5 ms·

Everyone now knows that SVB's depositors will be bailed out by the federal government, but SVB's shareholders will not. Given that SVB's losses exceed its equit

by cs702 4y ago

Everyone now knows that SVB's depositors will be bailed out by the federal government, but SVB's shareholders will not. Given that SVB's losses exceed its equity capital, it's likely that SVB shareholders will get... nothing. By implication, the common stock of all other banks in a similar situation are also worth... nothing.

maxerickson 4y ago
Seems like there won't be that many banks with such large average account sizes (which is probably one component of being in a similar situation). First Republic touts their large average account sizes though.
sanderjd 4y ago
But one of the new facilities announced yesterday is designed to keep that from happening to the other banks... If they have this liquidity problem due to long-term bonds, they can now turn those into cash for a year without paying interest.
nevir 4y ago
...and if they demonstrate less risky behavior, their stock should (hopefully) become valuable again.
- nostromo 4y ago
  SVB definitely mismanaged risk. But I don’t think people realize that no bank could have 25% (and counting) of deposits withdrawn in a day and survive. If they had still been allowing withdrawals on Friday that number would be much much higher.
partiallypro 4y ago
Most community banks aren't in a similar situation though. This is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed. Now people are not using logic and causing panic across the board. Mostly caused by VC tech bros going around stirring up things in a hope to get a bailout. That's why the Fed/Treasury/FDIC stepped in this morning to hopefully instill confidence.
- mellosouls 4y ago
  This is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed That's not "reality" though. The phenomenon of people "panicking" (ie acting sensibly when their savings are at risk and getting them out while they still can) is a fundamental part of the crisis-process of any bank when it is badly managed. Saying "well if people just ignored history and group psychology and hope nothing bad will happen and risk all their savings by doing nothing, then nothing bad will happen" just isn't remotely realistic.
  - Msw242 4y ago
    They just want to blame the users
- JumpCrisscross 4y ago
  > people didn't panic about SVB eating a loss, even it wouldn't have likely failed Silvergate, SVB and Signature were insolvent. This wasn't a fire sale prompting a decline in their asset values, i.e. classic illiquidity. It was their assets being worth less than their liabilities. If it were purely a liquidity issue, they could have borrowed at the Fed's discount window. (As First Republic appears to be doing.)
- danielvf 4y ago
  SVB was literally insolvent though. Not only that, but they couldn't put together a rescue stock sale - it fell through. This was not a bank run caused by panic, but a run caused by an already failed, insolvent institution.
- newsclues 4y ago
  "Most community banks aren't in a similar situation though. This is mostly caused by panic, not reality." Nothing prevents panic from overriding reality at other banks.
  - partiallypro 4y ago
    Of course, but the underlying books aren't the same, the SVB problem was fairly unique. Once the panic is over, most all other regional banks will be fine. The only way they will fail is if the mob creates additional panic for either a false perception or a political gain (bailout.) That's basically what happened on Friday.
jastanton 4y ago
I'm not very financially literate. How does SVB shareholders getting nothing translate to shareholders of all other banks being in the same situation?
- cs702 4y ago
  You misread my comment: I mean all other banks that happen to be (i.e., put themselves) in the same situation.
- nickvanw 4y ago
  SVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors. If the same thing happens to other banks - everyone withdraws, they shut down and the government steps in - the assumption is that their equity will eventually be worth $0 too. So, everyone sells at >$0. It's not going to be all banks, though.
  - mullingitover 4y ago
    > SVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors. And there was a bank run because the investors panicked and caused the share price to plummet. Depositors saw stock plummeting, got nervous and pulled out. If this type of thing spreads to other banks we'll have a bad time.
    - disgruntledphd2 4y ago
      Hence, the US government stepping in to ensure both depositors are made whole, and (more importantly) saying that the banks can redeem their underwater treasury bills at par (up to some limit under some circumstances obviously).
      - mullingitover 4y ago
        Hopefully this isn't too little, too late. There are already a few regional banks with share prices getting hammered in the market this morning regardless of the intervention.
spywaregorilla 4y ago
Why would there be a run on other banks if depositors are confident they'll be protected though?
- tempsy 4y ago
  a “run” can simply be a wake up call to wealthy people with hundreds of thousands or millions in some 0% earning checking account to funnel that money into a money market or t-bills earning 4-5%. that would alone create some outflow even if the reason is not panic
  - arbuge 4y ago
    That dynamic, known as cash sorting, had already been going on for several months, and appeared to be stabilizing. If anything, I think the events of the last few days could reduce it somewhat. Better to have your funds safe earning little in a Big 4 bank than somewhere else with higher rates but now perceived to be risky.
    - tempsy 4y ago
      no bank is safer than lending directly to the US government at higher rates than what they can offer
      - arbuge 4y ago
        It's an alternative but that doesn't give you all the flexibility and features a bank account does.
  - jliptzin 4y ago
    I happened to check what my citibank savings account pays these days...0.12% interest. Not that I keep any significant amount of money there, anyway. I would if they would pay remotely close to competitive interest rates, but I guess they're banking on most people being too dumb to realize that they can get 4-5% more on their money if they take 5 min to open an account elsewhere.
deleted 4y ago
[deleted]

by cs702 4y ago

maxerickson 4y ago

Seems like there won't be that many banks with such large average account sizes (which is probably one component of being in a similar situation). First Republic touts their large average account sizes though.

