5 ms·

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 u

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.

gpm 4y ago
Assume your guesstimate of 50% is right. If I lend you 25% of your SVB deposit secured against your SVB deposit, I should still be fine (as long as my claim comes early enough in any ensuing bankruptcy).
anonu 4y ago
Over exposed to US treasuries? I don't think anyone has put those words together before. It's like saying they were over exposed to cash. You're saying a bank run occurred because they had a duration mismatch on US government debt where maturities were less than 1 year. I don't buy that explanation at all...
- nostromo 4y ago
  Treasuries can and do lose value. They are not like cash which does not lose face value. Long term treasuries have declined 40% in value since they peaked in 2020. https://www.google.com/finance/quote/TLT:NASDAQ https://www.google.com/finance/quote/TLT:NASDAQ Banks hold a lot of treasuries as part of their capital requirements. So long as they intend to hold them to maturity, they don't have to mark them to market. Banks collectively hold about $620 billion in loses in held-to-maturity securities right now since they have declined rapidly in value during the Fed's interest rate hikes. https://www.aol.com/finance/why-silicon-valley-banks-crisis-121159758.html https://www.aol.com/finance/why-silicon-valley-banks-crisis-... If you can hold them to maturity, you're fine. If you need to sell them to raise cash (to cover other losses or during a bank run) those losses become real. And if your startup had $10m in cash in SVB, but now you find out you're only getting back, say, $7m, that's very bad news for your business.
  - arcticbull 4y ago
    > Treasuries can and do lose value. They are not like cash which does not lose face value. > Long term treasuries have declined 40% in value since they peaked in 2020. This is inaccurate. What you linked to (TLT) aren't bonds, these are bond funds. The way a bond ETF works is that they have a stack of bonds that track the benchmark interest rate. They periodically sell off their old bonds and buy new ones, they don't just sit on them and wait for them to mature. That means TLT's NAV goes down when interest rates go up because they're selling lower interest rate bonds, and buying higher interest rate bonds. Treasuries cannot lose value just like cash. They are as good as cash in almost every context. You can always sit on them until they mature and you'll get the full amount plus interest. You cannot lose money this way. Where you can lose money though is if you have to liquidate them sooner. Why would someone buy a 3% 30y treasury for $X from you when they can get a 4% 30y treasury from the source for the same price? You have to sweeten the deal by paying out the difference in rates. This is where you can lose money. SVBs issue was a mismatch in durations. They had too many demands for money out now, and too little available now. They have plenty of money coming in the future, but that's too late.
    - maximilianroos 4y ago
      A HN comment for the ages. Reply to two basically correct statements, make a claim that's completely false, and then — and here's the genius — say a bunch of true statements that come around to support the view you're disagreeing with!
      - deleted 4y ago
        [deleted]
    - deleted 4y ago
      [deleted]
    - cesarb 4y ago
      > Treasuries cannot lose value just like cash. They are as good as cash in almost every context. You can always sit on them until they mature and you'll get the full amount plus interest. You cannot lose money this way. Be careful with absolute statements like that. While it hasn't happened so far with USA treasuries, its equivalents in many countries have lost value in the past.
- rattray 4y ago
  It was t-bonds of 10y+ maturity
  - JackFr 4y ago
    T-Bills - 1w-1y T-Notes - 2y-10y T-Bonds - 20y-30y
- suresk 4y ago
  > Over exposed to US treasuries? I don't think anyone has put those words together before. Only if your definition of risk is limited to default risk. It looks like a lot of their holdings were in MBS and a lot of the treasuries were recently sold at losses (which necessitated raising capital, which appears to have set this whole thing off), but there is no reason this couldn't have happened if they only held treasuries anyway.
- eddsh1994 4y ago
  Maturities were greater than > 1 year. It's been broken down pretty nicely on twitter by some of the larger VC partners.
- Dylan16807 4y ago
  Let's say you're a bank. You have $1B in deposits. You use it to buy bonds that will be worth $1.1B in 2030. All good so far. Then the government starts selling those bonds a lot cheaper. To buy the same bonds you have today would only cost $900k. Even though the 2030 value of those bonds is the same, the 2023 value just plummeted. (And they will gain more per day to eventually make up the difference.) When your customers demand their money, you have to give them 2023 dollars. A bond that you can redeem early has the safety of cash here. A bond that you can't redeem early does not.
  - deleted 4y ago
    [deleted]
  - startupsfail 4y ago
    There could be a bailout though. A massive fire in Silicon Valley caused by the Fed tweaking interest rates doesn’t look like a good thing, so we’ll likely see a fire brigade coming along and pouring some money in.
    - rnk 4y ago
      I really hope it's not the fed though, or any federal authorities. They shouldn't invent a new higher level of FDIC protection. They should allow losses here even if they want to do that. Just covering all of the losses which of course they could do, that's a bad precedent.
      - startupsfail 4y ago
        They’ve stepped in, so they should attempt to manage the thing to maximize the wealth generation long term. This is not a zero-sum game.
fnordpiglet 4y ago
This is materially false. The issue was with their MBS holdings in their HTM book. Treasuries are so liquid institutions never hold them like that. MBS are not.
IG_Semmelweiss 4y ago
I agree with your assesment but the impairment in those long maturity assets were not 50% to begin with, so the realized losses couldn't be as high. Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better). Remember this is highly liquid assets. Not some exotic stuff. Its a big loss, but not 50% Brex's offer is collaterized up to 25 cents per dollar. SO, unless SVB lost huge money elsewhere, there's no way SVB lost > 75% mostly off their MBS portfolio (or other assets, for that matter).
- gpm 4y ago
  > Brex's offer is collaterized up to 25 cents per dollar. Do you know this? That's a number I (and some other posters) pulled out of a hat as a reasonable thing to do, but I don't think any of us had any sources for it?
  - IG_Semmelweiss 4y ago
    im sorry, im just repeating what was said. i dont know it. i misunderstood that item to be a fact
- mlyle 4y ago
  > Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better). Depends upon how much was liquidated and already went to paying out fleeing customers at 100% of deposits. The average haircut could be 30%, but late to move depositors could have it worse (this is why you participate in a run on the bank).

