[HN Gopher] FDIC Takes over Silicon Valley Bank ___________________________________________________________________ FDIC Takes over Silicon Valley Bank Author : khuey Score : 1941 points Date : 2023-03-10 16:46 UTC (6 hours ago) (HTM) web link (www.fdic.gov) (TXT) w3m dump (www.fdic.gov) | dahdum wrote: | > it has taken possession of Silicon Valley Bank, citing | inadequate liquidity and insolvency. | | Does this settle the question of insolvency then? I didn't see | that term in the other announcement. | nemo44x wrote: | This will be a day long remembered in the tech world. The next | few weeks will be will be the bad kind of interesting. I hope | they have enough assets to cover everyone. | bluecalm wrote: | Why do we have this system that to be able to use your money in | convenient way you have to deposit it in a bank that can then | lend it out? Lending and keeping deposits should be completely | separated things. There is no reason whatsoever for me to have a | stake in lending business just because I want a convenient way to | keep and operate my money. Charge me for that and don't do | business with my deposits. | | Bank going bust should mean stakeholders in the lending business | losing their money. The whole federal reserve system can be | preserved. Just raise capital to meet the minimum and don't use | money from people who just want an account. | wonderingyogi wrote: | I wonder how many startups its going to affect. | bagels wrote: | All of them that need to fundraise. | [deleted] | idlewords wrote: | Now we just need an "incredible journey" blog post from SVB | spinning this acquisition as a great win for both customers and | investors. | [deleted] | jdoliner wrote: | ChatGPT is happy to oblige: | | Silicon Valley Bank, founded in 1983, has had a long and | incredible journey leading up to its acquisition by the FDIC in | 2023. As a bank that specializes in working with the technology | and innovation industries, it has been at the forefront of many | of the industry's most significant developments. | | The bank started its journey as a small community bank in Santa | Clara, California. At that time, it was known as the Santa | Clara Valley Bank. The founders, Bill Biggerstaff, Ken Wilcox, | and Bob Medearis, saw an opportunity to create a financial | institution that focused on serving the unique needs of the | technology and innovation industries. | | In the early years, the bank faced many challenges as it worked | to establish itself as a leader in the industry. One of the | biggest obstacles was convincing investors and regulators that | the bank's specialized approach to banking was viable. The | founders knew that they needed to build a strong foundation and | establish a reputation for being a reliable and trustworthy | financial institution. | | Over the years, the bank grew and expanded its reach, opening | offices across the United States and in key global markets. It | also broadened its focus beyond just technology and innovation | to include life sciences, healthcare, energy, and more. This | diversification helped to insulate the bank from the ups and | downs of any one industry and made it more resilient in the | face of economic uncertainty. | | Throughout its journey, Silicon Valley Bank has remained | committed to its core values of innovation, excellence, and | customer focus. It has always been willing to take calculated | risks and to push the boundaries of what is possible. This | approach has paid off in many ways, as the bank has been | recognized as one of the most innovative and respected | financial institutions in the world. | | In 2023, Silicon Valley Bank achieved a major milestone when it | was acquired by the FDIC. This acquisition was a testament to | the bank's success and the strength of its business model. It | also signaled a new era of growth and opportunity for the bank, | as it now has the backing of one of the most respected | regulatory bodies in the world. | | Looking ahead, Silicon Valley Bank is poised to continue its | incredible journey and to make an even greater impact on the | world. As the technology and innovation industries continue to | evolve and grow, the bank is well-positioned to help fuel that | growth and to support the entrepreneurs and visionaries who are | driving it forward. With its deep expertise, strong | relationships, and unwavering commitment to excellence, Silicon | Valley Bank is poised to remain a leader in the financial | services industry for many years to come. | boeingUH60 wrote: | > Bill Biggerstaff. | | He lived truly to his name! Founded a bank that processed | bills with a big number of staff. | Exuma wrote: | Here's why a bank collapse is a good thing. | ignost1cky wrote: | [dead] | colpabar wrote: | Bonus points if they mention effective altruism, and how great | it is, but how also it can be bad sometimes. | hef19898 wrote: | A pitty FTX went under before, just imagine SBF announcing he | is bailing out SVB! | jollyllama wrote: | If you bail him out of jail, he'll bail out your bank, and | then he'll bail out of the country. | tibbon wrote: | They'll have chatGPT write it | huslage wrote: | That's not really possible. SVB as an entity no longer exists | once the FDIC steps in. | NordSteve wrote: | Not entirely correct. There is still a "bad bank" which is | the SVB entity (and will be wound up in bankruptcy), and the | "new bank" which has all of the insured deposits. | Imnimo wrote: | Don't forget the cutesy nickname for its employees and users. | | "Dear Sveebles and Sveeblettes..." | khazhoux wrote: | Or a cute 404 page when you login to your account: | | "Oops, looks like Santa misplaced his bag with all your money! | Don't worry, his elves are busy looking for it all over the | North Pole." | reducesuffering wrote: | South Park nailed this | https://www.youtube.com/watch?v=-DT7bX-B1Mg | moffkalast wrote: | They've made an oopsie woopsie. | adrianmonk wrote: | Kinda seems like it should be a 503 Money Unavailable. | oefrha wrote: | 410 Gone is more accurate. | [deleted] | rtp4me wrote: | 420 - up in smoke | dpkirchner wrote: | 402 Payment Required | [deleted] | capableweb wrote: | Or 301 Moved Permanently. Or 406 Not Acceptable. Or 410 | Gone. Or 417 Expectation Failed. Or 429 Too Many Requests. | | So many fitting status codes to chose between I don't know | what to do! | jojosbuddy wrote: | Nah, it'll go to a GoDaddy page: "buy this URL for | $3.99/yr now!" | [deleted] | hef19898 wrote: | Using all of them, and switch between them? Maybe doing | some AB testing to figure out which ones work best with | users? | mayormcmatt wrote: | Damn, this guy HTTPs. | hnburnsy wrote: | Username checks out. | lukewrites wrote: | "This was a learning experience that will provide velocity in | our continued disruption of the finance space for startups. We | look forward to continuing to maintain a growth mindset as we | ~cash your checks~ earn your trust." | entwife wrote: | Are there any other banks that might be affected by interest-rate | risk? | arnonejoe wrote: | So that's it, all 6500 employees are out of work? Is there any | severance in this situation? | bagels wrote: | They may get to continue to work for the bank in the short | term, under new management. | tiffanyh wrote: | Stripe? | | Is Stripe adversely impacted by this given they recommended to | merchants to use SVB and probably accounted for a large portion | of deposits into SVB (from payment transactions) | brunoTbear wrote: | Stripe's money is not there | tiffanyh wrote: | Question being: if a meaningful portion of Stripes customers | were to bank with SVB, and if SVB were to seize operating - | would this effect Stripe? | | It'd be a Jedi move for Stripe to straight up acquire SVB. | Imagine how strong of an offering they could create then. | ummonk wrote: | Stripe doesn't have the assets to acquire SVB. As it is | they're looking for funding to pay employees' stock tax | bills. | m00dy wrote: | Sorry to say but the depression is on our way. | jossclimb wrote: | For tech workers who were part of the overtired 2021 cohort, | sure, however most other industries remain isolated to this. | hnburnsy wrote: | Wow, this guy called it in January...https://twitter.com/RagingVe | ntures/status/161582608803847373... | MrMan wrote: | wow very solid. you could have found SVB in screen just by the | LTD ration and HTM percentages and zoomed in from there. | blastonico wrote: | Better call Gavin Belson. | testfoobar wrote: | What a debacle. | | Some gallows humor from twitter: "Imagine raising $100m for your | AI enabled dog washing app - and your bank sets it on fire before | you can". | | Original: | https://twitter.com/88888sAccount/status/1634028258500169731... | banku_brougham wrote: | Its so funny until you realize your seed-round investment in a | friends company used SVB. | | Gonna be quite a show, this. | FormerBandmate wrote: | Tons of VCs had their assets there too. It could lead to | serious ramifications, anyone with substantially more than | $250k in that bank is out a lot and only time will tell how | much they'll be able to recoup. It's not an FTX situation, | the assets are somewhat there, but the losses in securities | look extreme and unwinding them at a fair price may take | months, if not years | anonymouse008 wrote: | 9 times out of 10 bankruptcy is a cashflow mismatch - this | is going to be quite painful for a lot of things. | shawabawa3 wrote: | It is actually exactly an FTX situation | | Not as extreme maybe, and less fraud got us here, but | $assets < $deposits | eshack94 wrote: | This is a bad take. It isn't the same situation. | cowmoo728 wrote: | There is a very large difference between FTX and SVB. The | people behind FTX will probably go to jail because they | committed crimes and effectively stole money. SVB | mismanaged interest rate risk and ended up on the wrong | side of interest rate hikes. They had similar results of | people quickly trying