sanderjd 4y ago

But one of the new facilities announced yesterday is designed to keep that from happening to the other banks... If they have this liquidity problem due to long-term bonds, they can now turn those into cash for a year without paying interest.

nevir 4y ago

...and if they demonstrate less risky behavior, their stock should (hopefully) become valuable again.

nostromo 4y ago
SVB definitely mismanaged risk. But I don’t think people realize that no bank could have 25% (and counting) of deposits withdrawn in a day and survive. If they had still been allowing withdrawals on Friday that number would be much much higher.

partiallypro 4y ago

Most community banks aren't in a similar situation though. This is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed. Now people are not using logic and causing panic across the board. Mostly caused by VC tech bros going around stirring up things in a hope to get a bailout. That's why the Fed/Treasury/FDIC stepped in this morning to hopefully instill confidence.

mellosouls 4y ago
This is mostly caused by panic, not reality. If people didn't panic about SVB eating a loss, even it wouldn't have likely failed That's not "reality" though. The phenomenon of people "panicking" (ie acting sensibly when their savings are at risk and getting them out while they still can) is a fundamental part of the crisis-process of any bank when it is badly managed. Saying "well if people just ignored history and group psychology and hope nothing bad will happen and risk all their savings by doing nothing, then nothing bad will happen" just isn't remotely realistic.
- Msw242 4y ago
  They just want to blame the users
JumpCrisscross 4y ago
> people didn't panic about SVB eating a loss, even it wouldn't have likely failed Silvergate, SVB and Signature were insolvent. This wasn't a fire sale prompting a decline in their asset values, i.e. classic illiquidity. It was their assets being worth less than their liabilities. If it were purely a liquidity issue, they could have borrowed at the Fed's discount window. (As First Republic appears to be doing.)
danielvf 4y ago
SVB was literally insolvent though. Not only that, but they couldn't put together a rescue stock sale - it fell through. This was not a bank run caused by panic, but a run caused by an already failed, insolvent institution.
newsclues 4y ago
"Most community banks aren't in a similar situation though. This is mostly caused by panic, not reality." Nothing prevents panic from overriding reality at other banks.
- partiallypro 4y ago
  Of course, but the underlying books aren't the same, the SVB problem was fairly unique. Once the panic is over, most all other regional banks will be fine. The only way they will fail is if the mob creates additional panic for either a false perception or a political gain (bailout.) That's basically what happened on Friday.

jastanton 4y ago

I'm not very financially literate. How does SVB shareholders getting nothing translate to shareholders of all other banks being in the same situation?

cs702 4y ago
You misread my comment: I mean all other banks that happen to be (i.e., put themselves) in the same situation.
nickvanw 4y ago
SVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors. If the same thing happens to other banks - everyone withdraws, they shut down and the government steps in - the assumption is that their equity will eventually be worth $0 too. So, everyone sells at >$0. It's not going to be all banks, though.
- mullingitover 4y ago
  > SVB shares are worth $0 because there was a run on the bank and the US Government did not step in to save the bank, only the depositors. And there was a bank run because the investors panicked and caused the share price to plummet. Depositors saw stock plummeting, got nervous and pulled out. If this type of thing spreads to other banks we'll have a bad time.
  - disgruntledphd2 4y ago
    Hence, the US government stepping in to ensure both depositors are made whole, and (more importantly) saying that the banks can redeem their underwater treasury bills at par (up to some limit under some circumstances obviously).
    - mullingitover 4y ago
      Hopefully this isn't too little, too late. There are already a few regional banks with share prices getting hammered in the market this morning regardless of the intervention.

spywaregorilla 4y ago

Why would there be a run on other banks if depositors are confident they'll be protected though?

tempsy 4y ago
a “run” can simply be a wake up call to wealthy people with hundreds of thousands or millions in some 0% earning checking account to funnel that money into a money market or t-bills earning 4-5%. that would alone create some outflow even if the reason is not panic
- arbuge 4y ago
  That dynamic, known as cash sorting, had already been going on for several months, and appeared to be stabilizing. If anything, I think the events of the last few days could reduce it somewhat. Better to have your funds safe earning little in a Big 4 bank than somewhere else with higher rates but now perceived to be risky.
  - tempsy 4y ago
    no bank is safer than lending directly to the US government at higher rates than what they can offer
    - arbuge 4y ago
      It's an alternative but that doesn't give you all the flexibility and features a bank account does.
- jliptzin 4y ago
  I happened to check what my citibank savings account pays these days...0.12% interest. Not that I keep any significant amount of money there, anyway. I would if they would pay remotely close to competitive interest rates, but I guess they're banking on most people being too dumb to realize that they can get 4-5% more on their money if they take 5 min to open an account elsewhere.

deleted 4y ago

[deleted]