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FDIC – SVB FAQ
- Tuna-Fish 4y ago> The FDIC will pay uninsured depositors an advance dividend within the next week. Depending on the amount, this can possibly make things a lot better for the startups banking there.
- tus666 4y agoBeyond the actual amount insured by the FDIC?
- stingrae 4y agoIt says uninsured depositors.
- tus666 4y agoThe FDIC insures everyone, up to a certain amount.
- cocacola1 4y agoSeems to be what it says: > All depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
- krasin 4y ago> Beyond the actual amount insured by the FDIC? My understanding that everyone will receive anywhere from 70% to 90% of the uninsured parts of deposits eventually. Uninsured does not mean "... and it's gone". It rather means "best effort to get it back".
- deleted 4y ago[deleted]
- zt 4y agoEvery bank account is insured up to $250K. Beyond that, customers have "uninsured deposits" But the FDIC is in the process of selling all the banks assets, which nearly cover all of their outstanding deposits. No one knows how much that difference will be right now. But companies should expect a lot more than just the minimally insured deposits back.
- dannyw 4y agoNearly all? Their "held to maturity" portfolio was down 17% as of year-end 2022. Source: https://www.netinterest.co/p/the-demise-of-silicon-valley-bank https://www.netinterest.co/p/the-demise-of-silicon-valley-ba...
- loeg 4y agoYes, but before it was down, they had substantially more assets than deposits owed. > As of the end of December, SVB had roughly $209 billion in total assets and $175.4 billion in total deposits Say $80B of that is worth 83% of the HTM value on their balance sheet. That would be $14B less, or $195B in assets against $175B in deposits. I don't know the details of their holdings or exact difference between market prices and their HTM accounted value, but the important points are (1) they started with a lot more assets than deposits and (2) different portions of their balance sheet have declined different amounts. It's not all 10-year 1.5% MBS notes; only about $80B is.
- jjtheblunt 4y agoWhere does the money come from? I mean that non-sarcastically, confess I've not figured out the way the banking system in the large works. edit : thanks all for coherent clear responses.
- deleted 4y ago[deleted]
- runlevel1 4y ago> Q. What is the source of funding used by the FDIC to pay insured depositors of a failed bank? > A. The FDIC's deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved. Source: https://www.fdic.gov/consumers/banking/facts/#:~:text=what%20is%20the%20source%20of%20funding https://www.fdic.gov/consumers/banking/facts/#:~:text=what%2...
- loeg 4y agoWell, no, that's only true if the bank doesn't have sufficient assets to cover secured deposits. Secured deposits were less than 10% of deposits at SVB and they have plenty of assets to cover that; the money comes from selling those assets. The only question is how much money uninsured depositors will get and where it will come from (selling the whole bank, or the assets individually).
- SoftTalker 4y ago> its investment portfolio of U.S. Treasury securities In other words, IOUs to itself, like the social security “fund”
- paxys 4y agoThis isn't the answer to the question that was asked. Yes deposits up to $250K will be paid out using FDIC's normal insurance process (and will be available for all bank customers Monday morning). FDIC is also promising some portion of the remaining uninsured money sometime next week (the "advance dividend" they mention). The source of those funds is undetermined.
- ellisv 4y agoYes but a week can be a long time. Startups trying to make payroll for the 15th might be in a tough spot.
- markdown 4y agoLOL, Silicon Valley tech workers aren't living hand to mouth, and they have credit cards. They'll survive a week without pay.
- zt 4y agoYou underestimate how wide spread SVB's depositor base is and who all these "tech workers" are. SVB has offices in Georgia, North Carolina, three in Texas, etc, etc. A lot of them will have trouble if payroll isn't met (not to mention the company's legal obligations to pay people on time for work already done).
- ellisv 4y agoIf your company doesn’t make payroll, how long would you keep working there? Most people don’t/won’t/shouldn’t work for IOUs.
- wpietri 4y agoEverybody works for IOUs. It's just a question of how much credit you want to give them.
- wpietri 4y agoHuh. From the downvotes, I'm confused. Does anybody get paid in advance? As far as I know, "do the work today, get paid soon" is how it works for basically everybody in the US.
- ellisv 4y agoAlmost no one is paid in advance. Most people expect to be paid on a regular schedule, e.g. biweekly, semimonthly, monthly. If you do the work and don’t get paid soon, what’s your expectation going forward?
- dannyw 4y agoBill Ackman says ~50%: https://mobile.twitter.com/BillAckman/status/1634662286844411904 https://mobile.twitter.com/BillAckman/status/163466228684441... That should be enough for payroll, but not enough to spark a mass exodus from small and regional banks into the "systematically important banks" (ie too big to fail).
