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First-Citizens Bank to assume deposits and loans of Silicon Valley Bridge Bank
- steponlego 4y agoNobody's getting total coverage, the limit is still the $250k FDIC limit.
- testfoobar 4y agoFirst–Citizens Bank & Trust Company, Raleigh, NC, to Assume All Deposits and Loans of Silicon Valley Bridge Bank, N.A., From the FDIC
- bradleyjg 4y agoThe FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership.
- ummonk 4y agoI don't understand the math there. So they're selling 72 billion of assets for 55.5 billion + 500 million in stock, but out of 167 billion in assets they're only left with around 90 billion? What happened to the other 5 billion in assets? And if they get 56 billion out of this deal that should leave 63 billion out of 119 billion in deposits to cover, so if the bailout ends up costing 20 billion that means they're only recovering 43 billion on the remaining 90 billion in assets? Is this some kind of worst case estimate?
- jxramos 4y agoI really wish they’d start reporting those things in independently verifiable forms to the maximum extent possible. Spreadsheets, Jupyter notebooks, etc.
- refulgentis 4y agoAll the information needed to derive the # as well as why its provisional and they can't provide a "Jupyter notebook, etc." right now is right there, in the article.
- jxramos 4y agoAre you talking about something two or three links deep branching out from the article? I don’t see any language even suggesting there’s such data to navigate to that’s specifically related to the article’s subject. There are three links in the article that seem to link to some procedural background stuff they thought offered good context to what was being discussed. What information specifically in the article did you feel satisfied the ability to derive on the spot?
- toast0 4y agoThere were $167B on March 10, but the sale was today. Presumably $5B of assets were sold in the interim? We also don't know today's deposit numbers from the press release. Presumably a future report will give all the numbers as of the same date.
- sawyna 4y agoMaybe a very basic question, but why does FDIC say it costs them 20B$ ? The assets are higher than deposits, can they not sell off all assets and cover the deposits?
- collectedparts 4y agoI think it's more mark to market vs "par" value trickery. SVB had plenty of assets at "par" value or held to maturity value. But it was insolvent if you marked those to market. So FDIC is letting First-Citizens buy the assets at closer to their true market value. 20% loss. That's my understanding but it is kind of a distressing conclusion. SVB had no enterprise value, and the outcome we're getting is financially the same for FDIC as if they just firesold the assets and did a pure winddown?
- bradleyjg 4y agoThe issue with a fire sale is that the seller doesn’t get the true market value. The market value is the value. Every time someone uses face amounts to claim asset value he or she is being entirely disingenuous.
- balderdash 4y agoI generally agree, but it’s not that cut and dry. If I have $100 in assets in 10yr zero coupon treasuries at par issued in a 0% interest rate environment, and funded with $100 of liabilities in the form of deposits paying 0%, and rates increase 1% and the rate I’m paying depositors increases to 0.1%. My bonds are now only worth $90, but I’m going to receive $100 at maturity, and so I’m really only out the the $1 on interest paid to depositors over 10 years, not the $10 mark to market loss. In this example I’d say your economic impairment is closer to $1 vs the $10 implied. judging at the asset side of the ledger in isolation doesn’t give you the whole picture.
- Workaccount2 4y agoYou're forgetting that you are stuck in that position to maturity though. So while you might not feel like you are not going to take a loss, you are also chained to a position that will not make money either. While everyone else is out making 1%, you are stuck with 0%. If you could wave a wand and get out of your bond with no loss, you would pick up a 1% and hold that instead. It would almost certainly be better to just eat the loss, and re-invest that money into something else, and come out ahead after 10 years. Dollars in, dollars out isn't the only factor here. Bonds give this illusion that loss isn't happening because you can wait to get your money back. But a little introspection reveals that the loss is actually just hidden in the waiting is a itself.
- notch898a 4y ago~$60 / person. You can be certain the banks will pass on the "special assessment" in a way that won't be regressive against the common person. Certain.
- TMWNN 4y agoLet's see if the Biden administration has the nerve to continue to claim that the bailout won't cost the taxpayer a cent, when the union of taxpayers and bank customers is 1.
- qwytw 4y agoIs FDIC funded through taxes? I thought it was an insurance fund...
- FartyMcFarter 4y agoIf things get bad, it will get funded by taxpayers. It's definitely "too big to fail".
- TMWNN 4y agoIt is an insurance fund; for every $100 in deposits, banks pay a few cents in insurance premiums. notch898a is referring to how, when the full backstop of deposits regardless of size at SVB and Signature bank was announced, the government said that a) it wasn't a bailout because taxpayers wouldn't pay anything, and b) there would if necessary be a "special assessment" (i.e., mandatory additional premiums) from all banks. Our point is that a) is nonsensical given b), because of the total overlap between US taxpayers and US bank customers.
