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97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperat

97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.

throwntoday 4y ago
I believe the only ones SOL are SIVB shareholders. It's my understanding that SVB has enough to mostly cover their liabilities.
- MrMan 4y ago
  that's not true -by "mostly" do you mean 70 to 80%? losing 20% of your principal is a huge loss
  - throwntoday 4y ago
    Kind of a pedantic comment
  - petesergeant 4y ago
    > losing 20% of your principal is a huge loss losing 20% of your cash-on-hand, where that's above $250k. For most startups, that's going to be a haircut their investors take, where the founders can say "yeah, literally none of this was our fault". For mature, profitable businesses with recurring income, this is going to bite, but they haven't lost 20% of their customers or 20% of the amount of money they expect to get paid next month. For startups, where the money was investment, unlikely their investors are going to blame them for this loss. It might shorten runway by up to 20% for some pre-revenue startups, by less for startups with actual revenue.
bluepizza 4y ago
The FDIC threshold is a minimum guarantee. If they are able to negotiate assets into liquidity, they will be able to pay more than the minimum guarantee.
- DeepYogurt 4y ago
  so it sounds like a gamble on what brex expects that actual return to be
  - gpm 4y ago
    All lending is a gamble, but if they only lend 25% of what you have stored with SVB it's (approximately) a gamble that the FDIC will pay out more than 25c on the dollar. Which as lending goes is a pretty safe gamble.
  - toomuchtodo 4y ago
    It's a gamble not only on what's recoverable but also future lifetime value of newly acquired customers from this effort (remember, there are a bunch of ventures looking for a new bank now that their banking provider is gone). Public service meets rapidly evolving growth marketing campaign. Can't fault Brex, there is no downside to anyone except them (correction: it appears a third party is taking the credit risk per gpm, even better for Brex as they're simply facilitating the lending ops and aren't exposing themselves to the credit risk). Kudos.
    - gpm 4y ago
      > Can't fault Brex, there is no downside to anyone except them. Not actually clear who is taking the downside > This credit line is funded by 3rd-party capital (and not Brex directly)
  - tedivm 4y ago
    Brex isn't making the gamble, they're just managing it- > This credit line is funded by 3rd-party capital (and not Brex directly), who are working with Brex to minimize the impact of this event to the startup ecosystem. It sounds like a bunch of VCs are gambling on the return, while also knowing it helps stabilize the system that built (and likely holds, in some way or another) their wealth.
    - svnt 4y ago
gpm 4y ago
Yes, but the assets of the balance sheet exceed the liabilities by a reasonable percentage. The vast majority of what will be paid out won't be from the FDIC's funds, it will be from those assets.
- deleted 4y ago
  [deleted]
- mdorazio 4y ago
  Those assets cannot plausibly be sold for their currently stated value in the near-term. That's the whole reason SVB got into this mess...
  - twblalock 4y ago
    Right but that's why loans make sense. We know the assets are good quality but it will take time to liquidate them. Companies that can't wait for that to happen will benefit from taking a loan to buy themselves time.
    - readthenotes1 4y ago
      Yes it's a good quality but have they been marked to market recently? Mortgages at 3% aren't worth near as much as they used to be. Ditto treasuries at 1%. If they bought them near the peak value what they can actually sell the income streams for is going to be a lot less than what they paid.
      - twblalock 4y ago
        Yeah but they will get some money for them. Plus there might be some other options. The FDIC is going to try whatever they can, and it's only been a day. In the meantime, impacted account holders can get their IOUs and borrow money to make payroll.
- eek2121 4y ago
  Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to sell those assets to come up with that cash. SVB had to sell ALL of their notes for less than they bought them for. See #3. The losses by SVB were realized well before today. This has been going on for a while now. Outside of $250,000 per account type per person, the only additional money folks will get back is whatever a bank sale comes up with, which won't be as much as most folks think, since the core assets were already sold off. If I had to make an educated guess, most startups/investors will lose more than 50% of what they started with. Remember, high interest rates. SVB will NOT be sold at a good price. This is not a market for sellers, it is a market for buyers. Again, sky high interest rates and many of the very investors that could make that sale possible had money at this bank. That means a lower sale price.
joefigura 4y ago
Brex could offer loans up to 25% of the borrower's funds stuck in SVB. As long as depositors receive at least 25 cents on the dollar, the loans would be paid back in full, and the borrower would have gotten significant working capital in the interim. SVB's carcass still has significant assets, so Brex can set that % number based on what they know about SVB's state, to make the loans almost risk-free. I'm not a banker and have no idea if this is actually what Brex is offering. That public page doesn't discuss terms at all, which makes sense given the chaos. But there's certainly ways to structure these loans without much risk.
