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SVB is basically solvent and had a panic bank run. It should be pretty low risk to offer startups credit collateralized against their SVB deposits.
by ummonk 4y ago
SVB is basically solvent and had a panic bank run. It should be pretty low risk to offer startups credit collateralized against their SVB deposits.
- Blackthorn 4y agoSolvent how? Their 80 billion of 10 year MBS's are sitting on a tremendous loss.
- Yrlec 4y agoJust hold the bond to maturity.
- ivalm 4y agoBut that’s not an option if you have to pay out now.
- hackernewds 4y agoThat's a liquidity crisis
- ummonk 4y agoIt's insolvency if the current market value (not the hold to maturity value) of the assets is less than the liability. As far as I can tell though, SVB was solvent despite its losses, and just needed to raise money to cover reserve requirements after it realized the losses. What did it under was a lack of liquidity after everyone panicked and did a run on the bank, with 45 billion (out of ~175 billion in deposits) in withdrawals overnight.
- user_named 4y agoThere's no reserve requirements
- ivalm 4y agoIt started as a liquidity crisis (do they had to start selling or raise capital), it turned into a solvency crisis (they had to sell even more therefore marking assets as available for sale which made them marked to market). Right now SVB, if fully liquidated, cannot repay all of the deposits.
- zarzavat 4y agoLet’s say I owe $100. If I have assets worth $110 today but they are locked up, and I have to pay back what I owe today, then I’m facing a liquidity crisis. If I have assets worth $90 today, but $110 in a few years, and I have to pay back the money I owe in a few years, then I’m solvent and everything is good. If I have assets worth $90 today, but $110 in a few years, and I have to pay back what I owe today then I’m insolvent.
- Blackthorn 4y agoPeople aren't waiting ten years for their money.
- Aeolun 4y agoI’m inclined to say they will if it guarantees they get it back.
- gruez 4y agoBut a dollar in 10 years is worth less than a dollar today. In either case the result is the same: you take a haircut on the present value of your deposits.
- flangola7 4y agoNo but $1 in ten years will be worth more than $0.50 today.
- Blackthorn 4y agoSpecifically, it's worth about $0.65 today.
- bryfb 4y agoA $100 in 10 years is just not worth $100 today in the current interest rate environment.
- gpm 4y ago> As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. Per the FDIC
- bryfb 4y agoI thought the follwoing was an interesting analysis: Aside from the fact that those assets don't seem to be valued at the current price (i.e. are marked at cost basis, not market,) much of it is already pledged as collateral. https://twitter.com/FedGuy12/status/1634031134505066496 https://twitter.com/FedGuy12/status/1634031134505066496
- ummonk 4y agoThey had 45 billion in withdrawals before they ran out of liquidity and were taken over by FDIC, so that analysis would appear to be incorrect, since it implied they only had 80-55 = 25 billion of liquidity available.
- bryfb 4y agoI think the wording in the FDIC order was that customers were "initiating 42bn of withdrawals."[0] Doesn't mean those went through (in fact many from what I heard didn't.) Still certainly very possible that the analysis is incorrect. [0] https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf?emrc=bedc09 https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...
- ummonk 4y agoAh yeah you're correct good catch.
- deleted 4y ago[deleted]
- SirensOfTitan 4y agoFrom what I understand, the assets were allowed to be on the books at face value, under the assumption they would be held to maturity, but they're worth significantly less on the open market.
- ivalm 4y agoNo, SVB was solvent as long as their assets didn’t have to marked to market, once there was a bank run they became insolvent. If the SVB assets are liquidated they will not cover the deposits.
- hackernewds 4y agoThat's a liquidity crisis, not insolvency. They were invested in long term maturity US treasuries! The safest asset there is (arguably)
- readthenotes1 4y agoThe income from them is safe, but the value of them is not. Same with their mortgage-backed securities.
- JumpCrisscross 4y ago> a liquidity crisis, not insolvency Ish. On a mark-to-market basis they had insufficient reserves. That's closer to insolvency than illiquidity. The mismanaged duration is closer to illiquidity. But not of the sort a lender of last resort could save them from.
- dwater 4y agoAll they had to do was freeze withdrawals for 10 years and it all would have worked out fine.
- doubleunplussed 4y agoRight. But that is exactly the distinction between being illiquid and being insolvent.
- OJFord 4y agoNo it isn't? Not having access to enough quickly enough is a liquidity crisis; not having enough even when it is all liquidated is insolvency.
- 4y ago
- eek2121 4y agolet's say you have an emergency fund of 6x your monthly earnings. Instead of holding that in cash, you put that money into US treasuries at a price of 1:1. When yields rise, prices fall. Remember that. Now let's say you need to access that emergency fund, and the amount you need is 90% of it. However, what you've found is that treasury prices have fallen so far, your investment is now only worth 50% of what it was before unless you hold it for another 5 years. If you don't sell now, you will be homeless. If you do sell now, you buy a bit of time and can possibly get a loan, and barring that, you will be homeless. That is what happened to SVB.
- ummonk 4y agoI understand how they ended up with losses, having bought long duration securities at the top. I'm saying they were still solvent despite the losses. They just weren't liquid.
- mbreese 4y agoSolvent relative to the maturity date on the bonds though, right? If you need a closer date (because you need to fulfill customer cash flow requests), then solvent plus illiquid can become insolvent quickly.
- ummonk 4y agoNo I think more likely than not it's outright solvent if you look at current market value of the bonds. We'll find out by Monday whether it has been acquired or not.