gpm 4y ago

Assume your guesstimate of 50% is right. If I lend you 25% of your SVB deposit secured against your SVB deposit, I should still be fine (as long as my claim comes early enough in any ensuing bankruptcy).

anonu 4y ago

Over exposed to US treasuries? I don't think anyone has put those words together before. It's like saying they were over exposed to cash. You're saying a bank run occurred because they had a duration mismatch on US government debt where maturities were less than 1 year. I don't buy that explanation at all...

nostromo 4y ago
Treasuries can and do lose value. They are not like cash which does not lose face value. Long term treasuries have declined 40% in value since they peaked in 2020. https://www.google.com/finance/quote/TLT:NASDAQ https://www.google.com/finance/quote/TLT:NASDAQ Banks hold a lot of treasuries as part of their capital requirements. So long as they intend to hold them to maturity, they don't have to mark them to market. Banks collectively hold about $620 billion in loses in held-to-maturity securities right now since they have declined rapidly in value during the Fed's interest rate hikes. https://www.aol.com/finance/why-silicon-valley-banks-crisis-121159758.html https://www.aol.com/finance/why-silicon-valley-banks-crisis-... If you can hold them to maturity, you're fine. If you need to sell them to raise cash (to cover other losses or during a bank run) those losses become real. And if your startup had $10m in cash in SVB, but now you find out you're only getting back, say, $7m, that's very bad news for your business.
- arcticbull 4y ago
  > Treasuries can and do lose value. They are not like cash which does not lose face value. > Long term treasuries have declined 40% in value since they peaked in 2020. This is inaccurate. What you linked to (TLT) aren't bonds, these are bond funds. The way a bond ETF works is that they have a stack of bonds that track the benchmark interest rate. They periodically sell off their old bonds and buy new ones, they don't just sit on them and wait for them to mature. That means TLT's NAV goes down when interest rates go up because they're selling lower interest rate bonds, and buying higher interest rate bonds. Treasuries cannot lose value just like cash. They are as good as cash in almost every context. You can always sit on them until they mature and you'll get the full amount plus interest. You cannot lose money this way. Where you can lose money though is if you have to liquidate them sooner. Why would someone buy a 3% 30y treasury for $X from you when they can get a 4% 30y treasury from the source for the same price? You have to sweeten the deal by paying out the difference in rates. This is where you can lose money. SVBs issue was a mismatch in durations. They had too many demands for money out now, and too little available now. They have plenty of money coming in the future, but that's too late.
  - maximilianroos 4y ago
    A HN comment for the ages. Reply to two basically correct statements, make a claim that's completely false, and then — and here's the genius — say a bunch of true statements that come around to support the view you're disagreeing with!
    - deleted 4y ago
      [deleted]
  - deleted 4y ago
    [deleted]
  - cesarb 4y ago
    > Treasuries cannot lose value just like cash. They are as good as cash in almost every context. You can always sit on them until they mature and you'll get the full amount plus interest. You cannot lose money this way. Be careful with absolute statements like that. While it hasn't happened so far with USA treasuries, its equivalents in many countries have lost value in the past.