to pull all their money out, but | it's not "exactly an FTX situation". | blibble wrote: | no bank on earth can survive every depositor turning up | at once and demanding their money | | whereas an exchange shouldn't have a position at all | | and a hedge fund normally doesn't allow withdrawals at | all (without vast notice) | freejazz wrote: | Well, people didn't show up to demand their money for _no | reason_. | hef19898 wrote: | My reading is that the long term book value of those | assets is bigger than the deposits. And now that the | deposits are withdrawn, SVB ahs to liquidate thise assets | at current market value, which is (maybe?) lower than | deposits. So, at the least, it looks like a strange risk | management approach on behalf of SVB. And those clients | that kept most of their money at this one, single bank. | ethbr0 wrote: | From TFA: | | >> _As of December 31, 2022, Silicon Valley Bank had | approximately $209.0 billion in total assets and about | $175.4 billion in total deposits._ | ptero wrote: | I see it as _very_ different from FTX. In SVB there was | no fraud and no criminal wrongdoing; there may be no | moral wrongdoing either. SVB was a chartered bank, | subject to all regulation and reserve balance rules that | other banks follow. As far as we know they followed all | regulation to a letter. | | Two things got SVB down. First, a rapid change in | interest rate got their assets repriced down. It did not | need to be fatal, this happens to all banks when interest | rates rise quickly. | | Second, its customers did a ran and went to pull their | money. If all depositors of the BoA or Chase pull money | out, those banks will collapse, too. This is highly | unlikely for the BoA -- if folks start saying that BoA | will collapse most depositors would shrug it off; the | diversity of its base will make a run highly unlikely. | | But as SVB was a much smaller bank and had a lot of | similar customers (startups advised by similar VCs) the | ran was seen as plausible at which point it was over -- | customers pulled enough money to kill the bank. This is | the price we pay for the flexibility of the current | banking system that allows people to get loans and free | checking accounts. My 2c. | Mistletoe wrote: | There may be no moral wrongdoing but it seems quite dumb | to be so heavily in securities that massively lose value | when rates go up and rates are at historic lows, no? | | The only job for these execs was to know which way the | wind is blowing and they showed themselves to be not much | better than every other rabid fool that bought GME etc. | thinking things would never change and bull runs and low | rates would last forever. | freejazz wrote: | To be fair, it sounds like some shockingly negligent | management on SVB's part. Obviously thats orders of | magnitude off from the complete lack of management w/ | SBF. | ivalm wrote: | Presumably VCs have only a tiny fraction of their fund as | available as cash, so I guess it won't be too brutal. | zamnos wrote: | The VC fund only has a tiny fraction of their fund as | cash because most of it is loaned to to their portfolio | companies, which have it in cash at the bank their VC | partners told them to (because you can't pay payroll with | Tbills), which, to a large degree (judging from the | comments on the thread from last night) was SVB. It's | going to be brutal for every company who didn't get their | funds out before this morning's announcement, not to | mention the possible contagion risks. | ivalm wrote: | Yes, the companies will be screwed but that's not what I | meant. | | What I meant by VCs have a tiny fraction of their fund as | cash is that cash is held by LPs and is called upon only | when the VC funds a startup. When a VC raises a $1B fund | they don't get the money, they get commitment that the | money will be available. So this means that this failure | shouldn't affect VCs ability to invest in the future as | most LPs didn't hold their money in SVB. | gcek9 wrote: | That's right. Although there is an interesting thing to | consider: if you look at page 13 of the deck they shared | on Wednesday[1], it says 56% of SVB's total loans are in | the form of lines of credit issued to PE/VC funds, | secured by their LP commitments. I imagine many if not | most of those are fairly small in size, but it's possible | some funds took out much larger lines of credit, secured | by their future LP commitments, and were holding that | cash at SVB. So we could definitely see some funds | affected to varying extents. | | [1] https://s201.q4cdn.com/589201576/files/doc_downloads/ | 2023/03... | testfoobar wrote: | What is this? Does this mean that if PensionFundFoo | invests in VCFundX as a LP, that PensionFundFoo never | actually has to fork over cash to VCFundX to give to | StartupZ? Does this mean SVB accepted PensionFundFoo's | commitment to VCFundX as collateral and gave a loan to | VCFundX to invest in StartupZ? | zamnos wrote: | Ah, thanks for explaining. | | > most LPs didn't hold their money in SVB. | | At the very step of funding, do LPs wire the money to a | single bank (SVB) and then the VC dispurses it to the | startup in one lump sum? Or do the LBs wire the money to | the startup's bank account (at SVB)? | | I've heard that UHNW individuals also individually banked | with SVB. Wouldn't they have their money at SVB? | | Also, wouldn't the VC's long-term relationship w/ SVB | give them (the VCs and the startup they're funding) much | more leeway with what the bank considers acceptable | behavior (ie not money laundering and worth filing an SAR | over)? Now that those relationships are gone and the VC | has to go through the front door and deal with, say, | BankOfAmerica or Chase like the rest of us chumps; | doesn't the loss of that relationship materially hurt the | broader environment? | ivalm wrote: | Oh for sure. LPs would wire money to SVB and that money | may be frozen/will be returned at less than par. Loss of | relationship will also hurt. But for the biggest funds | LPs are like pension funds, and _that_ money will be | available. One thing to consider is that VCs may need to | call on their LPs to recapitalize their existing portcos | which may leave less space for new investment. | berkle4455 wrote: | They'll most likely be made whole or close to whole. It'll | just take time, so as long as that startup doesn't have a | huge burn already, should be fine. Anyway you bought % in | their company which you still own, the cash was gone when you | wired it. | davidw wrote: | > likely be made whole or close to whole | | I've seen several versions of this sentiment here. What are | people basing it on? I don't know much at all about the | situation. | [deleted] | newaccount2023 wrote: | its HN fantasy-land talk | | first HN said there was no problem | | then HN said everyone will get their money back | | what next? | | HN is full of dreamers, the kind who wander into traffic | dllthomas wrote: | The parent didn't say everyone would get their money | back. It said the friend who took a seed-stage investment | will likely get most of their money back. I don't know | the odds of that (most uncertain about the amount of | money involved) but it's definitely much higher than | "everyone gets all of their money back". | renewiltord wrote: | It's how the FDIC does things. They pay what are called | "dividends" on your previous deposits from the successor | bank as they sell off assets. | | But if you're curious, and want a layman no-jargon | version the press release from the FDIC is pretty good. | | I mean this in no uncertain terms. HN users know nothing | about this and are regurgitating pure rubbish over and | over again in this thread. If you're concerned, don't | even trust me, but go read the press release. CA put out | one too. | | https://www.fdic.gov/news/press- | releases/2023/pr23016.html | everybodyknows wrote: | > All insured depositors will have full access to their | insured deposits no later than Monday morning, March 13, | 2023. The FDIC will pay uninsured depositors an advance | dividend within the next week. ... | sroussey wrote: | Large burn? You mean any burn at all... | | Money there to to be spent over the next six months is now | not available. | | Payroll in Silicon Valley is going to be a mess this week. | | Companies that lend to startups short term are going to | have a busy time. | berkle4455 wrote: | [deleted] | lmeyerov wrote: | Yep traditional advice is don't burn > 100k / mo when | early stage, and most lower. So 2mo+ payroll fine for a | normal seed, early A. Later stage are normally more | sensitive. It's also a real issue with profitable | companies whose outflows are at that level and are | considering bigger purchases -- I'd be bailing if we were | there just bc that. | | Except the last couple years have been bonkers with | little revenue / spending alignment during fundraising. | Early stage burns are above that level, which makes the | situation worse for current crop of co's. Ouch and good | luck :( | berkle4455 wrote: | For sure. The post I was replying to was for a seed stage | company though. They've got $250k secured by Monday. My | point was small firms can meet payroll and bills just | fine with only $250k | zamnos wrote: | A company with 2 _6_ people, each making $120k (pre-tax), | or a company with 5 _1_ people, each making $60k /yr pre- | tax is enough to miss payroll this week if there's only | $250k to draw from, and that's not accounting for any | other expenses (like, say an AWS/GCP bill, though | hopefully you're net-60 with them). CEO/CFO's also now | got two weeks to come up with another $250+k in a complex | environment. | sroussey wrote: | Sure, pre-seed. Seed is usually $2m-5m these days, and | received all at once (mostly) as compared to VCs which do | capital calls. | twelve40 wrote: | but do you automatically get access to the insured part, | or do you have to sit around and wait for