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This is going to put every regional bank on the map for short sellers as equity holders are being wiped out in these cases without depositors being affected. Wh

This is going to put every regional bank on the map for short sellers as equity holders are being wiped out in these cases without depositors being affected. Why would anyone invest in any regional bank with the risk of a equity wipeout day to day?

swatcoder 4y ago
> Why would anyone invest in any regional bank with the risk of a equity wipeout day to day? Because some have better books and management than others and will be underpriced because of reactionary selloffs like you describe?
- bagels 4y ago
  Huge opportunity tomorrow to buy if you are able to actually find them.
tedivm 4y ago
They're also taking action to prevent this kind of thing from happening again- > The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasurys, agency debt and mortgage-backed securities. > “This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement. “The Federal Reserve is prepared to address any liquidity pressures that may arise.” https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-stem-damage-from-svb-collapse.html https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-st...
- radicaldreamer 4y ago
  Yet signature bank was shut overnight? Not sure a new $25 billion facility matters when outflows can hit that much in a couple of hours.
- bradleyjg 4y ago
  A larger bailout
- cavisne 4y ago
  Doesnt this just push the can down the road? Interest rates will likely be higher not lower in 1 year so their bond portfolio will be even more underwater.
  - Tuna-Fish 4y ago
    No, so long as the average maturity is not too long. The long-term bonds would have paid back enough money for SVB to pay back every depositor if there had not been a run that forced them to pay them all back at the same time. Knowing that everyone can get 12 months of runway will do much to allay fears and so reduce risk of further runs.
    - pishpash 4y ago
      Weren't these 10-year bonds and negative-convexity MBS? 12 months doesn't improve the position at all, but maybe you can keep applying for these loans in which case it's just another QE.
    - pseudo0 4y ago
      What interest rate does that assume for depositors? Sure, the face value of the bonds in 2032 dollars might have been enough to pay back the 2022 obligations to their depositors, but banks are routinely offering 2-4% interest in high interest savings accounts now. So either depositors will leave for better options, or SVB would have had to offer competitive rates (digging the insolvency hole deeper).
      - everybodyknows 4y ago
        Big banks are still offering sub-1% rates: https://www.usbank.com/bank-accounts/savings-accounts/elite-money-market.html https://www.usbank.com/bank-accounts/savings-accounts/elite-... Compare that to a money market fund from a stock broker at 4.5%: https://www.schwab.com/money-market-funds https://www.schwab.com/money-market-funds The question is, how quickly do simple folks figure out they're being slowly bled, and start moving their cash to some place where it's appreciated?
- thefounder 4y ago
  So bailouts again....
- makestuff 4y ago
  So if i understand this correctly you can get a 0% interest loan as a bank if you need liquidity? I wish I could put my assets up for a 0% loan…
  - radicaldreamer 4y ago
    The new facility isn't at 0% but it values securities at par value (some of which are valued by the market at 60 cents on the dollar)
  - bradleyjg 4y ago
    Not only that but they’ll loan you more than the security is worth!
    - xuki 4y ago
      This is dog shit because banks can now buy bonds at market value and use them for collateral at par value. Brilliant idea really.
  - naveen99 4y ago
    Not 0%
- beezle 4y ago