- op00to 4y agoFor every $100 in deposits, banks pay an assessment from one penny per $100 (least risky) to ~40 cents per $100 (most risky). https://www.fdic.gov/resources/deposit-insurance/deposit-insurance-fund/dif-assessments.html https://www.fdic.gov/resources/deposit-insurance/deposit-ins...
- o0-0o 4y agoI am so done with this bank. Does anyone have a recommendation for a replacement?
- gnicholas 4y agoWhat is left of "this bank" if it is owned by another bank? My understanding is that the shareholders were wiped out and the senior management will be different. I am not at SVB but was considering whether it might make sense to have a second account there, for FDIC-spreading purposes. I have the same knee-jerk reaction as many people, but on second thought I wonder if this is irrational.
- thedougd 4y agoLooking at this transaction, I don’t expect the SVB employees to keep their jobs with the exception of those who staff the branches. You’re already at a new bank.
- deleted 4y ago[deleted]
- CalChris 4y agohttps://mercury.com https://mercury.com
- bushbaba 4y agoWhy shouldn’t I use this for personal banking. Sounds great
- shapefrog 4y ago> Mercury is a financial technology company, not a bank. Banking services provided by Choice Financial Group and Evolve Bank & Trust®; Members FDIC.
- SebRollen 4y agoBetterment's Cash Reserve[1] might be of interest to you. It's a similar concept, where they spread your deposits among multiple program banks to give you a higher level of FDIC insurance. [1]: https://www.betterment.com/cash-reserve https://www.betterment.com/cash-reserve
- patientplatypus 4y ago[dead]
- laser 4y agoI’m confused by this-just as things were maybe starting to cool down a bit are they trying to start a bank run again? “All deposits assumed by First–Citizens Bank & Trust Company will continue to be insured by the FDIC up to the insurance limit.” So in other words they just pulled protection for assets over $250K in SVB accounts, transferring them to a small bank with less than half of the deposits of SVB when the run started? Who’s at the steering wheel at the FDIC and are they not coordinating with the Treasury or Fed? Am I missing something or does this seem recklessly premature given the train wreck that is still in the process of being avoided? Are they confident First-Citizens can withstand 25% of deposits getting pulled in a few days because they’re flush with cash and short term treasuries? “All transferred deposits will be separately insured from any accounts you may already have at First–Citizens Bank & Trust Company for at least six months after the failure of Silicon Valley Bank.” [1] Sounds like maybe this isn’t an issue but unclear if that’s just an extra $250K insurance in the event you had an existing account there. Maybe unrelated to insurance they're fine because First Citizens bought from SVB at discount/current FMV so they can liquidate assets if needed to meet withdrawals without risk of loss. [1] https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/silicon-valley.html https://www.fdic.gov/resources/resolutions/bank-failures/fai...
- MarkSweep 4y agoThe FAQ says: > All transferred deposits will be separately insured from any accounts you may already have at First–Citizens Bank & Trust Company for at least six months after the failure of Silicon Valley Bank. That suggests that there is not going to be a reduction in coverage of FDIC insurance. Separately the Federal Reserve’s lending facility makes it unlikely that the same sort of long-duration treasury notes will bring down a bank. But yeah, it’s a good point that they did not explicitly spell out what sort of insurance is available for the transferred deposits.
- laser 4y agoThanks! Still not clear to me if that extends beyond $250K or just not counting against an existing account held there, though. But as mentioned above they probably can just liquidate what they just bought if they need to meet large portion of deposits withdrawn. And the par value repo thing for stuff they already have makes sense would mitigate a run causing insolvency.
- imhoguy 4y agoIs it possible for FDIC to bankrupt with enough number of banks failing? Where that $250k insurance money come from really? If it is all Fed printed first then I understand assets are auctioned later to suck that printed money out of the market, sell and burn cash, right?
- sschueller 4y agoThey can run out of funds but the taxpayer will bailout the FDIC. The FDIC has a pool of money that comes from fees they charge the banks. Currently I believe there is around 100 Billion left.
- paxys 4y agoIf banks are failing at that rate it means that the national banking system has collapsed, and the FDIC is irrelevant.
- notch898a 4y agoWe just burned ~1/6 of it on a single bank...
- paxys 4y agoWhich was the second largest bank failure in US history. If we have 5 more of these in quick succession then it's pretty safe to say that an insurance agency isn't going to be able to save the economy. You're going to need an act of Congress and a massive bailout, and perhaps even that won't be enough.