a few months | until FDIC hashes it out with whoever? it could be really | a matter of life and death for some startups. | | Update: yes, seems like the insurance part is pretty | quick | | https://twitter.com/MMikeMMa/status/1634245929481175040/p | hot... | bombcar wrote: | The IOUs that FDIC hands out can be borrowed against, or | sold. There will be a lot of people active this week | trying to buy them at favorable rates | idlewords wrote: | That makes it even funnier, though. At least to the rest of | us. | baggy_trough wrote: | You really have to be a tremendous shit to say this out | loud, even if it's how you feel. | loeg wrote: | Not now, Maciej. | idlewords wrote: | Literally no better time than now. | loeg wrote: | If it's all downhill from here, then I guess it will | never be funny. You don't speak for "the rest of us." | uoaei wrote: | Sounds like someone needs a little "kill your | heroes"-ing. | pwinnski wrote: | Counterpoint: Now and always, as many times as it takes. | sophacles wrote: | Isn't the investor justification for taking a huge chunk of | profits "we take risk"? I fail to see how this is unfunny | just because the risk you took played out in the bad way. | dannyw wrote: | More people will lose jobs. | serial_dev wrote: | I believe they didn't think that the biggest risk to their | investment would be the bank the co-founders chose. | recursive wrote: | Perhaps it wasn't the biggest risk at the time. Still a | risk though. | tiffanyh wrote: | Imagine having a life changing amount of personal wealth | deposited at a Crypto exchange, and before you can spend it - | the exchange sets it on fire. | themitigating wrote: | That sounds terrible and I feel bad for them. | idlewords wrote: | It's still life-changing after! | stephenhuey wrote: | Disrupt disrupt disrupt! Those old stodgy banks just slow us | down with their old-fashioned risk-averse ways! The cool kids | can do it better! | | If I had a nickel for every time I heard this from actual | friends in the past couple decades, or for when I said it | myself a few times... :) | renewiltord wrote: | HN really is like a ChatGPT version of itself. SVB is a 40 | year old bank, bro. They _are_ the old stodgy bank. The Meows | and Mercurys are all still around. | | Their problem was that their risk management didn't keep up | with the changing times (rapid interest rate changes). | | Please go on and tell us more HN tropey things like "oh they | shouldn't have sold customer data!" or more things that could | be an autogenerated robot comment by ELIZA. | [deleted] | wbl wrote: | 40 years ago is 1983. | https://fred.stlouisfed.org/series/FEDFUNDS | | Their risk management might have overeindexed on the post | recession era but the bank itself lasted through some | pretty wild rate shocks. | renewiltord wrote: | True. It looks like they mostly just made poor decisions | in their most recent allocations. Unfortunate. | | Mostly, though, all this talk about them like they're a | neobank is because everyone appears to think they are | one. | onlyrealcuzzo wrote: | But SVB wasn't even doing anything sketchy or disruptive, | right? | nairboon wrote: | Wouldn't say not sketchy, they traded interest rate risk | and didn't hedge properly. | borski wrote: | Correct. They were doing the same thing every other bank | was doing, and an unnecessary panic run did them in. | Depositors will get their money back because my bet is SVB | gets acquired, as their balance sheet was actually fairly | healthy (relative to other banks) pre-panic, but it's gonna | have ripple effects for sure. | | We shall see. | ghshephard wrote: | "unnecessary panic run". | | Say you are a Small Company with $5mm in a recent fund | raise that you have at SVB. You use that $5mm to make | payroll, pay amazon, your office, AT&T for your fiber, | buy macbook airs for your employees, etc... | | Now - you are listening to the recent news, and it looks | like SVB is going to be taken over by the FDIC. If that | happens, you will be insured up to $250K, but the rest of | your $5mm, all $4.75mm is now frozen. You will be given a | certificate for the uninsured funds, and you will be in | line to be paid back, but (A) Not immediately, and (B) | you may lose part of your funds. | | You, as a rational CEO, would probably want to put your | money in, say, Wells Fargo, where it wouldn't be frozen, | and you wouldn't lose any of it. | | That was the basis of the liquidity event that just | happened. | yeahsure22 wrote: | They won't get acquired, they no longer exist. The dream | is done. | jldugger wrote: | They've been acquired by a newly formed bank from the | FDIC. I'm not sure that bank will be around much longer | than it takes to mark their assets to market, since the | press release said they didn't know: | | > At the time of closing, the amount of deposits in | excess of the insurance limits was undetermined. The | amount of uninsured deposits will be determined once the | FDIC obtains additional information from the bank and | customers. | | No bank is gonna buy another bank until that is cleared | up. | yeahsure22 wrote: | Assets - 100b Liabilities - 130b | | Who is going to buy this bank? I wouldn't take it if you | gave me 40b. That's why they had to make a new bank. | makestuff wrote: | Probably the good old federal government. Something | something too big to fail. | toomuchtodo wrote: | I love the optics of remnants of Silicon Valley bank | being owned by the gov alongside Fannie and Freddie. | Behold the graveyard of poor risk management. | gr1zzlybe4r wrote: | How is the panic "unnecessary"? Are you saying that if | your personal bank told you that you could get your money | back, but just not right now, that you'd be ok with that? | | Liquidity is a key feature of banks and it relies on | trust. Without it, they have nothing. Trust isn't some | ancillary thing for a bank. It is almost _everything_. | anamexis wrote: | Does that means panics are necessary at every other bank, | seeing as how their liquidity is similar (or worse)? | JumpCrisscross wrote: | > _every other bank, seeing as how their liquidity is | similar_ | | Source? | | SVB had an unusual amount of long-duration assets. Most | banks maintain a buffer of low-yielding, highly-liquid | on-the-run Treasuries. | nostrebored wrote: | I would not find it surprising if bank liquidity was | actually historically low, especially considering that | many banks do maintain buffers _of the same covaried | assets_ and that banks _induce covariance when they | choose to use an asset class for liquidity_. | | Maybe ZFRB was just a really, really bad idea. | strbean wrote: | > my bet is SVB gets acquired | | By a Thiel-backed company, after he initiated the bank | run? | makestuff wrote: | Does he back Brex? I saw they had billions of inflows | yesterday. | borski wrote: | You may not be wrong, lol | eurasiantiger wrote: | Gotta get those black budgets somehow. | recursive wrote: | The market has demonstrated a demand for run initiators. | Who are we to doubt? | koolba wrote: | They had massive asset / liability duration mismatch. | That's gambling on low rates for an extended period of | time. | | It'd be like a traditional bank not reselling mortgages | to Fannie Mae. You can't have $1B of demand deposit | liability and $1B of 10-year treasuries because a rate | hike will wipe you out immediately if you need liquidity. | onlyrealcuzzo wrote: | Why can't a bank borrow for liquidity so it doesn't need | to sell at a discount? | lisper wrote: | It can, and when rates are low, many do. But interest | rates are rising, so borrowing is getting expensive. | borski wrote: | Every bank had this, especially during the last two | years. They were not the only one. The difference was bad | PR and a panic run. | hd95489 wrote: | If that's your theory then buy some puts because anyone | that did this will absolutely get ripped a new one | nostrebored wrote: | They won't in the short term. Even the GFC had a multi | year slow roll. Markets can remain irrational longer than | you can stay solvent and all that | dahdum wrote: | DFPI specifically called them insolvent _and_ illiquid, | took them over and handed them to the FDIC. I don 't | think they were all that healthy after all. | | https://dfpi.ca.gov/2023/03/10/california-financial- | regulato... | borski wrote: | No bank is healthy once all its depositors pull their | cash out. What their balance sheet looked like _before_ | the panic is what I 'm talking about. Every bank dies | from a bank run, period. | kgwgk wrote: | And how many banks are acquired after that happens | because of how healthy their balance sheet used to look? | charrondev wrote: | You can see a list of failed banks and who acquired them | here. https://www.fdic.gov/bank/historical/bank/ | | Every one in the past few years looks like it was | acquired. | nostrebored wrote: | The cost of money is very different now though. | kgwgk wrote: | This one is largest than the 100 previous ones combined. | | And the point is that there may be many reasons why a | bank may want to acquire a smaller failed one to | integrate it in its operations but "the previous owners | used to have a well-capitalized business until they | somehow lost it all" is not a strong reason on its own. | slowmovintarget wrote: | Unless they get bailed out by taxpayers because "they're | too big." | dahdum wrote: | Wasn't their balance sheet before the panic what _caused_ | the panic? It wasn 't some WSB meme that drove the bank | run, they couldn't cover their normal day to day | operations and started a bond fire sale and desperate | equity raise. | shadowgovt wrote: | IIUC: they could definitely cover their normal day-to- | day. The thing that broke down is they had to announce | true things that made investors conclude that their money | wouldn't grow as fast as investors expected, and | investors (understandably / justifiably) wanted to pull | it out to somewhere it