- throwawaysleep 4y agoWhat exactly is the individual risk of moving everything to big banks? Seems like a no brainer move to shift your cash to JPM, at least until this blows over.
- sjm-lbm 4y agoThat's exactly the point: not guaranteeing deposits incentives everyone to move all their money beyond 250k into a big 4 bank as soon as they can on Monday morning. Great for JPM, but could be deadly for a huge section of the US banking industry.
- wpietri 4y agoUnfortunately, guaranteeing deposits for everyone creates moral hazard, because it means people will not pay attention to the risk level of their bank, giving bank CEOs even more incentive to play "heads I win, tails they lose" with taxpayer money. I am all for FDIC insuring accounts, and I'm fine with the level being as high as $250k. But anybody with a lot of cash beyond that should already understand what the word "uninsured" means. If they don't my sympathy for them is limited. If we're going to spend billions more on improving the social safety net, people with hundreds of thousands of dollars in cash just lying around are not my first priority.
- sjm-lbm 4y agoI really don't understand the moral hazard here. The people making risk decisions - ie, the SBV staff - should absolutely be wiped out. If there's a legal way to claw back the proceeds from the stock sales they made in the run up to the last few days, I wouldn't have a problem with that either.
- mixdup 4y agoSo, no buyer for the whole bank has been found and they don't anticipate finding one
- qbasic_forever 4y agoYeah this is nothing like the 2008 meltdowns. When WaMu and other banks went kaput it was an eeriely orderly and controlled 'demolition' with almost zero disruption for customers. The banks exploded on a Friday and were back open with the FDIC and giving customers full access to funds that Monday. There was a lot of communication and reassurance from the FDIC that no one would lose anything. Here it seems like they're just shrugging shoulders and saying "I dunno maybe you'll get some of your money back, but no promises". Good luck to anyone that had major uninsured deposits there, I hope it works out in the end but it doesn't seem like any real help is coming.
- creato 4y agoI don’t think there’s much real difference, just the twitter (and HN) peanut gallery is so much louder it’s distorting people’s understanding of the situation.
- duxup 4y agoI don’t think anyone wants to eat the losses (that may be not entirely known) and if SBV was a bank that operated differently than others they may not want to adopt their practices/ customer expectations/ ire. And most of all what Bank wants to adopt a bank who had a bank run? That’s scary. I think every bank seriously fears such things.
- raylad 4y agoAre there any banking experts here who know whether the FDIC has to / will sell the CMOs (that are under water that were the proximate cause of the bank run) now for whatever they are worth, at a loss? Or could they or some part of the government buy them at face value and hold them til they mature, while making the bank depositors more whole?
- zt 4y agoMy understanding is that the FDIC does have to orderly liquidate all of SVB's assets unless they find a buyer. That does mean they have to sell all their outstanding treasury and mortgage assets, they don't have the ability to hold them to maturity (HTM). SVB had billions of dollars in first-lost equity capital that was completely wiped out against those marks, hence them being insolvent. But that means there isn't a 1-to-1 lose for depositors against those underwater assets.
- bombcar 4y agoFDIC doesn’t have to find a buyer for the whole bank, they have leeway to split up parts of it to negotiate. So they may be able to make a deal for CMOS, especially if congress were to authorize something. But it could be nobody wants to touch it. Maybe Musk wants a bank?
- AdamJacobMuller 4y agoTheir core instructions in this situation is to maximize recovery, but, a lot of that is securing the maximum value as quickly as possible to reduce risk because reducing risk is also maximizing recovery. They won't ever HTM but they can sit on things for a bit, they do have reasonable flexibility.
- Mistletoe 4y agoCan someone discuss if we are paying for this? My understanding is FDIC is separate from the government and works like insurance for banks. I assume this will raise the rates and I assume banks will, out of the kindness of their hearts, pass that on to the customers? Why run a bank responsibly and hedge for interest rate rise, if your customers are protected over 250k anyway? Hedging lowers the yield you can give. So ignoring that, you can offer maximum yield and attract companies to do bizarre things like Roku keeping 500 million there or Circle maybe 3.3 billion. This doesn’t punish the bad behavior, it actually encourages it. Although the bank is dead so I guess there is that. But the CEO sold $3.6 million worth of stock two weeks ago so I think he will be fine.
- radlad 4y agoIt seems this will be funded by selling off SVB's assets.