rattray 4y ago
It was t-bonds of 10y+ maturity
- JackFr 4y ago
  T-Bills - 1w-1y T-Notes - 2y-10y T-Bonds - 20y-30y
suresk 4y ago
> Over exposed to US treasuries? I don't think anyone has put those words together before. Only if your definition of risk is limited to default risk. It looks like a lot of their holdings were in MBS and a lot of the treasuries were recently sold at losses (which necessitated raising capital, which appears to have set this whole thing off), but there is no reason this couldn't have happened if they only held treasuries anyway.
eddsh1994 4y ago
Maturities were greater than > 1 year. It's been broken down pretty nicely on twitter by some of the larger VC partners.
Dylan16807 4y ago
Let's say you're a bank. You have $1B in deposits. You use it to buy bonds that will be worth $1.1B in 2030. All good so far. Then the government starts selling those bonds a lot cheaper. To buy the same bonds you have today would only cost $900k. Even though the 2030 value of those bonds is the same, the 2023 value just plummeted. (And they will gain more per day to eventually make up the difference.) When your customers demand their money, you have to give them 2023 dollars. A bond that you can redeem early has the safety of cash here. A bond that you can't redeem early does not.
- deleted 4y ago
  [deleted]
- startupsfail 4y ago
  There could be a bailout though. A massive fire in Silicon Valley caused by the Fed tweaking interest rates doesn’t look like a good thing, so we’ll likely see a fire brigade coming along and pouring some money in.
  - rnk 4y ago
    I really hope it's not the fed though, or any federal authorities. They shouldn't invent a new higher level of FDIC protection. They should allow losses here even if they want to do that. Just covering all of the losses which of course they could do, that's a bad precedent.
    - startupsfail 4y ago
      They’ve stepped in, so they should attempt to manage the thing to maximize the wealth generation long term. This is not a zero-sum game.

fnordpiglet 4y ago

This is materially false. The issue was with their MBS holdings in their HTM book. Treasuries are so liquid institutions never hold them like that. MBS are not.

IG_Semmelweiss 4y ago

I agree with your assesment but the impairment in those long maturity assets were not 50% to begin with, so the realized losses couldn't be as high. Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better). Remember this is highly liquid assets. Not some exotic stuff. Its a big loss, but not 50% Brex's offer is collaterized up to 25 cents per dollar. SO, unless SVB lost huge money elsewhere, there's no way SVB lost > 75% mostly off their MBS portfolio (or other assets, for that matter).

gpm 4y ago
> Brex's offer is collaterized up to 25 cents per dollar. Do you know this? That's a number I (and some other posters) pulled out of a hat as a reasonable thing to do, but I don't think any of us had any sources for it?
- IG_Semmelweiss 4y ago
  im sorry, im just repeating what was said. i dont know it. i misunderstood that item to be a fact
mlyle 4y ago
> Back of the napkin, take the 10yr and 30 yr spot prices today for issues from 1-2 years ago, and that's your max haircut. I believe some are trading at 70 cents , so we are talking about 30%. And that's worst case (not all assets would have sold at that price, but better). Depends upon how much was liquidated and already went to paying out fleeing customers at 100% of deposits. The average haircut could be 30%, but late to move depositors could have it worse (this is why you participate in a run on the bank).