would grow faster. | | (The investors don't actually know the money won't grow | as fast... the Fed could decide to drop interest rates | tomorrow, or something else could intervene making it | sensible to drop interest rates. But "not growing as | fast" was the very likely scenario). | | Once _everyone_ decided to pull, they were tanked because | no bank keeps 100% liquidity. | SilasX wrote: | No bank keeps 100% liquidity, but my understanding is | that most banks are _capable_ of getting liquidity -- at | least from the lender of last resort (LoLR) -- for | massive withdrawals based on the value of their loan | portfolio, and SVB 's portfolio had tanked too low to do | this based on interest rates the LoLR would lend to them | at. | twoodfin wrote: | Won't lots of investors (aka depositors) start making | this same analysis? Whether you have $10K or $10M, right | now you don't want your cash anywhere it's not earning | 3%+. So it's back to whether they're unique in finding | themselves uncompetitive as a place to park cash at a | market rate. | dahdum wrote: | > The thing that broke down is they had to announce true | things that made investors conclude that their money | wouldn't grow as fast as investors expected, and | investors (understandably / justifiably) wanted to pull | it out to somewhere it would grow faster. | | SVB disclosed they took massive losses from high risk, | high duration assets and were desperate for cash. | Investors took large (up to 60% over 24h!) losses, paper | or otherwise, to get out of the stock. That can't be just | concern over not growing as fast, that's concern about | solvency. VC's and depositors saw the same writing on the | wall, but it was SVB who wrote it there. | | If they were able to cover their normal operations, they | wouldn't have needed the emergency equity raise. | marioestrada wrote: | It was a 40 year old bank too | bombcar wrote: | Just about time for a midlife banking crisis! | FormerBandmate wrote: | They bought bonds, which tanked when the Fed raised | interest rates by 5% in a year. It seemed sane, until now | johngladtj wrote: | The bonds they were legally required to purchase? | lokar wrote: | No, they were not legally required to buy 10 year | treasuries | yeahsure22 wrote: | But they didn't have to buy THOSE bonds. They bought the | wrong bonds. | themitigating wrote: | Did they know they were buying the wrong bonds? | MrMan wrote: | I think maybe they are not very good at running a bank. | nairboon wrote: | Of course, they are bankers, bonds are their daily | business. | PKop wrote: | if they bought short term bills they wouldn't have lost | value like the 10 yrs did. So, they made a duration | mistake. | dahdum wrote: | They chose to buy the much riskier bonds to support their | very high 4.5% savings yield. | MrMan wrote: | they were offering 4.5%? that explains a lot in terms of | their reaching for yield in low quality assets | victor106 wrote: | Yeah, the cool kids also say/used to say only if they used | blockchain this wouldn't have happened...lol | spaceman_2020 wrote: | In all fairness, those stodgy old banks have been bailed out | multiple times in the past. | andrepd wrote: | If only banks were risk-averse x) Unfortunately they are | risk-happy when they know bankruptcy means a taxpayer rescue. | cal5k wrote: | In fairness, it wasn't the risk-taking that did them in... it | was the fact that they went all-in on 10-yr bonds at low | interest rates and didn't adequately account for duration | risk. | williamtrask wrote: | Forgive me but I think this may be a contradiction. "didn't | adequately account for duration risk" == "risk taking that | did them in" | cal5k wrote: | There's a big difference between accounting for KNOWN | risks wrt managing your treasury - something that every | bank does as a matter of course - and trying new things. | CrazyStat wrote: | Surely having your reserves locked up in assets that you | can't sell without taking large losses is a known risk? | nairboon wrote: | What kind of bank doesn't know about interest rate risk? | That's their whole business. | cal5k wrote: | That's what I'm saying. That's not the bank doing | anything fancy and failing because of it, it's them not | doing the basic things every bank should be doing. | [deleted] | SteveNuts wrote: | Especially when the fed is telegraphing every move. | hef19898 wrote: | One of the reasons each and every central bank does | telegraph _heavily_ is exactly to prevent situations like | this one. | p_j_w wrote: | >it wasn't the risk-taking that did them in [...] didn't | adequately account for duration risk. | | This sounds like risk taking to me. | adam_arthur wrote: | Duration risk is risk. Bonds are not risk free. Buying | treasuries at ~0% rates was frankly stupid. The narrative | going around that there was adequate risk management here | and at Silvergate is not correct. | | The main question is whether they were forced into these | investments via regulations. It's likely they could have | bought shorter dated treasuries and been fine. In the end, | regulations may change such that banks can only buy short | dated treasuries... or limitations on the level of duration | they can hold. | SilasX wrote: | >Duration risk is risk. | | Correct, but the GP's point was that it was _not_ | "startup creditworthiness risk", the thing SVB was most | ridiculed for taking on. | makomk wrote: | Yeah, arguably duration risk is pretty much the stogiest, | most old-fashioned banking kind of risk that could | possibly have tripped them up. Long-term loans and short- | term deposits is basically what banks traditionally do. | shadowgovt wrote: | The weird thing about all this to me is that the bank got | sunk because they... Invested in very solid, predictable | assets with guaranteed-except-for-apocalypse ROI. | | They're not being punished for losing money; they're | being punished for not having the money put somewhere it | could grow faster. | | I can't escape the feeling that America has lost its grip | on what banks are supposed to be for. | mrguyorama wrote: | >they're being punished for not having the money put | somewhere it could grow faster. | | No, it's because they didn't properly manage their assets | to serve existing depositors if those depositors wanted | to withdraw. Locking up money for 10 years has obvious | liquidity consequences. I knew that when I first learned | what a "CD" is when I was like 10. | adam_arthur wrote: | If you buy bonds you can lose money. To say they're risk | free is wrong. Treasuries carry no credit risk, but they | do carry duration risk. If you buy treasury bonds above | par, you can also lose money even if you hold to maturity | (though it would be illogical to buy them with negative | yield. However we have seen this being done in Europe | anyway) | | Duration risk is risk. Taking on 10-30y maturity is not | "risk free" | | Many of these banks are holding Munis and other non- | treasury bonds, which are not free of credit risk and can | be worth 0 in some circumstances. I don't know about | SVB's balance sheet, just speaking generally | shadowgovt wrote: | In this context, "lose" money means "You won't get as | much money out as you would have if you had invested the | money in something else?" Because if I buy a t-bond at | $5, I'm expecting to get at least $5 back when it matures | unless Uncle Sam has died. | adam_arthur wrote: | If you buy a T-Bond at 110 the treasury will pay you back | 100 at maturity, thus you lost money in nominal terms | (depending on coupon rate). This has been happening in | Europe with their previously negative yielding debt | | What you mean to say is there's no credit risk. Not the | same thing as you can't lose money. Saying you are | guaranteed X dollars 30 years from now does not mean much | at all if people need money today. This is not "safe" or | prudent | nairboon wrote: | MBS are neither solid, nor predictable nor do they have a | guaranteed return. Have a look at the GFC, where many | thought MBS are how you describe them. | shadowgovt wrote: | I thought it was over-investment in 10-year T-Bills that | did them in. | capableweb wrote: | Thing is, it's probably true for 1% of the cases, that things | are slow for no good reason. Trick is how to identify that 1% | of times when you can truly make something better. But 99% of | the times, it's all shit and ends up like this, or similarly. | [deleted] | ethbr0 wrote: | The irony is that, as near as I can tell, they cratered | their balance sheet because they were heavily into long | maturity bonds (i.e. super conservative). | | https://www.cnbc.com/2023/03/09/svb-financial-falls-more- | tha... | | That seems an odd position to allow to build given the | current macro. Post-Fed changing their mind on inflation, | the course was charted. | | I'm guessing they held to avoid taking losses, and at some | point it became untenable? | kgwgk wrote: | > long maturity bonds (i.e. super conservative) | | Do you think that long maturity bonds are more | conservative than short maturity bonds? | JumpCrisscross wrote: | > _Do you think that long maturity bonds are more | conservative than short maturity bonds_ | | No. Nobody does. That's why they typically yield more. | kgwgk wrote: | Maybe ethbr0 does - considering the quote about super- | conservative long maturity bonds. | | Why do you say that he doesn't? | JumpCrisscross wrote: | > _considering the quote about super-conservative long | maturity bonds_ | | Within the set of long-maturity bonds, Treasuries are | conservative. That doesn't make them conservative _per | se_. | kgwgk wrote: | Full quote: "The irony is that, as near as I can tell, | they cratered their balance sheet because they were | heavily into long maturity bonds (i.e. super | conservative)." | | What exactly makes you think that the "(i.e. super | conservative)" remark is not about "long maturity bonds" | - which is the think that he just