- beberlei 4y ago
  Loaning money to a startup in this economy is far from risk free. Companies can go bust regardless of getting a part of their cash back
  - mcherm 4y ago
    Loaning money to a risky borrower can be practically risk free if the borrower provides collateral. And the deposits in SVB are an excellent example of collateral. They are illiquid, but the funds are being held by the FDIC, which is highly reliable about (eventually) paying out (some portion, not necessarily the full amount).
ttsgeysygd 4y ago
Word is that 50% of assets already sold by FDIC. Which will allow a large chunk of each account to be unfrozen by Wed so companies can make payroll. FDIC is not fucking around. Hat tip to them. Balance to take 2-3 months. Will require an actual application and paperwork.
- dehrmann 4y ago
  > Hat tip to them Depends on the price they got for those assets.
  - arcticbull 4y ago
    Treasuries are the probably the single most liquid market on the face of the earth.
- eclipticplane 4y ago
  Where did you find the 50% number?
- fairity 4y ago
  Source?
  - deleted 4y ago
    [deleted]
anonu 4y ago
Is that number by account? By assets? By client? ROKU just announced they have close to have a billion in cash there. So 97 percent doesn't really indicate how many individuals are affected.
fnordpiglet 4y ago
SVB isn’t insolvent and has more assets than deposits. The FDIC move is meant to instill stability.
- MrMan 4y ago
  it is definitely insolvent
  - fnordpiglet 4y ago
    No, it’s not. It couldn’t liquidate assets fast enough to cover a run on the bank. But assets exceed liabilities substantially. What you’ll see is a line of credit issued that props up withdrawals as assets are liquidated until the bank stabilizes and it’ll reemerge under a new charter.
    - tekla 4y ago
      https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP... California has declared it insolvent. It literally by definition is now.
      - fnordpiglet 4y ago
        No, it’s not. SBV was unable to meet its obligations and was insolvent. Then the FDIC stepped in and a part of its function will be to ensure liquidity. So it’s is therefore not insolvent. The FDIC won’t take a loss so it may become insolvent again and might have to resort to insurance to make depositors partially whole. The fact that it has a) access to sufficient credit liquidity via governmental ownership b) assets to collateralize that credit means it isn’t insolvent any more. If they had secured emergency credit lines it would be still a private institution, but functionally that’s irrelevant if you have assets of functional business relationship with SVB. Beyond an operational delay as they reopen business next week it’s functionally a no-op. This stuff isn’t cut and dry, and it’s all complex, but I think the practical outcome of this is a big nothing burger for anyone but the principals of SVB.
paxys 4y ago
The money hasn't gone anywhere. It will be returned, whether today or a month from now.
walnutclosefarm 4y ago
I wonder though how big the risk is. SVB is, according to the business press, in trouble because they parked a large excess of deposits over loans in low interest rate US government debt. The mark to market value of that debt has fallen as interest rates have risen, but it's not like the bottom has fallen out. The bonds still retain 90+% of their value. Note that the capital hole SVB was trying to plug when the run started was that large relative to their deposits. If Brex is loaning a fraction of verified deposits, against the money those depositors will get back once a buyer is found for SVB, there shouldn't be that much risk. It's likely that depositors will get back most of their money - I don't think you'll see a fire sale, pennies on the dollar deal here.
trappist 4y ago
FTA: > This credit line is funded by 3rd-party capital (and not Brex directly), who are working with Brex to minimize the impact of this event to the startup ecosystem.
arcticbull 4y ago
Just because they exceed the FDIC threshold (i.e. they're over 250K) doesn't mean there's a lot of risk - it just means there's more than zero risk and you have to do some diligence. Those deposits are backed by the assets on the balance sheet at SVB. They went under because they ran out of liquidity, not because they're massively upside down or their assets are crap. Those assets are largely medium-duration treasuries (10Y IIRC). They will pay out face value as they mature (they are the definition of risk free), and the losses on their balance sheet being reported are marked to market. Assuming they have to sell them immediately - which they did have to in order to meet withdrawals. Now that the bank is in the FDICs hands, those medium-term treasuries need not be sold, and other liquidity options exist to make un-insured depositors mostly or entirely whole. One such option is just selling all accounts to a big guy like JPM, the way WaMu was handled in 2008. Or the FDIC can swap the treasuries for cash and since they have no time pressure, just wait until they mature.
banannaise 4y ago
> 97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? That's just a math problem. If you assume all deposits are at least 250K, you can get a floor for that number. If 97% of deposits exceeded threshold, then the average deposit is at least $8.3 million.

throwntoday 4y ago

I believe the only ones SOL are SIVB shareholders. It's my understanding that SVB has enough to mostly cover their liabilities.

