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It’s bailing out the depositors, not the bank itself. But I get your sentiment. Worth noting though that based on what I’ve read, the bank has plenty of assets

It’s bailing out the depositors, not the bank itself. But I get your sentiment. Worth noting though that based on what I’ve read, the bank has plenty of assets to repay depositors… the issue is just that these assets aren’t super liquid. So if there was some form of bailout, it would be more of a bridge loan type deal than a true bailout assuming I understand the situation.

greenthrow 4y ago
Your understanding does not fit with the article or anything else I read, which indicates there is a hole in their assets.
- eightysixfour 4y ago
  They’re confusing cause and the current situation. The cause was not a joke in the balance sheet, it was a liquidity crisis, SVB created a hole by taking a haircut on the illiquid assets to try and keep the house of cards up. Few of the explainers are covering both parts of this.
  - cperciva 4y ago
    The long-duration bonds in question were plenty liquid. The problem is that SVB couldn't sell them without realizing losses -- and because they were listed as "held to maturity" on SVB's balance sheet, SVB had been hiding those losses to give a false appearance of solvency.
    - eightysixfour 4y ago
      Liquidity at a substantial loss on a long term maturity that would otherwise pay out as predicted is practically illiquid for a bank. This was a liquidity crisis (bank run) which sparked a solvency issue, not a solvency issue.
      - caddemon 4y ago
        The bond isn't really paying out as predicted though. If they knew interest rates would go up so much they never would have bought those bonds to begin with. It's not the same as something that would pay out above (or at least ~ at) baseline if they could survive long enough. Imagine if they put 100% of their deposits in these bonds, they would not be able to raise the interest rates they pay out above like 1.5% for the next 10 years, because they're stuck with their own long term investment. When other banks start offering a better interest rate on savings, of course people will want to withdraw. So even if they are solvent by definition this is not the same thing as a liquidity crisis that results from an inability to sell a large amount of something in a short time, potentially something that is difficult to sell. It's not the amount or the weirdness of the asset here, it's the price they are locked into, the same way that anyone trying to sell any amount of this right now would be taking a loss if they bought in 2021. And it's not like the price is some irrational situation like GameStop, it's a natural consequence of the interest rates. I don't see how this wasn't a predictably risky trade regardless of the VC panic factor. They put 40% of their deposits into a long term bet that interest rates wouldn't go up.
      - cperciva 4y ago
        The bonds themselves were liquid. The bank didn't want to liquidate them, but that doesn't mean that they weren't liquid. This was a liquidity crisis (bank run) which sparked a solvency issue, not a solvency issue. No. SVB had liabilities significantly in excess of the value of their assets. They were, by definition, balance sheet insolvent. The "hold to maturity" accounting practice made it legal for them to pretend that the value of their long term bonds hadn't changed, but that's just an accounting figleaf; the actual value of those bonds had factually dropped.
dheera 4y ago
Yes but the depositors of SVB are almost all corporations (mostly tech startups), that can ethically be left to die, whereas individuals have rent to pay and families to feed. I can see where this sentiment comes from if their income taxes are being used to bail out corporations. At the same time the flip side of this is that many of those startups aren't profitable and in the absence of a FDIC bailout, those startups' employees (who are typically not paid that well to begin with) may not get their next paycheck and thus it still is directly impacting individuals and families.
- sneak 4y ago
  Corporations are legal fictions. It's just a liability boundary. They are ultimately comprised solely of human beings.
- nemothekid 4y ago
  FDIC insurance does not come from taxes.
  - Scoundreller 4y ago
    You don’t think the fdic would get bailed out if it failed? We’ve bailed out much dumber/less worthy before.
SkyPuncher 4y ago
> the issue is just that these assets aren’t super liquid. Yep. To me it seems like one of the monster banks will gladly pick this up. They can handle the short term liquidity then cash out massively on the long term investments.

greenthrow 4y ago

Your understanding does not fit with the article or anything else I read, which indicates there is a hole in their assets.

eightysixfour 4y ago
They’re confusing cause and the current situation. The cause was not a joke in the balance sheet, it was a liquidity crisis, SVB created a hole by taking a haircut on the illiquid assets to try and keep the house of cards up. Few of the explainers are covering both parts of this.
- cperciva 4y ago
  The long-duration bonds in question were plenty liquid. The problem is that SVB couldn't sell them without realizing losses -- and because they were listed as "held to maturity" on SVB's balance sheet, SVB had been hiding those losses to give a false appearance of solvency.
  - eightysixfour 4y ago
    Liquidity at a substantial loss on a long term maturity that would otherwise pay out as predicted is practically illiquid for a bank. This was a liquidity crisis (bank run) which sparked a solvency issue, not a solvency issue.
    - caddemon 4y ago
      The bond isn't really paying out as predicted though. If they knew interest rates would go up so much they never would have bought those bonds to begin with. It's not the same as something that would pay out above (or at least ~ at) baseline if they could survive long enough. Imagine if they put 100% of their deposits in these bonds, they would not be able to raise the interest rates they pay out above like 1.5% for the next 10 years, because they're stuck with their own long term investment. When other banks start offering a better interest rate on savings, of course people will want to withdraw. So even if they are solvent by definition this is not the same thing as a liquidity crisis that results from an inability to sell a large amount of something in a short time, potentially something that is difficult to sell. It's not the amount or the weirdness of the asset here, it's the price they are locked into, the same way that anyone trying to sell any amount of this right now would be taking a loss if they bought in 2021. And it's not like the price is some irrational situation like GameStop, it's a natural consequence of the interest rates. I don't see how this wasn't a predictably risky trade regardless of the VC panic factor. They put 40% of their deposits into a long term bet that interest rates wouldn't go up.
    - cperciva 4y ago
      The bonds themselves were liquid. The bank didn't want to liquidate them, but that doesn't mean that they weren't liquid. This was a liquidity crisis (bank run) which sparked a solvency issue, not a solvency issue. No. SVB had liabilities significantly in excess of the value of their assets. They were, by definition, balance sheet insolvent. The "hold to maturity" accounting practice made it legal for them to pretend that the value of their long term bonds hadn't changed, but that's just an accounting figleaf; the actual value of those bonds had factually dropped.

dheera 4y ago

Yes but the depositors of SVB are almost all corporations (mostly tech startups), that can ethically be left to die, whereas individuals have rent to pay and families to feed. I can see where this sentiment comes from if their income taxes are being used to bail out corporations. At the same time the flip side of this is that many of those startups aren't profitable and in the absence of a FDIC bailout, those startups' employees (who are typically not paid that well to begin with) may not get their next paycheck and thus it still is directly impacting individuals and families.

sneak 4y ago
Corporations are legal fictions. It's just a liability boundary. They are ultimately comprised solely of human beings.
nemothekid 4y ago
FDIC insurance does not come from taxes.
- Scoundreller 4y ago
  You don’t think the fdic would get bailed out if it failed? We’ve bailed out much dumber/less worthy before.

SkyPuncher 4y ago

> the issue is just that these assets aren’t super liquid. Yep. To me it seems like one of the monster banks will gladly pick this up. They can handle the short term liquidity then cash out massively on the long term investments.