referenced? | | He didn't mentioned Treasuries at all. I find quite | difficult to interpret the "super conservative" as being | about some kind of long-maturity bonds relative to | another kind of long-maturity bonds. | travisjungroth wrote: | The problem isn't what they bought it's what they sold. | It was all correlated. Loans to startups were going bad | while startups were pulling deposits since they weren't | getting funded. So you're taking losses while losing | capital. Doesn't really matter what else you're holding | at that point if it doesn't happen to be skyrocketing | right now. Long term bonds will never be that thing, but | at any point in time almost nothing else would be, | either. | Voloskaya wrote: | > Those old stodgy banks just slow us down with their old- | fashioned risk-averse ways! The cool kids can do it better! | | SVB was an old stodgy banks that companies went to instead of | the new kids like Mercury, specifically because of the trust. | They have terrible UX and mobile app but at least they were | solid and had a 40 year track record. | sylvainkalache wrote: | Speaking of Mercury, they recently announced increasing | customers FDIC insurance maximum to $1M for customer | accepting to enroll in their sweep program. Not sure SVB | offers this but I hope they do. | dismalpedigree wrote: | Mercury is not a bank. It keeps your funds spread across | many banks where they open accounts on your behalf. Then | they spread the deposits around to stay below the $250k | threshold at each bank. Same as Fidelity and many others. | I would be shocked if SVB was sweeping deposit funds into | other banks. | iozero wrote: | I've heard from a few people today who have Cash Sweep | Accounts at SVB: https://www.svb.com/liquidity- | management/deposits-and-invest... | | Some claim that these accounts are insured/protected up | to _$125m_ , but I can't find any info online to | corroborate that. | dismalpedigree wrote: | This surprises me. I wonder what the mechanism and | incentives are for a bank to sweep deposits to another | bank. | xxpor wrote: | How can they do that? They don't choose FDIC limits. | themitigating wrote: | Why does it seem the perception of the tech industry is that | products are just useless devices (like what you mentioned) or | scams, that its employees are lazy and entitled, and basically | it's all just a giant bubble of alof elites. | | The same traits are present with every industry. How many BS | oil fields are funded but turn out to be over hyper. What about | real estate scams? | | Right wing media has done a great job of changing the | conversation from big oil to big tech and many people here are | helping, maybe with geniue intention, but foxnews or whatever | is attacking tech because it's mostly liberals not because they | are concerned with the industry's practices | Octokiddie wrote: | Maybe it's time to resurrect Fucked Company. | | https://en.wikipedia.org/wiki/Fucked_Company | dheera wrote: | Maybe it's time to get rid of fractional reserve banking and | change it to full reserve banking. | | We really don't need a bunch of fake money flying around. It's | time to have every dollar in the wild be a real dollar. | kibwen wrote: | Full-reserve banking doesn't eliminate risk, it pushes it | elsewhere. The nice thing about fractional reserve (yes, | there are nice things about it!) is that it allows people to | have a savings without completely paralyzing the money | supply. Money that is "saved" can still be used for | productive purposes. Yes, this introduces risk (of the sort | that the FDIC is intended to ameliorate), but the alternative | is to either discourage savings entirely in favor of active | investments (which are themselves mostly subject to the same | sort of risks as savings accounts of today), or otherwise | encourage savings but let the economy be strangled by a lack | of funds (which becomes a vicious cycle). | | Certainly we can argue about the precise percentage of the | fractional reserve, but keep in mind that "100%" is not a | panacea. | dheera wrote: | > Money that is "saved" can still be used for productive | purposes. | | If I wanted to put money to productive purposes (at risk, | with reward) I would do so myself. I'd buy bonds, stocks, | options, lend money out, whatever. I already do this. | | Whatever I keep in cash, without investing, is | intentionally kept as cash, and I want that part to be zero | risk, I don't need the bank to help me invest it at nonzero | risk. | [deleted] | andrewmcwatters wrote: | Unrelated to their finances, but they have an exceptional | engineering team over there that I had the privilege of speaking | with. | | I'm sorry to see this happen. | danielmarkbruce wrote: | Most un-insured depositors are going to get most of their money | back. They'll get a good chunk (guestimate 20-50%) of it back | within a week. The claims on SVB which will be held by depositors | will likely be able to be sold to investors who specialize in | this stuff for something reasonably close to par. Those who just | hold onto the claim will be paid out most of what is owed (maybe | literally 100%, more likely 90%+), but it will take longer. | | It will be annoying and stressful, but basically ok. | xeeeeeeeeeeenu wrote: | In the previous thread, someone posted a video showing the | process of the FDIC seizing the Heritage Community Bank in | Chicago: | | https://www.youtube.com/watch?v=KIh6NEBL8BU | | It's pretty interesting. | Animats wrote: | Rippling, the payroll company, reports that payouts "in flight" | may fail.[1] They used Silicon Valley Bank. They're switching to | J.P. Morgan Chase. | | [1] https://twitter.com/parkerconrad/status/1634237386564730882 | mupuff1234 wrote: | Any recommendations for analysts/blogs/etc to understand how this | might unravel? | [deleted] | tlb wrote: | The regulations that allow a bank to hold long-term fixed-rate | bonds backing variable-rate liabilities (since deposit rates | float) seems broken. | | It's straightforward to reckon their exposure to interest rates: | they had $90B in 10-year fixed rate bonds, so they lose $9 | billion per % of interest increase. They must have known that a | 4% increase in interest rates would put them underwater, but they | did it (and were allowed to do it) anyway. It'll be interesting | to learn about the process behind that decision. | Randalthorro wrote: | What's crazy to me is the fed hasn't been raising rates out of | the blue. What the fuck was this bank doing the last two years | during every raise? They should have been rebalancing. | eclipsetheworld wrote: | I'm wondering the same thing. The current rise in interest | rates must have been a scenario that the bank considered. How | can we still have a system that allows situations like this to | happen? Other than negligence or malpractice, I cannot fathom a | reasonable explanation as to how this happened / was allowed to | happen (again). | kragen wrote: | this is the system working as designed | | zero risk is not a thing | [deleted] | mynameisjonny_ wrote: | There's nothing wrong with your first sentence really. Banks | can (and should) hedge these risks using swaps and other | products. Someone really messed up here. | bombcar wrote: | _All_ banks run on exchanging short term liabilities for | long-term assets. No bank is big enough that it can survive a | large enough run. | | The whole point of capitalization stress-tests is to | determine that banks can withstand a certain amount of | withdrawals. | | It of course is going to be much much more likely on a bank | that only has 3% FDIC - I have no desire to "run" on my bank | because I am below the $250k limit, and even if the accounts | were frozen for a week it wouldn't be that worrisome. | | But if I were a startup with $100m at SVP, I would have been | _freaking out_ earlier this week. | engineeringwoke wrote: | A swap has two sides. Someone still holds the bag, so what | you're saying here doesn't make sense. What SVB was doing is | typical; regular banks don't hedge anything. You can see | everything in a Bloomberg terminal | bagacrap wrote: | they don't lose anything if they're not forced to liquidate | those bonds but can hold them to maturity. It seems like the | real problem here is a lack of diversity in liabilities (all | tech/biotech startups). | tlb wrote: | That's not true. When interest rates go up, they have to pay | the higher rates on customer deposits, but they're not | getting any more from their bonds. Perhaps they can spread | the losses over 10 years, but the losses are the same. | xhrpost wrote: | I don't think they "have" to pay the higher interest. | Wouldn't they ultimately get that interest from parking | money at the Fed over night? A bank isn't going to pay | interest on money that results in a net loss, either they | get it from the Fed or they are making private loans at a | higher rate. Otherwise there would be no incentive to | increase deposits as each would result in lost profits. | tlb wrote: | A bank either pays competitive deposit interest rates, or | people move their deposits elsewhere. That can happen | quite quickly, and they'd have the same liquidity | problem. | jasmer wrote: | The whole f*ing point of banks is to hold your money. | | WTF is Silicon Valley if they can't make a bank that is just | supposed to sit there and not do much - not collapse. | | I loathe to say this but maybe the CrytoBros need to come back? | | Bank collapses should happen as often as regular buildings | collapse for no apparent reason. | | It's a bad look if there is less trust in regular banking. | hintymad wrote: | Will startups have problems paying salaries now? | fullshark wrote: | Good question and to me it seems the answer can only be yes. | severingties wrote: | If the company's payroll is under the $250K FDIC insured | amount, they can make payroll on Monday. If the company's | payroll is like $1 million a month, maybe not. | jossclimb