MrMan 4y ago
that's not true -by "mostly" do you mean 70 to 80%? losing 20% of your principal is a huge loss
- throwntoday 4y ago
  Kind of a pedantic comment
- petesergeant 4y ago
  > losing 20% of your principal is a huge loss losing 20% of your cash-on-hand, where that's above $250k. For most startups, that's going to be a haircut their investors take, where the founders can say "yeah, literally none of this was our fault". For mature, profitable businesses with recurring income, this is going to bite, but they haven't lost 20% of their customers or 20% of the amount of money they expect to get paid next month. For startups, where the money was investment, unlikely their investors are going to blame them for this loss. It might shorten runway by up to 20% for some pre-revenue startups, by less for startups with actual revenue.

bluepizza 4y ago

The FDIC threshold is a minimum guarantee. If they are able to negotiate assets into liquidity, they will be able to pay more than the minimum guarantee.

DeepYogurt 4y ago
so it sounds like a gamble on what brex expects that actual return to be
- gpm 4y ago
  All lending is a gamble, but if they only lend 25% of what you have stored with SVB it's (approximately) a gamble that the FDIC will pay out more than 25c on the dollar. Which as lending goes is a pretty safe gamble.
- toomuchtodo 4y ago
  It's a gamble not only on what's recoverable but also future lifetime value of newly acquired customers from this effort (remember, there are a bunch of ventures looking for a new bank now that their banking provider is gone). Public service meets rapidly evolving growth marketing campaign. Can't fault Brex, there is no downside to anyone except them (correction: it appears a third party is taking the credit risk per gpm, even better for Brex as they're simply facilitating the lending ops and aren't exposing themselves to the credit risk). Kudos.
  - gpm 4y ago
    > Can't fault Brex, there is no downside to anyone except them. Not actually clear who is taking the downside > This credit line is funded by 3rd-party capital (and not Brex directly)
- tedivm 4y ago
  Brex isn't making the gamble, they're just managing it- > This credit line is funded by 3rd-party capital (and not Brex directly), who are working with Brex to minimize the impact of this event to the startup ecosystem. It sounds like a bunch of VCs are gambling on the return, while also knowing it helps stabilize the system that built (and likely holds, in some way or another) their wealth.
  - svnt 4y ago

gpm 4y ago

Yes, but the assets of the balance sheet exceed the liabilities by a reasonable percentage. The vast majority of what will be paid out won't be from the FDIC's funds, it will be from those assets.

deleted 4y ago
[deleted]
mdorazio 4y ago
Those assets cannot plausibly be sold for their currently stated value in the near-term. That's the whole reason SVB got into this mess...
- twblalock 4y ago
  Right but that's why loans make sense. We know the assets are good quality but it will take time to liquidate them. Companies that can't wait for that to happen will benefit from taking a loan to buy themselves time.
  - readthenotes1 4y ago
    Yes it's a good quality but have they been marked to market recently? Mortgages at 3% aren't worth near as much as they used to be. Ditto treasuries at 1%. If they bought them near the peak value what they can actually sell the income streams for is going to be a lot less than what they paid.
    - twblalock 4y ago
      Yeah but they will get some money for them. Plus there might be some other options. The FDIC is going to try whatever they can, and it's only been a day. In the meantime, impacted account holders can get their IOUs and borrow money to make payroll.
eek2121 4y ago
Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to sell those assets to come up with that cash. SVB had to sell ALL of their notes for less than they bought them for. See #3. The losses by SVB were realized well before today. This has been going on for a while now. Outside of $250,000 per account type per person, the only additional money folks will get back is whatever a bank sale comes up with, which won't be as much as most folks think, since the core assets were already sold off. If I had to make an educated guess, most startups/investors will lose more than 50% of what they started with. Remember, high interest rates. SVB will NOT be sold at a good price. This is not a market for sellers, it is a market for buyers. Again, sky high interest rates and many of the very investors that could make that sale possible had money at this bank. That means a lower sale price.

joefigura 4y ago

Brex could offer loans up to 25% of the borrower's funds stuck in SVB. As long as depositors receive at least 25 cents on the dollar, the loans would be paid back in full, and the borrower would have gotten significant working capital in the interim. SVB's carcass still has significant assets, so Brex can set that % number based on what they know about SVB's state, to make the loans almost risk-free. I'm not a banker and have no idea if this is actually what Brex is offering. That public page doesn't discuss terms at all, which makes sense given the chaos. But there's certainly ways to structure these loans without much risk.