- dgacmu 4y ago(1) It won't raise the rates unless it amounts to an increase in net risk to banks. This is actually the first bank failure in several years (we've had a very oddly quiet period), so despite its size, it may not change much. (2) Because there are an enormous amount of regulations governing how a bank has to manage its reserves. SVB erred within those regulations and helped push for loosening of them for banks its size, but there are still a lot of constraints designed to minimize the chances of failure. And (3) because your bank _disappears_ if you go into receivership, you're out of a job.
- name-form 4y agoThe large fish in the pond will be on the hook, so to speak. They’re upset. Oh well.
- threeseed 4y agoConsumers always end up paying for it one way or another. In theory, the reputational damage done to the CEO, CFO etc means that they will be unemployable in the future. But seems like everyone in the finance world has short memories so I doubt this will be the case.
- wpietri 4y agoFWIW, this page is from Friday, so I don't think it has new information: https://web.archive.org/web/20230310190411/https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://web.archive.org/web/20230310190411/https://www.fdic....
- eazyson 4y ago[dead]
- duxup 4y agoI’m impressed the feds operate so fast.
- zt 4y agoThe FDIC is a well-oiled machine.
- duxup 4y agoI imagine the accountants and attorneys and fed bankers parachuting into action, or maybe a bunch of helicopters with music.
- paxys 4y agoYou aren't too far off, going by the NPR article in another comment – https://news.ycombinator.com/item?id=35116265 https://news.ycombinator.com/item?id=35116265
- mindslight 4y agoIt would seem they have to, given the sheer amount of ignorance even in these "intelligent" HN threads. Most of this community is seemingly primed to view this as another FTX-style exit scam, when the sheer majority of deposits are in fact still there. Although I'm not looking forward to the next few weeks when the VC community will be blasting out screeds about how their bank-run-withdrawals shouldn't be subject to clawbacks...
- dahdum 4y agoSVB blew up chasing yield with risky assets to juice corporate profits. I haven’t seen people calling it an exit scam, just terrible governance. Not entirely unlike FTX. Not sure why anyone who withdrew should be subject to clawbacks. What law did the break? SVB caused the bank run, it wasn’t some meme driven panic or coordinated effort.
- mindslight 4y ago
- brunooo 4y agoNPR had an excellent story of how a bank takeover and wind-down works back in 2009: https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-takeover https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-t... “On a mid-January night, some 80 agents of the Federal Deposit Insurance Corp. pull into Vancouver, Wash. Their rental cars are generic, their arrival times staggered. One by one, agents check into a hotel, each quietly offering a pseudonym to the guy at the desk. … He agrees it almost feels like a spy movie. "They've done this before — quite a production," he says.“ And in general, for people who are understandably worried: besides the $250k available on Monday morning, my bet is on at least 50% of uninsured deposits by end of the week, and 90-100% if not next week (via acquisition) then within a pretty short time. If Oaktree and others are offering folks 70%+ face value for their uninsured deposits, that should be a pretty strong indication of where this is heading (ie a high confidence level at those shops to make a quick 20-30% off panicky sentiment). Edit, PS: This whole story is so bewildering, probably the only bank I can think of that was killed by its own customers (flaky VC herd) despite being generally healthy and having picked the least worst option last year (maturity risk). VCs now banding together is laudable, but why there wasn’t a Buffett type preferred stock rescue earlier this week to save their literal community bank is kinda beyond me.
- mkmk 4y agoAnd 60 Minutes had a nice segment following a bank takeover as well: https://youtu.be/TAE8i40A5uI https://youtu.be/TAE8i40A5uI
- teruakohatu 4y agoFascinating. Thank you for sharing. In my country there is no insurance for deposits, although sometime this year they plan to introduce mandatory insurance up to ~$60,000 USD.
- rootsudo 4y agoBank gives all the money and risk to a VC, they take it - the second the risk is at the bank it they run.
- barathr 4y agoThis American Life had an episode on the process some time ago: https://www.thisamericanlife.org/377/scenes-from-a-recession/act-two-3 https://www.thisamericanlife.org/377/scenes-from-a-recession... This is proceeding as it should, and despite the terrible circumstances we should be proud that there are actual functioning institutions to take care of this process. Depositors may not be made whole, but it doesn't look like SVB had a bunch of mortgages of defunct malls in Las Vegas (and similar) like back in the housing crisis. Depositors seem likely to get half their funds back this week and then most of the rest (though likely not all) over the coming weeks.