wrote: | I can't see many startups having that sort of salary bill, | unless they are a small seed with just a few founders working | on a small wage as a sacrifice for their own investment. A | lot of these startups would have hired during the frothy 2021 | early 2022 phase when $250k might just cover a single | employee. | manquer wrote: | 250k for a single employee's mid month payroll ! That is | $7.5m / year in only cash compensation!! that would be | unheard of for startups who only bank at SVB, even only few | blue chip CEOs will draw that much cash . | | Realistically 250k for 2 weeks pay probably can cover | between 30-60 employees, if founders and some key senior | folks can willing and are able afford to defer maybe | stretch to 75. | preinheimer wrote: | I know SVB was an early partner for Stripe Atlas[1], I hope | they've got other options now, and not too many companies get | really hurt here. | | [1] https://www.svb.com/news/company-news/silicon-valley-bank- | pa... | bagels wrote: | They had three choices. Mercury and one other. | [deleted] | reducesuffering wrote: | Does this mean $SIVB stock holders who had $265 shares two days | ago now have worthless shares? JFC no wonder bank stocks are | priced so low compared to earnings... You're just hoping the | dividends pay out enough before the inevitable implosion. | ejb999 wrote: | pretty much. | abofh wrote: | Well, they were 38$ this morning, but yeah, probably going to | approach zero | boringg wrote: | They will be getting something but probably close to pennies on | the dollar. Depends on how it gets repackaged and sold. | rootusrootus wrote: | In the FDIC priority list, stockholders are dead last, | depositors first. If the depositors take any kind of haircut, | I'd guess stockholders will end up with exactly zero. | college_physics wrote: | For some context, it seems that this is the first bank failure | since some time (Oct 2020) [0] | | [0] https://www.fdic.gov/resources/resolutions/bank- | failures/fai... | seizethecheese wrote: | So, I would expect a secondary market for deposit certificates to | spring up. Has it? If so, what's the value of $1 in deposit | certificates at SVB? | | If it hasn't, this would be a helpful way to provide liquidity to | startups with SVB deposits. | mkmk wrote: | Oldie but goodie on what actually happens when a bank is taken | over. https://www.npr.org/2009/03/26/102384657/anatomy-of-a- | bank-t... | mikece wrote: | From the looks of the news stories, it looks like the FDIC | isn't as efficient in taking over a bank as it used to be: | | https://nypost.com/2023/03/10/nypd-called-to-silicon-valley-... | Animats wrote: | When the FDIC takes over a bank, they usually have some local | cops around, to deal with crowd control and calm down upset | depositors. See the 60 minutes video. There's a police car | parked in front of the bank, but the cops are not doing much. | ellisv wrote: | I wonder if the FDIC is just as efficient but this situation | is different. | Kye wrote: | Possibly a forced rush job after that comment about | solvency. I think the FDIC usually prefers to do secret | operations under the cover of night to avoid problems. With | everyone's eyes on the bank, that wouldn't be an option. | PascLeRasc wrote: | That's fascinating. I'd love to watch a documentary about that. | khuey wrote: | This 60 minutes segment from the Great Recession is the | closest thing I know of to that. | https://www.youtube.com/watch?v=TAE8i40A5uI | bgc wrote: | 60 Minutes followed an FDIC takeover in 2009, including when | the agents actually walked into the bank's headquarters: | https://youtu.be/TAE8i40A5uI | supernova87a wrote: | I just watched it -- aside from the very interesting | mechanics of the FDIC coming in and taking over a bank, I | thought Sheila Bair (the then FDIC chair) came off as very | knowledgeable, realistic, and critical of the risks posed | by big banks. She went on to become a university president | after the recession / banking bailout. | TremendousJudge wrote: | That interview with the chairman (chairwoman?) is just | great. She straight up says that maybe they shouldn't bail | out the big banks and instead apply a similar process to | them. | FormerBandmate wrote: | This case is unique because of the sheer volume of non-FDIC | insured deposits. Substantial risk of depositors not being made | whole for a while, they'll probably get all their money but it | will still be bad | nostromo wrote: | _All_ their money? I doubt it. | | SVB owned a bunch of mortgage backed securities and | treasuries - both of which are down 30-50% from their peaks, | which coincides with our last venture capital boom. SVB was | buying at the top because they had so much capital to deploy. | | Maybe instead of cashing it out, depositors could be given a | treasury worth 30% less than SVB paid for it, that pays out | 1% a year in interest, redeemable at face value in just 20 | short years. | FormerBandmate wrote: | They weren't insolvent yesterday, they just had a rush of | withdrawals. It will probably be upwards of 90 cents on the | dollar, but that amount of money locked up in a possible | credit crunch coupled with a loss of confidence in banks | and the current startup environment is very bad | nostromo wrote: | They weren't insolvent because banks are allowed to | pretend treasuries haven't lost value so long as they | intend to hold them to maturity. | | Across all banks, there are over $600b in such losses. If | they can hold those securities until they mature, all is | good. If they need to sell them earlier, the losses | become real. | | https://twitter.com/grdecter/status/1634091448743219201?s | =46... | khuey wrote: | In SVB's case I believe they are mostly mortgage backed | securities (ironic, eh) rather than treasuries but yes. I | wonder if this will spur any reflection on the accounting | rules for HTM securities. | dehrmann wrote: | I bet they bought mortgage-backed securities because | returns on everything safer were essentially zero. Crazy- | low interest rates for too long created this problem. | amluto wrote: | > If they can hold those securities until they mature, | all is good. | | That's an odd bit of logic. If interest rates stay the | same and nothing of interest happens for the next 20-30 | years, then those banks will lose the spread between the | interest on those instruments and the interest they're | paying (SVB was paying 4.5% on savings!) for 20-30 years. | That money needs to come for somewhere. The net present | value of that loss is a very similar number to the | unrealized mark-to-market loss of value of those | instruments. | | It's almost tautological that being able to hold those | instruments to maturity requires that they remain solvent | for the term of those instruments, which means that the | money to cover their losses must come from somewhere. | | Now everyone involved can gamble that interest rates will | go back down in a few years and those short interest rate | positions will recover, but that's a gamble, not a | certainty. Of course, the Fed does have a bit of an | interest in pushing rates down if needed to avoid bank | failures... | capableweb wrote: | > They weren't insolvent yesterday | | Didn't management/CEO/someone high up in the company say | something like "We're safe unless everyone pulls out | their money" the other day, indicating that they were de | facto insolvent? | ummonk wrote: | That just indicates they didn't have liquidity to cover | every deposit, which is true for basically every bank | that doesn't charge you to store your money in a vault. | capableweb wrote: | Which I guess makes it about semantics. If everyone takes | out there money one at a time, one person each week, over | years, they would be solvent. But if everyone did it at | the same day, they wouldn't be able to handle it, making | them insolvent. | kragen wrote: | i think by that definition all fractional reserve banks | are 'de facto insolvent', which would make this a | definition of 'de facto insolvent' that isn't useful for | fractional reserve banks, since it doesn't distinguish | among classes of fractional reserve banks | | and yes, the ceo did say that yesterday, which is likely | why this happened | cameldrv wrote: | Yes but supposedly if you mark their balance sheet to | market, the net is approximately zero, i.e. they have just | enough assets to cover liabilities with no reserve. In this | case you could say that the reserve requirement is serving | its purpose. The stockholders may be wiped out (depending | on how much a potential buyer values the goodwill), but the | depositors should get all their money back. Worst case I | think depositors would take a small haircut. | opportune wrote: | If they have to liquidate their assets (mbs/treasuries) | they'll probably create at least some slippage, moreso in | MBS, that may prevent them from recouping their value at | current prices. Alternatively they can try to hold to | maturity or spread out their selling but that will make | depositors illiquid | cameldrv wrote: | I don't think that holding to maturity really solves the | fundamental problem though. The reason the MBS have lost | value is because they have a low coupon compared to what | you can get now. To execute the hold to maturity | strategy, they would have to pay the depositors interest | with the coupons from the MBS. | | Under ZIRP, the depositors weren't getting anything, and | so making 1.5% on MBS was fine. In the current interest | rate environment, depositors won't be satisfied with a | zero yield on their deposit accounts, and the MBS don't | pay enough to cover it, so either they lose depositors | because they're not paying competitive interest, or they | take a loss every day because their investments don't | cover the cost of the deposits. | | Ultimately keeping the bonds on the books as HTM just | spreads out the loss over the lifetime of the bonds | rather than