beberlei 4y ago
Loaning money to a startup in this economy is far from risk free. Companies can go bust regardless of getting a part of their cash back
- mcherm 4y ago
  Loaning money to a risky borrower can be practically risk free if the borrower provides collateral. And the deposits in SVB are an excellent example of collateral. They are illiquid, but the funds are being held by the FDIC, which is highly reliable about (eventually) paying out (some portion, not necessarily the full amount).

ttsgeysygd 4y ago

Word is that 50% of assets already sold by FDIC. Which will allow a large chunk of each account to be unfrozen by Wed so companies can make payroll. FDIC is not fucking around. Hat tip to them. Balance to take 2-3 months. Will require an actual application and paperwork.

dehrmann 4y ago
> Hat tip to them Depends on the price they got for those assets.
- arcticbull 4y ago
  Treasuries are the probably the single most liquid market on the face of the earth.
eclipticplane 4y ago
Where did you find the 50% number?
fairity 4y ago
Source?
- deleted 4y ago
  [deleted]

anonu 4y ago

Is that number by account? By assets? By client? ROKU just announced they have close to have a billion in cash there. So 97 percent doesn't really indicate how many individuals are affected.

fnordpiglet 4y ago

SVB isn’t insolvent and has more assets than deposits. The FDIC move is meant to instill stability.

MrMan 4y ago
it is definitely insolvent
- fnordpiglet 4y ago
  No, it’s not. It couldn’t liquidate assets fast enough to cover a run on the bank. But assets exceed liabilities substantially. What you’ll see is a line of credit issued that props up withdrawals as assets are liquidated until the bank stabilizes and it’ll reemerge under a new charter.
  - tekla 4y ago
    https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP... California has declared it insolvent. It literally by definition is now.
    - fnordpiglet 4y ago
      No, it’s not. SBV was unable to meet its obligations and was insolvent. Then the FDIC stepped in and a part of its function will be to ensure liquidity. So it’s is therefore not insolvent. The FDIC won’t take a loss so it may become insolvent again and might have to resort to insurance to make depositors partially whole. The fact that it has a) access to sufficient credit liquidity via governmental ownership b) assets to collateralize that credit means it isn’t insolvent any more. If they had secured emergency credit lines it would be still a private institution, but functionally that’s irrelevant if you have assets of functional business relationship with SVB. Beyond an operational delay as they reopen business next week it’s functionally a no-op. This stuff isn’t cut and dry, and it’s all complex, but I think the practical outcome of this is a big nothing burger for anyone but the principals of SVB.

paxys 4y ago

The money hasn't gone anywhere. It will be returned, whether today or a month from now.

walnutclosefarm 4y ago

I wonder though how big the risk is. SVB is, according to the business press, in trouble because they parked a large excess of deposits over loans in low interest rate US government debt. The mark to market value of that debt has fallen as interest rates have risen, but it's not like the bottom has fallen out. The bonds still retain 90+% of their value. Note that the capital hole SVB was trying to plug when the run started was that large relative to their deposits. If Brex is loaning a fraction of verified deposits, against the money those depositors will get back once a buyer is found for SVB, there shouldn't be that much risk. It's likely that depositors will get back most of their money - I don't think you'll see a fire sale, pennies on the dollar deal here.

trappist 4y ago

FTA: > This credit line is funded by 3rd-party capital (and not Brex directly), who are working with Brex to minimize the impact of this event to the startup ecosystem.

arcticbull 4y ago

Just because they exceed the FDIC threshold (i.e. they're over 250K) doesn't mean there's a lot of risk - it just means there's more than zero risk and you have to do some diligence. Those deposits are backed by the assets on the balance sheet at SVB. They went under because they ran out of liquidity, not because they're massively upside down or their assets are crap. Those assets are largely medium-duration treasuries (10Y IIRC). They will pay out face value as they mature (they are the definition of risk free), and the losses on their balance sheet being reported are marked to market. Assuming they have to sell them immediately - which they did have to in order to meet withdrawals. Now that the bank is in the FDICs hands, those medium-term treasuries need not be sold, and other liquidity options exist to make un-insured depositors mostly or entirely whole. One such option is just selling all accounts to a big guy like JPM, the way WaMu was handled in 2008. Or the FDIC can swap the treasuries for cash and since they have no time pressure, just wait until they mature.

banannaise 4y ago

> 97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? That's just a math problem. If you assume all deposits are at least 250K, you can get a floor for that number. If 97% of deposits exceeded threshold, then the average deposit is at least $8.3 million.