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But interest rates went up. A different bank with less flighty depositors might indeed still have lots of cheap deposits, due to the stickiness that you note. B
by tripletao 4y ago
But interest rates went up. A different bank with less flighty depositors might indeed still have lots of cheap deposits, due to the stickiness that you note. But why would they buy the SVB's assets at 1.5%, when they can buy similar assets on the open market yielding 4%? They'd happily buy the SVB's assets at the right discounted price; but that's the mark-to-market price, and the SVB had been mark-to-market insolvent since September.
I guess a lot of people hoped that a different large bank would buy the SVB or its assets at a price that would have maintained the accounting fiction that it was solvent. Such banks had no economic incentive to do that though, and once again they didn't.
- anonymouskimmer 4y ago> But why would they buy the SVB's assets at 1.5%, when they can buy similar assets on the open market yielding 4%? Hypothetically because they are martyrs who also want whatever goodwill SVB created in its clients (which now become the clients of the other bank). But yeah, it's a stretch.
- disgruntledphd2 4y agoI mean, if you think that you can grow your business by getting in early with tech founders, then it makes sense. But that's pretty risky for a bank.
- tripletao 4y agoI do think that's a fair point in general, and one that I'd neglected above--lots of marginally insolvent banks have been rescued in exactly that way, with an acquirer paying a premium for the value of the business, not just the financial assets. The mark-to-market hole at the SVB was pretty deep though, and their depositor base had just made itself look particularly unattractive. So maybe the FDIC will eventually manage to find a buyer, but it indeed looks pretty hard.
- anonymouskimmer 4y ago> their depositor base had just made itself look particularly unattractive Quite true.