4y ago
MBS, as in Mortgage Backed Securities??? Those MBSs? Oh dear, I am having very serious flash backs now...
- hnthrowaway0315 4y ago
  IMHO MBS is not as evil as it sounds. After all stocks are backed by even more fragile things.
  - fallingknife 4y ago
    Stocks aren't usually levered at more than 10:1, though. MBS are.
- jcadam 4y ago
  Time to re-watch The Big Short again.
- kevinpet 4y ago
  All men are mortal. My cat is mortal. Therefore my cat is a man. Not all mortgage backed securities are subprime CDO squareds.
- makestuff 4y ago
  Don't worry everyone pays their mortgage...right?
civicsquid 4y ago
Past losses aside, the press release says that there are about $180B in deposits with the bank holding about $210B in assets. Assuming the FDIC liquidates and restructures the bank, I don’t see why deposits could not be made whole. If there were fewer assets then deposits, then yes the 250k+ accounts are probably out of luck.
- bentlegen 4y ago
  Will those assets still be worth $210B as the days tick by? I'm not a macro financial analyst, but I have to imagine trying to liquidate $210B of bonds, stocks, etc. will cause at least some of that value to fall – that's a big number.
  - nemothekid 4y ago
    If someone well capitalized buys the bank, then they don't need to liquidate. The bonds aren't worthless, they just trade much lower now that interest rates have risen, however if you can wait until they mature you will get your money + interest.
  - vineyardmike 4y ago
    Once the FDIC kicks in they can sell off to a different bank which can absorb them without touching the open market. Alternatively the FDIC can guarantee the bank for the duration necessary to sell assets slowly. They could likely sell the bank as a whole to another bank if assets>liabilities without too much disruption.
- oceanplexian 4y ago
  The "assets" are actually held-to-maturity securities (bonds) that are yielding less than the risk free rate. Who would want to buy a bond that yields 2% when you can buy treasures that yield 4%. So while they might have $210B in paper assets but there's no chance they will be unable to unload them without taking a loss, putting the bank upside down.
  - ok_dad 4y ago
kragen 4y ago
US$1.8B is 1% of SVB's deposits; a 1% haircut wouldn't be that bad i suspect the real number will be closer to 40% than 1%
sambull 4y ago
It's possible they'll socialize the losses on that for profit risk taking
Me1000 4y ago
Is there any reason the FDIC itself cant just hold onto the bonds until they mature? The federal government doesnt need liquidity the same way a bank does, they wouldn't need to sell them for less than face value. Edit: this is actually a serious question, if someone knows the actual answer. I understand that ideally the government wouldn't want to hold onto the bonds, but is there any statutory (or other real) reason why they would _have_ to sell them at less than face value? If you could guarantee 100% of deposits could be returned by just holding onto the bonds until maturity, that seems like a worthwhile trade.

timr 4y ago

No, this isn't true. SVB has some unknown amount of cash and other assets on hand. We have no idea what that is right now, or what percentage this is of the shortfall. Someone will buy SVB, and they will put capital in as part of the purchase.

hnthrowaway0315 4y ago
I wonder if anyone has Bloomberg terminal access can take a look and check whether there are disruptions in MBS and its hedging tools.
- vitorsr 4y ago
  I have access to Refinitiv. I think it looks fine? https://workspace.refinitiv.com/web/cms/?pageId=mbshome https://workspace.refinitiv.com/web/cms/?pageId=mbshome
  - hnthrowaway0315 4y ago
    Thanks. Do not have an account but I get it.

hef19898 4y ago

MBS, as in Mortgage Backed Securities??? Those MBSs? Oh dear, I am having very serious flash backs now...

hnthrowaway0315 4y ago
IMHO MBS is not as evil as it sounds. After all stocks are backed by even more fragile things.
- fallingknife 4y ago
  Stocks aren't usually levered at more than 10:1, though. MBS are.
jcadam 4y ago
Time to re-watch The Big Short again.
kevinpet 4y ago
All men are mortal. My cat is mortal. Therefore my cat is a man. Not all mortgage backed securities are subprime CDO squareds.
makestuff 4y ago
Don't worry everyone pays their mortgage...right?

civicsquid 4y ago

Past losses aside, the press release says that there are about $180B in deposits with the bank holding about $210B in assets. Assuming the FDIC liquidates and restructures the bank, I don’t see why deposits could not be made whole. If there were fewer assets then deposits, then yes the 250k+ accounts are probably out of luck.

bentlegen 4y ago
Will those assets still be worth $210B as the days tick by? I'm not a macro financial analyst, but I have to imagine trying to liquidate $210B of bonds, stocks, etc. will cause at least some of that value to fall – that's a big number.
- nemothekid 4y ago
  If someone well capitalized buys the bank, then they don't need to liquidate. The bonds aren't worthless, they just trade much lower now that interest rates have risen, however if you can wait until they mature you will get your money + interest.
- vineyardmike 4y ago
  Once the FDIC kicks in they can sell off to a different bank which can absorb them without touching the open market. Alternatively the FDIC can guarantee the bank for the duration necessary to sell assets slowly. They could likely sell the bank as a whole to another bank if assets>liabilities without too much disruption.
oceanplexian 4y ago
The "assets" are actually held-to-maturity securities (bonds) that are yielding less than the risk free rate. Who would want to buy a bond that yields 2% when you can buy treasures that yield 4%. So while they might have $210B in paper assets but there's no chance they will be unable to unload them without taking a loss, putting the bank upside down.
- ok_dad 4y ago

kragen 4y ago

US$1.8B is 1% of SVB's deposits; a 1% haircut wouldn't be that bad i suspect the real number will be closer to 40% than 1%

sambull 4y ago

It's possible they'll socialize the losses on that for profit risk taking

Me1000 4y ago

Is there any reason the FDIC itself cant just hold onto the bonds until they mature? The federal government doesnt need liquidity the same way a bank does, they wouldn't need to sell them for less than face value. Edit: this is actually a serious question, if someone knows the actual answer. I understand that ideally the government wouldn't want to hold onto the bonds, but is there any statutory (or other real) reason why they would _have_ to sell them at less than face value? If you could guarantee 100% of deposits could be returned by just holding onto the bonds until maturity, that seems like a worthwhile trade.