5 ms·

> Depositors are definitely taking a haircut on this one That's not clear at all and many people disagree with you.

koolba 4y ago
Money doesn’t magically appear out of nowhere. SVB does not have assets on its books to pay its short term liabilities. Unless a government agency swoops in to bail out the difference between their short term liabilities and the net present value of their long term assets, somebody is going to be taking a haircut. The equity of the bank itself isn’t enough to cover the losses so it’s going to be depositors.
- polio 4y ago
  What if the FDIC or someone pays all depositors and then takes over the long-term bond portfolio, intending to hold to maturity?
  - koolba 4y ago
    That’s an example of someone swooping in to save the day. Whoever does that would not do it for free as the SVB bond portfolio is worth less than the same bonds bought today (rates go up, bond prices go down). No private party is going to hand over billions of dollars for free so either the Feds do it or nobody does.
    - throwntoday 4y ago
      These startups are kind of the backbone of the tech economy, you'd think this would be a case where the government says "too big to fail" again.
      - koolba 4y ago
        When the alternative is going to be handing over stablecoin market dominance to unregulatable foreign entity, it’s not out of question that the government would step in to stabilize the USDC stablecoin market.
  - Tan_MSJ 4y ago
    Why would they? their long term treasury bills are yielding almost 0% interest rate and current rate is closer to 6%. Ergo, no one is going to buy an out of the money long term asset at par when current yield is significantly higher. No sane rational person would do that.
  - slv77 4y ago
    No private institutions with hard cash are going to be willing to take the portfolio because of the opportunity cost of investing that money at higher rates of returns. Any institutions that would need to borrow to buy the portfolio would need to borrow at higher interest rates and earn lower rates generating a loss each month. There is now way to take the portfolio without a discount and not have a loss. If there was a way out of this without a loss the bank wouldn’t be insolvent (bankrupt).
mixdup 4y ago
I'm happy for them, I guess. Of course I could be wrong, but given the evidence I don't think I will be. More power to the VCs and everyone else if they get their money back. But, if they were going to find a buyer they probably would've found one already. They certainly will either have to have one before the open on Monday or it's not happening. The assets of the bank become more and more toxic as time goes on (this happened with Lehman Brothers) and if someone swoops in today, on Saturday, then it's not too bad. But if it sits a week and no one wants to buy it, if someone buys it next Saturday now that bank looks like a fool and people are going to question the deal If they don't have a buyer, depositors are taking a haircut. Maybe they will get 100% of their money back in actual dollars, but they will lose via time--the FDIC will either liquidate the assets or let them mature. If they liquidate, they will take an immediate loss. If they wait for them to mature, then sure in 10 years everyone gets their money but Time value of Money is a thing and being made whole 10 years from now is not being made whole
- sithlord 4y ago
  would be interested in knowing if the us gov just buys the assets, since at the end of the day, (longer term) there seems to be a pretty good guarantee of getting it all back (minus time value of money)
  - mixdup 4y ago
    I don't think that's likely. Other stats I've seen indicate over the past decade or two, uninsured depositors have been paid something like 75 cents on the dollar on their uninsured accounts. This would indicate the FDIC, if they don't find someone to buy the bank and make everyone whole, will liquidate the assets and pay out the accounts over a pretty short term
    - pishpash 4y ago
      That was before QE. What's some bonds to the Fed when they are the kind it would buy for its own balance sheet anyway? The issue is, one, they are in QT right now; two, buying isn't enough, as these are perfectly marketable securities, just that they are worth less than face value, so the Fed or anyone buying them at market price doesn't help. You actually need someone to eat the loss by paying face value.

Money doesn’t magically appear out of nowhere. SVB does not have assets on its books to pay its short term liabilities. Unless a government agency swoops in to bail out the difference between their short term liabilities and the net present value of their long term assets, somebody is going to be taking a haircut. The equity of the bank itself isn’t enough to cover the losses so it’s going to be depositors.

polio 4y ago
What if the FDIC or someone pays all depositors and then takes over the long-term bond portfolio, intending to hold to maturity?
- koolba 4y ago
  That’s an example of someone swooping in to save the day. Whoever does that would not do it for free as the SVB bond portfolio is worth less than the same bonds bought today (rates go up, bond prices go down). No private party is going to hand over billions of dollars for free so either the Feds do it or nobody does.
  - throwntoday 4y ago
    These startups are kind of the backbone of the tech economy, you'd think this would be a case where the government says "too big to fail" again.
    - koolba 4y ago
      When the alternative is going to be handing over stablecoin market dominance to unregulatable foreign entity, it’s not out of question that the government would step in to stabilize the USDC stablecoin market.
- Tan_MSJ 4y ago
  Why would they? their long term treasury bills are yielding almost 0% interest rate and current rate is closer to 6%. Ergo, no one is going to buy an out of the money long term asset at par when current yield is significantly higher. No sane rational person would do that.
- slv77 4y ago
  No private institutions with hard cash are going to be willing to take the portfolio because of the opportunity cost of investing that money at higher rates of returns. Any institutions that would need to borrow to buy the portfolio would need to borrow at higher interest rates and earn lower rates generating a loss each month. There is now way to take the portfolio without a discount and not have a loss. If there was a way out of this without a loss the bank wouldn’t be insolvent (bankrupt).

mixdup 4y ago

I'm happy for them, I guess. Of course I could be wrong, but given the evidence I don't think I will be. More power to the VCs and everyone else if they get their money back. But, if they were going to find a buyer they probably would've found one already. They certainly will either have to have one before the open on Monday or it's not happening. The assets of the bank become more and more toxic as time goes on (this happened with Lehman Brothers) and if someone swoops in today, on Saturday, then it's not too bad. But if it sits a week and no one wants to buy it, if someone buys it next Saturday now that bank looks like a fool and people are going to question the deal If they don't have a buyer, depositors are taking a haircut. Maybe they will get 100% of their money back in actual dollars, but they will lose via time--the FDIC will either liquidate the assets or let them mature. If they liquidate, they will take an immediate loss. If they wait for them to mature, then sure in 10 years everyone gets their money but Time value of Money is a thing and being made whole 10 years from now is not being made whole

sithlord 4y ago
would be interested in knowing if the us gov just buys the assets, since at the end of the day, (longer term) there seems to be a pretty good guarantee of getting it all back (minus time value of money)
- mixdup 4y ago
  I don't think that's likely. Other stats I've seen indicate over the past decade or two, uninsured depositors have been paid something like 75 cents on the dollar on their uninsured accounts. This would indicate the FDIC, if they don't find someone to buy the bank and make everyone whole, will liquidate the assets and pay out the accounts over a pretty short term
  - pishpash 4y ago
    That was before QE. What's some bonds to the Fed when they are the kind it would buy for its own balance sheet anyway? The issue is, one, they are in QT right now; two, buying isn't enough, as these are perfectly marketable securities, just that they are worth less than face value, so the Fed or anyone buying them at market price doesn't help. You actually need someone to eat the loss by paying face value.