- beezle 4y agoSo every depositor will get up to $250K on Monday. Those with balances above that will get a payment of some percentage of the balance not many days after. Sounds pretty fair and expedient to me. Shocked that no VC or group of them haven't stood up a short term bridge loan facility since it was them who triggered the chain reaction that took the bank down.
- dmlittle 4y ago> Shocked that no VC or group of them haven't stood up a short term bridge loan facility since it was them who triggered the chain reaction that took the bank down. Several groups are. They're offering anywhere between 60 to 80 cents on the dollar for the uninsured amounts. https://www.reuters.com/business/finance/hedge-funds-offering-buy-startup-deposits-stuck-silicon-valley-bank-semafor-2023-03-11/ https://www.reuters.com/business/finance/hedge-funds-offerin...
- beckhin 4y ago[flagged]
- deleted 4y ago[deleted]
- bombcar 4y agoThe VCs had all their money at SVB.
- dehrmann 4y ago> Sounds pretty fair and expedient to me. The problem is we don't know what "some percentage" and "not many days" are. If you said 99% on Tuesday, no one would care. 50% in May would suck.
- grensley 4y agoI like the "were you supplying SVB furniture" call out. Seems so trivial compared to the scope of the rest of it.
- bdcravens 4y agoI assume this is based on experience, as furniture is likely a pretty important part of a bank's operations. A branch may easily have $100k+ in furniture that is leased to them.
- cirrus3 4y ago> future dividend payments may be made to uninsured depositors "may" If they get their get their money back it only reinforces the bad choices here. Let them fail. The world doesn't really need these the vast majority of these YC trinket startups anyway.
- htag 4y agoAre you mad companies that deposited money into a bank are likely to be able to withdrawal that money?
- n42 4y agoMany of these companies are life sciences/biotech companies doing research that could or does save lives. This isn’t just a bunch of Snapchat filters, it’s the future of American innovation. Of course there’s a load of bullshit “high risk investments”, but there’s a lot of very important work that should not be thrown out with the bathwater. Wiping out 60% of American startups at once could forfeit our lead in tech and set this country back decades, and for what? Because you think it’s funny?
- throw03172019 4y agoHaving been through a painfully long acquisition, how do transactions of such a huge entity get pushed through so fast if another bank were to buy SVB?
- toomuchtodo 4y agoPlease take a moment to appreciate and respect that FDIC, as a government agency and regulator, stepped in mid day yesterday and banking operations will resume Monday morning for an orderly wind down. > The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear.
- deleted 4y ago[deleted]
- istjohn 4y agoContrast this to the many crypto meltdowns of late. The libertarian dream is a mirage.
- _huayra_ 4y agoIt's been such great schadenfreude to watch all of the libertarian tech bros beseech the FDIC and other government agencies to save their sorry selves. It's all about that FrEeDoM until your money goes poof I suppose...
- htag 4y agoThe fact that an institution cannot freeze a bitcoin wallet has been extra appealing to me after witnessing the reduced liquidity those with SVB accounts are experiencing. I'm unsure if it's worth the price volatility, but this is making me reevaluate cryptocurrencies in a better light.
- _huayra_ 4y agoThe FDIC kinda reminds me of one of the few bureaucracies in the US that: a) serve the American people (and not some shadowy cabal of billionaires intent on squeezing the average Jane and Joe in every conceivable way via capturing the tools of the state) b) is staffed by people who are extremely qualified and truly enjoy their job (compared to the DMV in most states...) It reminds me of this America in Decay essay [0], which goes over the rise and fall of truly great political institutions in the US before they became captured by conflicting interests, nepotism, and outright double dealing (think: revolving door between SEC and finance; don't want to put the screws too closely to your next potential employer). The FDIC is one of the last from that era it seems. [0] https://www.foreignaffairs.com/united-states/america-decay https://www.foreignaffairs.com/united-states/america-decay
- patientplatypus 4y agoWhat people don't seem to realize is that banks themselves are a form of speculative vehicle. You pay deposits to the bank, and they then invest these deposits in commercial loans. Banks are incredibly risk adverse as a rule, however, in this case the amount of deposits that SVB took in between 2020 and 2022 doubled from 40 to 80 billion dollars. The only way that this can happen is if the amount of available loans that the bank can make at the same risk profile increases through greater demand, or if the bank acquired several other regional banks. Well. That wasn't happening. So the bank started making riskier and riskier loans rather than reduce the number of incoming deposits. Arguably, given inflation, the value of FDIC should be increased beyond the $250,000 limit. But it's difficult to have much sympathy for companies that invested large sums of money into SVB without doing their due-diligence. If these companies need to be taken over by the federal government to prevent stock market contagion it would be nice to see some political consequences as well. It's absurd that a Lehman Bro.s CFO chairman was an executive at this bank. There will be lawsuits that come from this, but I'd expect that the federal government should also be an aggrieved party (as in, "the People Against...") given the risk of this collapse to the finances of the larger public.