recognizing it right when interest rates | change, but the result is the same. | opportune wrote: | Oh fully agreed. They fundamentally lost depositors' | money by making bad investments - holding to maturity is | just a way to argue that depositors will be made whole. | The depositors may as well just be given the bonds/mbs | themselves and allowed to hold to maturity _or_ sell them | to meet immediate needs. | eagleinparadise wrote: | If you mark to market hold to maturity assets for any | bank there are hundreds of billions of loses, fyi | PKop wrote: | Yes so the key distinction is this bank had a bank-run | against it that forced their hand. Fair to say any number | of banks would fail if they faced a bank-run in current | environment (depending on proportion of long dated bonds | they hold)? | hindsightbias wrote: | SBF was a piker. | gnopgnip wrote: | Have there been any cases in modern times, in the last 25 | year or so where depositors lost money because they had more | than the fdic covered ? | dmoy wrote: | Yes it happens literally every year. It's not usually a | huge %, like it might end up being in this case. | pirate787 wrote: | 50 cents on the dollar at IndyMac in 2008 | | https://www.depositaccounts.com/blog/indymac-depositors- | are-... | JumpCrisscross wrote: | > _Substantial risk of depositors not being made whole for a | while_ | | Emphasis on for a while. Stock and bond holders (man, did the | latter miss the ball) will absorb losses. | kgwgk wrote: | As of Dec 31 the total liabilities were $195bn. | | Given that they had only $5bn of long-term debt - and | $173bn of deposits - it seems that bond holders cannot | absorb much (even though it's not very likely that they | receive anything). | wbl wrote: | That's $23 billion of non-deposit liabilities that will | be junior to the deposits. | dannyw wrote: | What stock holders? Market cap was 2.5 billion pre-market, | a small fraction of the 175b of deposits (as of Dec 31, | 2022). | JumpCrisscross wrote: | > _market cap was 2.5 billion pre-market, a small | fraction of the 175b of deposits_ | | Market cap doesn't matter. Balance sheet equity. | loeg wrote: | Possibly forever, if the assets aren't there. A senior | claim on $0 is still worth $0. There may be sufficient | assets to pay back depositors, but we don't really know at | this point. | dmoy wrote: | It's a little unique because it's a top 20 bank failing. As | far as I can tell, it's not super unique in terms of % of | fdic insured deposits. | | As a whole it's like <30% FDIC insured in the whole US | banking industry. | | > they'll probably get all their money but it will still be | bad | | They may not. Even for banks where most assets are FDIC | insured, you'll see that not 100% of deposits are returned. | Selecting a random recent one: | | https://closedbanks.fdic.gov/dividends/bankfind/Dividendinde. | .. | | ~95%. | mwarkentin wrote: | Looks like 2.7% of their deposits were > 250k. So yes, it | seems relatively unique (there are only 5 banks on this | list with <15%). | | https://twitter.com/GRDecter/status/1634208652595699713?s=2 | 0 | [deleted] | MR4D wrote: | You've got that backwards. Reread the tweet you linked | to: | | "Only 2.7% of SVB deposits are _less than $250,000_. | Meaning, 97.3% aren 't FDIC insured." | | Not a good situation at all. | dllthomas wrote: | Aren't _fully_ FDIC insured, yes? | lobochrome wrote: | Yes - if you have 5M$ in the bank, you'll have 250k$ of | that insured. Not that comforting. | dllthomas wrote: | But if you put in $250k because you're responsibly | splitting things across banks, and the interest you've | made on it raised you to $252k, you're counted amongst | the 97.3% and it's not a big deal. | | I'm sure some people are out meaningful amounts of money, | but I'm not sure what a typical account looks like. | niij wrote: | It's 97.3% of deposits ($), not _depositors_ | dllthomas wrote: | Hm, you may be right, though "deposits are less than" is | a really weird way to phrase it in that case. | [deleted] | ren_engineer wrote: | will companies with money in SVB even be able to make payroll? | Seems like this could cause huge issues in the short term and | long term | sroussey wrote: | Pipe, Clearco, Founderpath, etc, are going to have a busy | month. | | Likely many companies won't be able to do mid-month payroll. | | Someone will setup a market for the FDIC warrant on uninsured | deposits, but that will take time. | martinshen wrote: | Who do you think backs those Clearco loans? | katmannthree wrote: | Are clawbacks a thing in this case for the people who did get | [some] of their money out in time? | dmoy wrote: | no | pclmulqdq wrote: | Clawbacks are only poised to happen for big crypto failures | (FTX) because the people who held money in those institutions | aren't technically "depositors," and are considered a more | generic type of creditor (which has a bankruptcy clawback). | | Bank deposits are special and there will be no clawback. | However, depositors who lost money will be first in line at | the bankruptcy court. | dmoy wrote: | note there is no bankruptcy court here. SVB will go into | fdic receivership and almost certainly be sold off to | another bank. Depositors are still first in line to get | stuff back, but it's not through bankruptcy court. There is | no court involved. | mikece wrote: | I know a couple bank VPs who have been the representative of | the take-over bank in absorbing failed banks. They describe it | in terms that most of us would recognize as taking over a | failed project and re-architecting/refractoring it so that it | can succeed (or making the call to discard all work to date and | start over with a workable solution). | armatav wrote: | Those mortgage backed securities will get you every time | twelve40 wrote: | So it seems like they mismanaged their assets and their | liabilities, taking on a lot of expensive deposits while | investing at low yield. | | What I don't get is all this pro-SVB, anti-VC sentiment, how | "some VC's yelled fire in a crowded theater" and caused the poor | bank to collapse. Isn't it just common sense though, to protect | your money? The bank fucked up by doing risky reckless things, it | got exacerbated because the customer base is not as diverse as a | big bank - it's all startups that are subject to the same | patterns, and SVB is not as big for the govt to bail out, so the | bank customers did the only logical thing which is to withdraw | your money before it disappears, yet they get lectured for doing | that. | | https://twitter.com/msuster/status/1634203251758469120 | | https://www.linkedin.com/pulse/few-thoughts-svb-jeremy-solom... | danielmarkbruce wrote: | Of course the VCs who told their portfolio companies to pull | the money were doing the right thing, by the people they are | obliged to do the right thing by. They want to protect their | companies and their investors. They'd be mad not to, and they | are legally obliged in many cases. | | I think you'll find a lot of the people complaining are people | who got hit and are bitter about it. | | e.g. some CFO's seem to be complaining about VCs - the CFOs | likely didn't do their job, one part of it is "treasury/cash | management". Some VCs are complaining about other VCs - | probably they weren't paying attention and their portfolio | companies got hammered. | gregruss wrote: | If you don't understand the sentiment, I recommend that you | read about what happens in a "run on the bank". Too many large | withdrawals at the same time results in a liquidity crisis. No | bank in the country has enough reserves to pay all of its | customer accounts at the same time; it's part of our system of | fractional reserve banking. A massive spike in withdrawals | forces a bank to sell long term securities in a disadvantageous | environment, often for a huge loss. That undermines customer | confidence and exacerbates the issue, causing more people to | withdraw. A single person could bring the most successful bank | to its knees in that environment, as long as enough customers | believe them; it's a self-fulfilling prophecy. | | https://en.wikipedia.org/wiki/Bank_run | twelve40 wrote: | So my personal takeaway: pick a bank that is too big to fail, | because if it happened to a bigger, non-niche bank they | probably would have used the taxpayers' money to bail it out. | | PS. the sentiment still makes no sense, SVB customers did not | sign up for the bank to gamble with their money and they have | a full moral right to do whatever it takes to get their | working capital back the second they start to sense any | trouble. These withdrawals are not just stupid meme stock | lulz, this money belongs to the customers. | kelnos wrote: | I was talking to some friends in finance about this, and | unfortunately most of SVB's customers couldn't just pick | another bank. Allowing a company to open a business account | requires a bank to do a lot of know-your-customer stuff, as | well as taking on a bunch of money-laundering and criminal- | enterprise risk (that is, there are laws that punish banks | if they hold funds that are used for criminal activities, | especially terrorism-related activities). | | Many banks, even the big ones like Bank of America, Wells | Fargo, and Chase, do not want to do this for random new | small companies with no history and unknown founders. SVB | was -- I believe -- founded in part to fill this gap. | | Beyond that, there are also come contractual relationships | between some VCs and SVB that require some VC portfolio | companies to hold their deposits (at least some amount of | them) with SVB. (I don't entirely understand this point, | but even if I'm getting it wrong, the previous point is | enough.) | Randalthorro wrote: | The same thing happened to all these stupid crypto exchanges | and banks and yield scams. | | The point is that they are supposed to have capitalization | requirements and regulations that show they