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All true, but they have a $60b debt facility to draw down on before they'd consider liquidating their HTM bond portfolio. Given that they have $120b in uninsur

All true, but they have a $60b debt facility to draw down on before they'd consider liquidating their HTM bond portfolio. Given that they have $120b in uninsured deposits diversified across a disparate client portfolio, it seems like they're truly in a much stronger position than SVB. I feel like a very likely outcome on Monday is that the FDIC announces a buyer, SVB depositors realize they're going to be made whole, and all the panic subsides.

dannyw 4y ago
SVB was only able to borrow $15B from their FHLB debt facility, before they got cut off. The FHLB total capacity is ~$60 billion. Is First Republic stating actual numbers they are guaranteed to have access to? Their shareholders are already panic selling (FRC down 36%), their bonds appear to be sinking, and few private parties wants to throw good money after bad. When you have to put out an emergency statement to reassure everyone of your creditworthiness, it's already gone. I do agree that First Republic is in a much better situation relatively to SVB, but illiquidity and insolvency risk is real. I don't really see a reason why any business or individual with more than $250K shouldn't be wiring funds out ASAP, unless you're feeling extra charitable and want to be the bail-in to those who run before you. There is nothing to lose, other than setting up new accounts.
- zzleeper 4y ago
  Off-topic but it really BAFFLES me why people don't pay more attention to FHLBs. It's like we don't learned anything from the last 10 crises...
  - colechristensen 4y ago
    Everybody got bailed and and essentially nobody went to jail. Of course no lessons were learned. SVB though sounds like nobody should go to jail it was just really bad investment decisions.
    - WatchDog 4y ago
      The CEO of SVB sold $3.6 million of stock a couple of weeks ago. I’m sure the SEC will have some questions about that. https://fortune.com/2023/03/10/silicon-valley-bank-ceo-greg-becker-3-6-million-stock-sale/ https://fortune.com/2023/03/10/silicon-valley-bank-ceo-greg-...
      - mortehu 4y ago
        Based purely on the amount and timing, it looks pretty typical for him compared to the last 20 years: https://www.secform4.com/insider-trading/1259867.htm https://www.secform4.com/insider-trading/1259867.htm
- WanderPanda 4y ago
  Can't they claim the money back if you withdrew shortly before the insolvency anyways?
  - ok_dad 4y ago
    Sure but that takes time. Time that you have to spend that money as quickly as possible on valid business expenses in order to be indemnified from the claw back.
hdhddhshhshd 4y ago
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ramesh31 4y ago
>I feel like a very likely outcome on Monday is that the FDIC announces a buyer, SVB depositors realize they're going to be made whole, and all the panic subsides. Everyone saying "they will be made whole" is completely missing the fact that money has a time value. There's nothing "made whole" about getting access to your money weeks or months from now.
- colechristensen 4y ago
  A likely outcome is everyone is going to be made whole on Monday. The feds will find a buyer to take on the deposit accounts and people are going to wake up consumers of Goldman or whomever instead of SVB. Look at history and for example what happened to WaMu. It was literally one day.
  - lordnacho 4y ago
    I agree this seems very likely. A bunch of people will be having interesting phone calls this weekend, but it's the weekend and it's pretty useful. Then again last time I thought this I had a contact text me joking he was preparing to learn Korean because his bank was probably going to get bought by Koreans. Seemed like it was just a matter of time to wait until Monday to see what the higher ups had decided. You can guess where this contact was working. Until that Monday.
- jgalt212 4y ago
  > missing the fact that money has a time value You mean like Roku, who was keeping $500MM at a depository institution instead of in T-bills or a money market fund.
amluto 4y ago
Unless I’ve misunderstood, the FHLB credit lines charge about the interest rates you would expect. For example: https://www.fhlbboston.com/fhlbank-boston/rates#/long-term https://www.fhlbboston.com/fhlbank-boston/rates#/long-term If a bank’s portfolio of long-term fixed income instruments has a mark to market value that is $27bn less than their hold-to-maturity value, and the bank borrows $27bn at market rates to cover the shortfall, they will pay approximately, wait for it, $27bn (present value) in net interest while waiting for maturity to happen. If the bank can manage to borrow the money in the form of non-interest-bearing deposits for the entire term of these instruments, then, sure, they’ll end up okay, because they will effectively make enough money on these deposits to cover their losses. But the whole industry of non-interest-bearing deposits is a bit odd. When interest rates are around 2% and banks are offering maybe 0.75% interest, it may not be worth their clients’ time to try to earn interest. But when FDIC-insured banks are paying 3-4.5%, convincing a client to keep holding $2M in a non-interest-bearing account instead of spending an hour a week shuffling assets between checking and savings is a much harder sell, and much of those $27bn of required profits may well end up in the pockets of a bank’s customers. Which makes the effective value of the bank’s equity look bad, and maybe negative, and the bank may be toast. Put another way, if you are actually insolvent, credit at market rates cannot make you solvent unless you have some other source of profit.

