3 ms·

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.

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.
    - deleted 4y ago
      [deleted]

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.
  - deleted 4y ago
    [deleted]