- notch898a 4y agoFDIC's reserves are less than 2% of insured deposits and far less than 1% of GDP. Perhaps the banking system is broken if 5x more spooked VCs pull their money out in similarly correlated banks means everything goes up in flames.
- unicornmama 4y ago
- nr378 4y agoThe press release is somewhat difficult to parse, but it appears like First-Citizens Bank acquired: Liabilities: $56bn (all of SVB's remaining deposits) Assets: $56bn (SVB's illiquid loan book notionally worth $72bn at a $16.5bn discount) (With a loss-share agreement depending on how the loan-book evolves over times.) This implies that First-Citizens just acquired $56bn of flightly deposits with no additional liquid assets, and those depositors just lost their FDIC insurance for any amounts over $250k. If you're one of these depositors, why wouldn't you run to a big 4 bank?
- otterley 4y agoYou have that backwards (and it's a common mistake!). Loans issued by banks are assets; deposit accounts are liabilities. Although it seems counterintuitive, it makes sense if you think about it: loans are how banks (traditionally) make money, while deposits have to be surrendered by the bank on demand.
- nr378 4y agoApologies, typo corrected
- sixhobbits 4y agoStill weird to me. Even with that reasoning, deposits can be lent out to make money. Loans might not be paid back. I would think a bank with $100 in deposits and $50 in loans is better off than a bank with the reverse.
- enkid 4y agoThink about it like this: The bank can sell the loan to someone else because it produces positive cash flow, but the bank can't sell someone's deposit because if that person comes for their money, they expect the bank to pay them back. It is backwards from the normal business model, but that's because a banks business is to make money lending instead of borrowing to make money.
- thedufer 4y ago
- zamnos 4y agoThe solution to avoid, or at least lessen the moral hazard that I've not seen mentioned in the press, is for accounts that are specifically for payroll to get special fidc protection. sure there's gonna be an accounting overhead to limit the amount of cheating going on, but at least the moral hazard, compared to infinity deposit insurance, is lessened.
- noelsusman 4y agoWe've had tools to solve this problem for a long time. My own bank offers me up to $2M in FDIC insurance through a network of banks. SVB depositors chose not to use these tools. https://www.intrafi.com/solutions/depositors/ https://www.intrafi.com/solutions/depositors/
- DueDilligence 4y ago[dead]
- jamesbond3000 4y agoIt seems Citizens banks made out with $20B of potential profit with very little downside. Hope I am wrong. Hope FDIC retained claims against SVB loan assets equal to what FDIC paid out to depositors that wanted to RUN (about $20B?)
- fsdaklj32 4y agoWhy you think Citizens made out with $20 billion in profit? And... why do you think a bank like Bank of America wouldn't have made a higher bid offer to make a measly $19 billion?
- jamesbond3000 4y agoNot sure but things are moving fast and BAC may be kicking itself like other banks once they learned about the Citizens bank deal. I am guessing. My reasons for my thinking: It is reported that FDIC lost $20B in SVB bailout. SVB loan portfolio is healthy so this loss must be just payouts to depositors that wanted their money. Didnot see any reports that FDIC will get back those payouts from the loan portfolio (eventualy).
- sagarkamat 4y agoIt’s intriguing that the buyer is a no name small time bank and not one of the big ones. You’d think the big guys would be falling over each other to claim SVB’s customer base
- downrightmike 4y agoThe big guys probably don't need that many toxic customers that can make your bank fail based on a rumor.
- joe4147 4y agoMatt Levine discussed this in one of his posts. During the financial crises the government asked JP Morgan to acquire a failed bank, which it did, and then the government fined JP Morgan for crimes committed by the failed bank it just acquired. EDIT: > Lessons from the financial crisis are still seared into management’s brain at JPMorgan. After the 2008 crisis, it got slapped with the label of a bailed-out bank profiting from taxpayers’ generosity, and it eventually paid billions of dollars of fines and legal expenses after buying Bear Stearns and Washington Mutual, including a then-record $13 billion penalty over mortgage lending. The irony was that it completed the takeovers partly at the request of the government, which had encouraged JPMorgan to acquire the stressed banks to prevent further instability in the financial system. https://www.bloomberg.com/opinion/articles/2023-03-15/silicon-valley-bank-is-for-sale https://www.bloomberg.com/opinion/articles/2023-03-15/silico... (although Levine is quoting from a different source)
- ksherlock 4y agoDuring the last banking crisis, JP Morgan, at the request of the Federal Reserve, bought up Bear Stearns and Washington Mutual. They later paid $19 billion in fines and settlements for prior activity. Additionally, the FTC and CFPB are very much opposed to more bank mergers and acquisitions so any big players would likely face lawsuits blocking it.