  Moral hazard once again. At least previously there was a 5% haircut, now apparently nothing. And the loan is against the par value, not market value. If 2008 did not do it, 2023 has institutionalized moral hazard in the financial system. Never, fear the Fed is here! We will absorb all!
  - skybrian 4y ago
    What kind of moral hazard? Let’s be specific about who did something wrong. Do you think that businesses should worry about whether their bank has hedged enough against rising interest rates? Or maybe they should subscribe to news alerts telling them sooner when to get out? The shareholders getting wiped out and bank management replaced seems like pretty strong incentive for the bank itself not to screw up.
    - throwaway2847 4y ago
      Absolutely, businesses should worry about bank failures taking down their uninsured assets. If a business's assets are not insured, they should not expect to be made whole by an insurance policy in case of tail risk failures.
    - briHass 4y ago
      Fine, but let's talk about the other side of the equation: who should pay to make the depositors whole? Did the depositors do everything in their power to insure against their risk? Is there something in place already to help depositors get some of their money back immediately, and likely more as legal proceedings complete? It's certainly not clear to me why the depositors, as crappy a deal as they got, should be bailed out by unaffected banks that are financially healthy or, as is the case no matter what, the rest of the citizenry should pay.
      - skybrian 4y ago
        The way insurance works is that you pay a premium so you don’t need to worry about a risk, whether or not disaster happens to you personally. The timing is a bit irregular, but morally it seems similar? If paying for deposit insurance were available for large accounts, I expect many businesses would choose it. Might as well make it the default?
FormerBandmate 4y ago
At the same time, why would the bank runs continue? AFAIK, this was sparked by Silvergate’s slow motion collapse climaxing on Wednesday, and the infinite FDIC threshold makes more bank runs pointless and self defeating
- astrange 4y ago
  It was sparked by Founders Fund telling everyone to get money out of SVB, which didn't have any crypto exposure. They're invested in another startup bank (Mercury) so I think prosecuting a few VCs would encourage the others.
  - MaxGabriel 4y ago
    Founders Fund hasn’t invested in Mercury List of investors here: https://mercury.com/about https://mercury.com/about
0xB31B1B 4y ago
people aren't going to pull their money out now that the deposits are essentially guaranteed, that is the point. Business can go on as usual.
dehrmann 4y ago
Reminds me of a knee-jerk post someone made here promoting credit unions. They didn't intend for this reaction, but credit unions actually have the same risks as SVB because their member pools aren't diversified. The ironic lesson was that you should bank with JP Morgan, Citi, or BofA.
- deleted 4y ago
  [deleted]
dragonwriter 4y ago
> This is going to put every regional bank on the map for short sellers as equity holders are being wiped out in these cases without depositors being affected. Why would anyone invest in any regional bank with the risk of a equity wipeout day to day? Why would anyone invest in any business when the risk of bankruptcy exists (FDIC bank takeovers and their resolutions, with or without application of systemic risk exception, are in effect a specialized form of bankruptcy, with a different set of priorities for who gets a haircut, but equity holders are always low on the list for either these or conventional bankruptcies.)
lmm 4y ago
Every business has the risk of an equity wipeout if it goes bankrupt. SVB was always going to have its equity zeroed, the only question was whether depositors were also going to lose out.