- placatedmayhem 4y ago> But it's difficult to have much sympathy for companies that invested large sums of money into SVB without doing their due-diligence What due diligence would a bank customer do that would uncover the sort of escalating risk profile you've outlined? I ask as someone very far from finance and banking.
- patientplatypus 4y agoSilicon Valley Bank had 80 billion dollars in assets, which includes funds from Venture Capital (VC) firms. If you have a billion dollars in assets (or a few 100 million) then you would hire lawyers, tax attorneys, and financial analysts to make sure that where you put your money is safe. Given that the FDIC will only insure up to $250,000, then those account holders that have much more than that are considered people who "should know" the risk profile of the bank they're investing in (as compared to a mom and pop savings account). These FDIC limits were put in during the 1930s and never raised with inflation (which isn't ideal). In any case, if you have a large amount of money you're investing in a bank as opposed to the stock market then you should be primarily concerned that the bank will have a stable return that's slightly higher than inflation with a low risk profile (ie remain solvent). That means that you need to make sure that the loan book (that is, the loans that the bank is giving out) are non-risky, the treasuries that the bank has on hand won't devalue the banks asset base if the Federal Reserve decides to raise rates (another problem that SVB had), in addition to the risk profile of any other assets on hand and how much each individual asset class affects the solvency of the bank. In short, the more money that you are investing in a bank (or any other financial vehicle) the more investigation you should be making into that bank. In simplistic terms, if you're spending a couple dollars on a candy bar you don't examine the purchase with as much attention as compared to if you were buying a car or a house. And if you suddenly have come into large amounts of money and need to make complex financial decisions I would talk to a licensed financial professional. These guys are the financial professionals and they didn't do their homework.
- Rodeoclash 4y agoSomething else that I haven't seen anyone talking about (and may be a total non-issue) but are other banks exposed the same way that SVB was? I imagine a bunch of other banks must also be holding these low rate mortgages from a few years ago, could the same thing happen to them?
- arpowers 4y agoProbably not, SVB’s exposure was unique in that most investments during 20-21 were in crypto and web3. Both those technologies have yet to see real revenue… so in turn, lots of companies have been drawing down their balance for the last 18 months without 1. Making money or 2. Raising more. TLDR the amount of money invested in speculative and unrealized companies led to unique exposure for svb
- motohagiography 4y agoTheir liabilities were less than $180B and it's not like their assets are going to zero. Seems like there are more than a few firms who could just buy it themselves, and then they have a whole commercial and investment bank of their own that can be competitive. Just say hey, we have liquidity to cover your payroll and deposits, we're the new owners, and you get a startup banking concern without the legacy costs of an ibank that started 100y ago. Why doesn't YC pick it up? Even just as a testbed for enterprise technologies for banking, a bank managed by that culture will pay itself off in growth.
- IAmGraydon 4y agoHere’s a question for those more knowledgeable: if bank runs continued through June and Congress can’t agree on the debt ceiling (which they won’t), thus causing a government default, does FDIC cease to function?
- pookeh 4y agoCan someone explain me this…they used people’s money to invest in bad securities? How is this different from criminal behaviour of FTX?
- ibains 4y agoare you serious? they invested in US Treasuries, the highest rated and the most conservative asset class. Banks are in the business of lending money to home buyers, etc - how is loaning to the US Govt. criminal? They have a cash crunch due to interest rate rise, and VC slowdown - bad risk management, but everything is above board. Startup lines of credit should not happen from deposits, too risky an asset class
- pookeh 4y agoYour didn’t answer my question. If I had an account in SVB, and I put a 100k in it, why would SVB take my 100k and invest it? That was the whole issue with FTX. Investing it whatever asset class, my money shouldn’t have been invested unless I give permission to SVB period.
- spprashant 4y agoThat's how every bank works?
- bart_spoon 4y agoIt’s how literally every bank has worked for all of time. They have to cover interest you are payed for keeping your money at the bank. Where do you think that money comes from? They take the money people deposit, and invest it, either through loans to others, or through other investment vehicles, like treasury bonds in this case. When you put your money in a bank, you are giving them permission to reinvest it somehow. If you just want your money to sit there, your only option is to start stuffing wads of bills under your mattress.
- timcavel 4y ago[dead]
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