6 ms·

A lot of SVB's assets can be sold immediately in robust markets (e.g. treasuries)

by zt 4y ago

stefan_ 4y ago
If that was true the bank wouldn't be insolvent. And yet: https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...
- deleted 4y ago
  [deleted]
- dgacmu 4y ago
  "A lot of" doesn't mean there's enough to cover the deposit outflow. It may be that the remaining assets amount to 85-90% of remaining customer deposits and can be sold fairly soon. Thats not enough to prevent a bank failure but it's an awful lot better than 0% for folks wondering WTH is going to happen to their money. [Note: 85-90% is hypothetical, the FDIC is likely in the process of figuring out what that number really is right now.]
  - stefan_ 4y ago
    You can't have it both ways, either they can be sold immediately or they can't. What's the theory here? A lot of the assets can be sold immediately but they held off on doing that to cover deposit outflow for the greater good of having FDIC take control, bury SVB & their careers and methodically unwind it for a better price? I don't even doubt you can sell the assets and come out of it with 90% of deposits, but the wording is off.
    - loeg 4y ago
      SVB couldn't keep selling assets because it was insolvent, not because the market was illiquid.
    - dgacmu 4y ago
      No, they sold assets (at a loss) and covered withdrawals. But then they reported their remaining balances and the FDIC stepped in because after taking those losses there were insufficient assets to cover the expected future rush of withdrawals.
- zt 4y ago
  SVB was forced to sell a lot of assets to create the cash to pay out deposit outflows on Thursday. As that process happens they were left with fewer and fewer assets that could be sold without a lose (their intention was to hold a lot of these assets to maturity, which is allowed). The bulks of their assets themselves are mostly liquid (not the actual venture debt, etc) but as you sell the assets in the order of their value relative to mark-to-market, their book took on more and more loses. By the end of the day they were insolvent to the tune of nearly negative $1B -- with all shareholder equity wiped out. The point being that the FDIC can sell their remaining assets into the market (it wasn't a liquidity crisis in THOSE markets) and eventually that will net out to some haircut for depositors.
- loeg 4y ago
  If you have $160B in deposits but only $150B in liquid assets, you're still insolvent. Doesn't mean the assets aren't liquid.
  - hgsgm 4y ago
    You are only insolvent if you have $160B in withdrawals. If the deposits sat until the bonds matured, the $150B in currently liquid assets would be worth more than $150B.
    - loeg 4y ago
      If your books say $150B in assets against $160B in deposits, you're insolvent. HTM/MTM is upstream of this.
    - westurner 4y ago
      How would the strict separation between savings deposits and investment banking from Glass-Steagull (1933) (which was repealed by GLBA in 1999) banking regulations have prevented this? From "1999 Repeal of Glass-Steagall was the worst deregulation enacted in US history" (2022) https://news.ycombinator.com/item?id=30206570 https://news.ycombinator.com/item?id=30206570 : > Yeah what was the deal with that dotcom correction in the early 2000s? Did banks invest differently after GLBA said that they can gamble against peoples' savings deposits (because they created a 'sociallist' $100b credit line, called it FDIC, and things like that don't happen anymore) > Decline of the Glass-Steagall Act: https://en.wikipedia.org/wiki/Decline_of_the_Glass%E2%80%93Steagall_Act https://en.wikipedia.org/wiki/Decline_of_the_Glass%E2%80%93S... > Dot-com bubble: https://en.wikipedia.org/wiki/Dot-com_bubble https://en.wikipedia.org/wiki/Dot-com_bubble
  - bombcar 4y ago
    In fact, if you have 160 billion in deposits (liabilities) and $159.9999 billion in CASH in the vault (assume no other assets at all, not even the vault) you’re insolvent. Nobody would ever NOTICE probably, but you are.
Mistletoe 4y ago
But not for full price, that’s the source of the problem.
- bhk 4y ago
  The market price is full price. Maybe it's less than what they paid for it, but that's another matter.
  - comte7092 4y ago
    The problem is that the assets weren’t all marked to market. So selling off immediately will mean they’re taking a substantial hit compared to holding them to maturity.
    - cperciva 4y ago
      The problem is that the assets weren’t all marked to market Right. The problem is that SVB's books reported that the assets were worth more than they were actually worth.
      - comte7092 4y ago
        They are actually worth that amount if they hold them though. If they weren’t forced to sell, they could collect coupons and make the exact amount of money they claim to have. It’s not a matter of “actual” vs “paper”. Their books were correct until the run happened.
        cperciva 4y ago
        A ten year 1% bond is worth about 70 cents on the dollar. Ten years from now it will be worth 100 cents on the dollar, but you can buy or sell it at 70 cents on the dollar, so that's what it's worth.
        comte7092 4y ago
nugget 4y ago
I heard from a well-placed source that over 50% of SVB's balance sheet has already been liquidated by the FDIC. This matches up with what Bill Ackman tweeted. We'll find out early next week.