dannyw 4y ago

SVB was only able to borrow $15B from their FHLB debt facility, before they got cut off. The FHLB total capacity is ~$60 billion. Is First Republic stating actual numbers they are guaranteed to have access to? Their shareholders are already panic selling (FRC down 36%), their bonds appear to be sinking, and few private parties wants to throw good money after bad. When you have to put out an emergency statement to reassure everyone of your creditworthiness, it's already gone. I do agree that First Republic is in a much better situation relatively to SVB, but illiquidity and insolvency risk is real. I don't really see a reason why any business or individual with more than $250K shouldn't be wiring funds out ASAP, unless you're feeling extra charitable and want to be the bail-in to those who run before you. There is nothing to lose, other than setting up new accounts.

zzleeper 4y ago
Off-topic but it really BAFFLES me why people don't pay more attention to FHLBs. It's like we don't learned anything from the last 10 crises...
- colechristensen 4y ago
  Everybody got bailed and and essentially nobody went to jail. Of course no lessons were learned. SVB though sounds like nobody should go to jail it was just really bad investment decisions.
  - WatchDog 4y ago
    The CEO of SVB sold $3.6 million of stock a couple of weeks ago. I’m sure the SEC will have some questions about that. https://fortune.com/2023/03/10/silicon-valley-bank-ceo-greg-becker-3-6-million-stock-sale/ https://fortune.com/2023/03/10/silicon-valley-bank-ceo-greg-...
    - mortehu 4y ago
      Based purely on the amount and timing, it looks pretty typical for him compared to the last 20 years: https://www.secform4.com/insider-trading/1259867.htm https://www.secform4.com/insider-trading/1259867.htm
WanderPanda 4y ago
Can't they claim the money back if you withdrew shortly before the insolvency anyways?
- ok_dad 4y ago
  Sure but that takes time. Time that you have to spend that money as quickly as possible on valid business expenses in order to be indemnified from the claw back.

hdhddhshhshd 4y ago

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ramesh31 4y ago

>I feel like a very likely outcome on Monday is that the FDIC announces a buyer, SVB depositors realize they're going to be made whole, and all the panic subsides. Everyone saying "they will be made whole" is completely missing the fact that money has a time value. There's nothing "made whole" about getting access to your money weeks or months from now.

colechristensen 4y ago
A likely outcome is everyone is going to be made whole on Monday. The feds will find a buyer to take on the deposit accounts and people are going to wake up consumers of Goldman or whomever instead of SVB. Look at history and for example what happened to WaMu. It was literally one day.
- lordnacho 4y ago
  I agree this seems very likely. A bunch of people will be having interesting phone calls this weekend, but it's the weekend and it's pretty useful. Then again last time I thought this I had a contact text me joking he was preparing to learn Korean because his bank was probably going to get bought by Koreans. Seemed like it was just a matter of time to wait until Monday to see what the higher ups had decided. You can guess where this contact was working. Until that Monday.
jgalt212 4y ago
> missing the fact that money has a time value You mean like Roku, who was keeping $500MM at a depository institution instead of in T-bills or a money market fund.

amluto 4y ago

Unless I’ve misunderstood, the FHLB credit lines charge about the interest rates you would expect. For example: https://www.fhlbboston.com/fhlbank-boston/rates#/long-term https://www.fhlbboston.com/fhlbank-boston/rates#/long-term If a bank’s portfolio of long-term fixed income instruments has a mark to market value that is $27bn less than their hold-to-maturity value, and the bank borrows $27bn at market rates to cover the shortfall, they will pay approximately, wait for it, $27bn (present value) in net interest while waiting for maturity to happen. If the bank can manage to borrow the money in the form of non-interest-bearing deposits for the entire term of these instruments, then, sure, they’ll end up okay, because they will effectively make enough money on these deposits to cover their losses. But the whole industry of non-interest-bearing deposits is a bit odd. When interest rates are around 2% and banks are offering maybe 0.75% interest, it may not be worth their clients’ time to try to earn interest. But when FDIC-insured banks are paying 3-4.5%, convincing a client to keep holding $2M in a non-interest-bearing account instead of spending an hour a week shuffling assets between checking and savings is a much harder sell, and much of those $27bn of required profits may well end up in the pockets of a bank’s customers. Which makes the effective value of the bank’s equity look bad, and maybe negative, and the bank may be toast. Put another way, if you are actually insolvent, credit at market rates cannot make you solvent unless you have some other source of profit.