swatcoder 4y ago

> Why would anyone invest in any regional bank with the risk of a equity wipeout day to day? Because some have better books and management than others and will be underpriced because of reactionary selloffs like you describe?

bagels 4y ago
Huge opportunity tomorrow to buy if you are able to actually find them.

tedivm 4y ago

They're also taking action to prevent this kind of thing from happening again- > The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasurys, agency debt and mortgage-backed securities. > “This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement. “The Federal Reserve is prepared to address any liquidity pressures that may arise.” https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-stem-damage-from-svb-collapse.html https://www.cnbc.com/2023/03/12/regulators-unveil-plan-to-st...

radicaldreamer 4y ago
Yet signature bank was shut overnight? Not sure a new $25 billion facility matters when outflows can hit that much in a couple of hours.
bradleyjg 4y ago
A larger bailout
cavisne 4y ago
Doesnt this just push the can down the road? Interest rates will likely be higher not lower in 1 year so their bond portfolio will be even more underwater.
- Tuna-Fish 4y ago
  No, so long as the average maturity is not too long. The long-term bonds would have paid back enough money for SVB to pay back every depositor if there had not been a run that forced them to pay them all back at the same time. Knowing that everyone can get 12 months of runway will do much to allay fears and so reduce risk of further runs.
  - pishpash 4y ago
    Weren't these 10-year bonds and negative-convexity MBS? 12 months doesn't improve the position at all, but maybe you can keep applying for these loans in which case it's just another QE.
  - pseudo0 4y ago
    What interest rate does that assume for depositors? Sure, the face value of the bonds in 2032 dollars might have been enough to pay back the 2022 obligations to their depositors, but banks are routinely offering 2-4% interest in high interest savings accounts now. So either depositors will leave for better options, or SVB would have had to offer competitive rates (digging the insolvency hole deeper).
    - everybodyknows 4y ago
      Big banks are still offering sub-1% rates: https://www.usbank.com/bank-accounts/savings-accounts/elite-money-market.html https://www.usbank.com/bank-accounts/savings-accounts/elite-... Compare that to a money market fund from a stock broker at 4.5%: https://www.schwab.com/money-market-funds https://www.schwab.com/money-market-funds The question is, how quickly do simple folks figure out they're being slowly bled, and start moving their cash to some place where it's appreciated?
thefounder 4y ago
So bailouts again....
makestuff 4y ago
So if i understand this correctly you can get a 0% interest loan as a bank if you need liquidity? I wish I could put my assets up for a 0% loan…
- radicaldreamer 4y ago
  The new facility isn't at 0% but it values securities at par value (some of which are valued by the market at 60 cents on the dollar)
- bradleyjg 4y ago
  Not only that but they’ll loan you more than the security is worth!
  - xuki 4y ago
    This is dog shit because banks can now buy bonds at market value and use them for collateral at par value. Brilliant idea really.
- naveen99 4y ago
  Not 0%
beezle 4y ago
Moral hazard once again. At least previously there was a 5% haircut, now apparently nothing. And the loan is against the par value, not market value. If 2008 did not do it, 2023 has institutionalized moral hazard in the financial system. Never, fear the Fed is here! We will absorb all!
- skybrian 4y ago
  What kind of moral hazard? Let’s be specific about who did something wrong. Do you think that businesses should worry about whether their bank has hedged enough against rising interest rates? Or maybe they should subscribe to news alerts telling them sooner when to get out? The shareholders getting wiped out and bank management replaced seems like pretty strong incentive for the bank itself not to screw up.
  - throwaway2847 4y ago
    Absolutely, businesses should worry about bank failures taking down their uninsured assets. If a business's assets are not insured, they should not expect to be made whole by an insurance policy in case of tail risk failures.
  - briHass 4y ago
    Fine, but let's talk about the other side of the equation: who should pay to make the depositors whole? Did the depositors do everything in their power to insure against their risk? Is there something in place already to help depositors get some of their money back immediately, and likely more as legal proceedings complete? It's certainly not clear to me why the depositors, as crappy a deal as they got, should be bailed out by unaffected banks that are financially healthy or, as is the case no matter what, the rest of the citizenry should pay.
    - skybrian 4y ago
      The way insurance works is that you pay a premium so you don’t need to worry about a risk, whether or not disaster happens to you personally. The timing is a bit irregular, but morally it seems similar? If paying for deposit insurance were available for large accounts, I expect many businesses would choose it. Might as well make it the default?

FormerBandmate 4y ago

At the same time, why would the bank runs continue? AFAIK, this was sparked by Silvergate’s slow motion collapse climaxing on Wednesday, and the infinite FDIC threshold makes more bank runs pointless and self defeating

astrange 4y ago
It was sparked by Founders Fund telling everyone to get money out of SVB, which didn't have any crypto exposure. They're invested in another startup bank (Mercury) so I think prosecuting a few VCs would encourage the others.
- MaxGabriel 4y ago
  Founders Fund hasn’t invested in Mercury List of investors here: https://mercury.com/about https://mercury.com/about

0xB31B1B 4y ago

people aren't going to pull their money out now that the deposits are essentially guaranteed, that is the point. Business can go on as usual.

dehrmann 4y ago

Reminds me of a knee-jerk post someone made here promoting credit unions. They didn't intend for this reaction, but credit unions actually have the same risks as SVB because their member pools aren't diversified. The ironic lesson was that you should bank with JP Morgan, Citi, or BofA.

deleted 4y ago
[deleted]

dragonwriter 4y ago

> This is going to put every regional bank on the map for short sellers as equity holders are being wiped out in these cases without depositors being affected. Why would anyone invest in any regional bank with the risk of a equity wipeout day to day? Why would anyone invest in any business when the risk of bankruptcy exists (FDIC bank takeovers and their resolutions, with or without application of systemic risk exception, are in effect a specialized form of bankruptcy, with a different set of priorities for who gets a haircut, but equity holders are always low on the list for either these or conventional bankruptcies.)

lmm 4y ago

Every business has the risk of an equity wipeout if it goes bankrupt. SVB was always going to have its equity zeroed, the only question was whether depositors were also going to lose out.