A lot of SVB's assets can be sold immediately in robust markets (e.g. treasuries)

by zt 4y ago

A lot of SVB's assets can be sold immediately in robust markets (e.g. treasuries)

If that was true the bank wouldn't be insolvent. And yet: https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFPI-Orders-Silicon-Valley-Bank-03102023.pdf https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP...

deleted 4y ago
[deleted]
dgacmu 4y ago
"A lot of" doesn't mean there's enough to cover the deposit outflow. It may be that the remaining assets amount to 85-90% of remaining customer deposits and can be sold fairly soon. Thats not enough to prevent a bank failure but it's an awful lot better than 0% for folks wondering WTH is going to happen to their money. [Note: 85-90% is hypothetical, the FDIC is likely in the process of figuring out what that number really is right now.]
- stefan_ 4y ago
  You can't have it both ways, either they can be sold immediately or they can't. What's the theory here? A lot of the assets can be sold immediately but they held off on doing that to cover deposit outflow for the greater good of having FDIC take control, bury SVB & their careers and methodically unwind it for a better price? I don't even doubt you can sell the assets and come out of it with 90% of deposits, but the wording is off.
  - loeg 4y ago
    SVB couldn't keep selling assets because it was insolvent, not because the market was illiquid.
  - dgacmu 4y ago
    No, they sold assets (at a loss) and covered withdrawals. But then they reported their remaining balances and the FDIC stepped in because after taking those losses there were insufficient assets to cover the expected future rush of withdrawals.
zt 4y ago
SVB was forced to sell a lot of assets to create the cash to pay out deposit outflows on Thursday. As that process happens they were left with fewer and fewer assets that could be sold without a lose (their intention was to hold a lot of these assets to maturity, which is allowed). The bulks of their assets themselves are mostly liquid (not the actual venture debt, etc) but as you sell the assets in the order of their value relative to mark-to-market, their book took on more and more loses. By the end of the day they were insolvent to the tune of nearly negative $1B -- with all shareholder equity wiped out. The point being that the FDIC can sell their remaining assets into the market (it wasn't a liquidity crisis in THOSE markets) and eventually that will net out to some haircut for depositors.
loeg 4y ago
If you have $160B in deposits but only $150B in liquid assets, you're still insolvent. Doesn't mean the assets aren't liquid.
- hgsgm 4y ago
  You are only insolvent if you have $160B in withdrawals. If the deposits sat until the bonds matured, the $150B in currently liquid assets would be worth more than $150B.
  - loeg 4y ago
    If your books say $150B in assets against $160B in deposits, you're insolvent. HTM/MTM is upstream of this.
  - westurner 4y ago
    How would the strict separation between savings deposits and investment banking from Glass-Steagull (1933) (which was repealed by GLBA in 1999) banking regulations have prevented this? From "1999 Repeal of Glass-Steagall was the worst deregulation enacted in US history" (2022) https://news.ycombinator.com/item?id=30206570 https://news.ycombinator.com/item?id=30206570 : > Yeah what was the deal with that dotcom correction in the early 2000s? Did banks invest differently after GLBA said that they can gamble against peoples' savings deposits (because they created a 'sociallist' $100b credit line, called it FDIC, and things like that don't happen anymore) > Decline of the Glass-Steagall Act: https://en.wikipedia.org/wiki/Decline_of_the_Glass%E2%80%93Steagall_Act https://en.wikipedia.org/wiki/Decline_of_the_Glass%E2%80%93S... > Dot-com bubble: https://en.wikipedia.org/wiki/Dot-com_bubble https://en.wikipedia.org/wiki/Dot-com_bubble
- bombcar 4y ago
  In fact, if you have 160 billion in deposits (liabilities) and $159.9999 billion in CASH in the vault (assume no other assets at all, not even the vault) you’re insolvent. Nobody would ever NOTICE probably, but you are.

Mistletoe 4y ago

But not for full price, that’s the source of the problem.

bhk 4y ago
The market price is full price. Maybe it's less than what they paid for it, but that's another matter.
- comte7092 4y ago
  The problem is that the assets weren’t all marked to market. So selling off immediately will mean they’re taking a substantial hit compared to holding them to maturity.
  - cperciva 4y ago
    The problem is that the assets weren’t all marked to market Right. The problem is that SVB's books reported that the assets were worth more than they were actually worth.
    - comte7092 4y ago
      They are actually worth that amount if they hold them though. If they weren’t forced to sell, they could collect coupons and make the exact amount of money they claim to have. It’s not a matter of “actual” vs “paper”. Their books were correct until the run happened.
      - cperciva 4y ago
        A ten year 1% bond is worth about 70 cents on the dollar. Ten years from now it will be worth 100 cents on the dollar, but you can buy or sell it at 70 cents on the dollar, so that's what it's worth.
        comte7092 4y ago

nugget 4y ago

I heard from a well-placed source that over 50% of SVB's balance sheet has already been liquidated by the FDIC. This matches up with what Bill Ackman tweeted. We'll find out early next week.