actually have | more assets than liabilities. | | But in reality they don't so fractional reserve doesn't work | here. In fractional reserve the bank still has assets worth | more than liabilities. That's the whole point of the | regulation. | | This bank doesn't meet that basic requirement. | | This is due to the rate hikes, yes, but just like all the | recent events if the bank had properly adjusted its portfolio | after the hikes, making losses and having a shitty stock | price for a while, it would have been able to weather this | storm. The storm came because the bank never adjusted until | too late. It waited until it was negative from asset | devaluation due to interest rate hikes | lolinder wrote: | I think we all understand why VCs telling people to get their | money out caused or accelerated the collapse. But what was | any _individual_ VC supposed to do, tell their startups to | just go down with the ship? | | It's the same dynamic as the toilet paper shortages at the | beginning of covid: most people weren't panic buying because | they thought that there wouldn't be enough toilet paper to go | around if everyone kept cool, they were panic buying because | they knew not enough _other_ people were keeping cool. | | If it looks like the only reward you'll get for keeping your | cool is a few weeks with a dirty bottom, it's hard to avoid | joining in the run. | hn_throwaway_99 wrote: | "When there is a run on the bank, it's important to be | first in line." | | Bank runs are fascinating psychological dilemmas to me. On | one hand the SVB CEO was correct - everything _would_ have | been fine if every depositor hadn 't run for the door. But, | when a bank says "please don't run for the door", it's | already too late. | twelve40 wrote: | Yeah, he was basically asking for the customers to keep | fronting his risky shit. I'm almost certain SVB CEO | already knew what was going to happen in the next 24 | hours after his "stay calm" interview - FDIC doesn't get | dispatched like that for no reason. | | https://www.barrons.com/articles/svb-financial-stock- | sale-ce... | kelnos wrote: | Fronting risky shit or not, on the whole, SVB's | depositors would have been better off if every one of | them had calmed down and done nothing right now. I would | certainly understand if depositors would then build a | measured plan to diversify their deposits over the next | year or so, but while SVB certainly caused lack of faith, | the reaction to that was what caused SVB to fail. | | So ok, we've "punished" SVB's management's poor money- | management practices, but in the process we've also | punished a lot of companies who had millions of dollars | but now only have $250k (with uncertain future access to | some portion of the remainder). | | Good job! Stick it to those SVB execs! Talk about cutting | off your nose to spite your face... or I guess cutting | off the noses of others... | twelve40 wrote: | If you hold deposits at 4% and invest at 2%, that's | simply not sustainable. The more I read about this, the | more it looks to me they were simply going down no matter | what. If everyone kept calm for a bit longer, what would | have fundamentally changed? | | PS. people didn't withdraw to spite anybody, this is not | kindergarten. They started withdrawing because they don't | want their small companies to die and need money for | payroll, it's really the only sane thing to do. | lolinder wrote: | You're talking as though the SVB depositors are some sort | of hive mind capable of acting in concert. They're not. | | Each individual depositor has to make the bail/stay | decision with extremely limited knowledge of what | everyone else is going to do. They know that the market | is freaking out at SVB's sale, and they know VCs are | sending panicked emails to their startups telling them to | bail. They know that if enough people actually _do_ bail | they may lose everything they have (in excess of $250k). | | Presented with that information, the only rational move | for a depositor is to bail. It's weird to blame the VCs | for making the _only good choice_ available to them. | 100001_100011 wrote: | SVB-like bank runs can be prevented with VBS-like | locking. | | https://havenprotocol.org/knowledge/vbs/ | roguecoder wrote: | That assumes a level of individualism that mostly doesn't | exist. It doesn't matter if you are first in line if your | customers are 1,000th in line: your business is going | under either way. | lolinder wrote: | If your business isn't B2B, then any customers that you | have are almost certainly fully FDIC insured. | | And even if you're B2B, if you're 999th in line and your | customers are 1000th in line, you're even more screwed. | If you're first in line you at least have some remaining | assets even if you have no customers. If your assets | evaporate at the same time as your customer base then you | have nothing. | hn_throwaway_99 wrote: | I'm quite sure that businesses that got their cash out of | SVB yesterday, and can thus make payroll today, are | extremely glad they did so. | | Not all bank runs are systemic in nature. | randall wrote: | >But toward the end of March, TP sales plummeted because | the supply just wasn't there. | | TP was a result of people shifting from commercial toilet | paper to home toilet paper, and supply chains not keeping | up. Not from panic buying, fwiw. | | https://www.washingtonpost.com/national/coronavirus- | toilet-p... | | (there are other better sources i'm sure) | lolinder wrote: | That article doesn't say it was just the supply shift, it | says it was a combination of factors _including_ panic | buying. And other, later sources put a larger share of | the blame on panic buying [0]: | | > However, because grocery stores and other retailers | usually only keep several weeks' worth of toilet paper in | their warehouses, the sudden increase in demand -- | largely fueled by panic-buying and hoarding -- has | quickly depleted stocks. | | > "Consumers are experiencing nervousness and they are | buying more than they should, depleting inventories of an | industry that is very lean," Gonzalez said. "It will take | a couple of weeks for people to understand they have | enough, and the inventories will increase on the | shelves." | | Again, there are similarities to SVB. There were | legitimate concerns about SVB's solvency that triggered a | run. The same goes for toilet paper: there were a few | legitimate hurdles which were made many times worse by | panic buying. | | [0] https://cnr.ncsu.edu/news/2020/05/coronavirus-toilet- | paper-s... | ofchnofc wrote: | [dead] | roguecoder wrote: | "Common sense" that just fucked over the industry & a whole lot | of workers in it. | | In more mature industries, people would have been confident | that the government wouldn't let their bank go under, because | the government usually doesn't, and as a result the government | usually doesn't have to. Instead, startup culture is so low- | trust that we shot ourselves in the foot. | opportune wrote: | This, these bonds/mbs are liquid instruments, they just lost | value at market prices. When I make a deposit in a bank I am | not purchasing a CD - I expect full liquidity. If the bank | invested my deposit in something that lost money but _should_ | be worth my deposit amount in X years that is purely the bank's | fault, not my fault. | worik wrote: | > This, these bonds/mbs are liquid instruments | | It is all relative, not all relevant | | Anything is liquid if you will lower the price enough | kgwgk wrote: | Liquidity is defined as being able to sell quickly at a | fair price. | | Surely they did sell those treasuries without any hiccup. | (I'm not 100% certain about the MBS they hold but the main | problem is that the fair value is down and not the discount | relative to that price that would be required to sell | quickly.) | alfalfasprout wrote: | Here's the more mindblowing thing... not only are those MBS | and treasuries completely liquid... they're correlated to | interest rates! The fed has been forecasting interest rate | hikes every single quarter. Every. Single. Quarter. They had | plenty of time to roll over these investments at a slight | loss. Heck, even reducing their exposure 50% would have been | enough to not end up in this mess. | | Instead, they waited until it was way too late (by most | accounts, the fed is going to do another 50bps hike next) and | all it took was some fear for the house of cards to come | crumbling down. | | This does feel like a regulatory failure though. Reserve | requirements don't quite prevent a bank taking on massive | undiversified risk like this. | q1w2 wrote: | Exactly - they failed due to one of the most widely | predicted trends. Literally everyone knew interest rates | would go up. | | They absolutely deserved to fail. | | The government allowing them to fail is actually a sign of | the system working. | nerdponx wrote: | > Reserve requirements don't quite prevent a bank taking on | massive undiversified risk like this. | | You would think that they _should_ prevent such risks, | right? If the bank loses their collective shirt on a bad | bet, they will eventually fail to meet their reserve | requirements, right? I don 't see how you create a stronger | incentive without specifically telling bankers how to do | their jobs. | Randalthorro wrote: | Reserve requirements should be based on current market | price or at least last quarter or last year, not purchase | price. | | They would have had to recapitalize way earlier if that was | the case. | fooker wrote: | > Reserve requirements should be based on current market | price or at least last quarter or last year, not purchase | price. | | This is the kind of thing you could get a Nobel prize | for, if it was backed with data and people agreed with | the conclusion. | [deleted] | tonetheman wrote: | [dead] | woeirua wrote: | LMAO. Can't even believe how many people were confidently | asserting that nothing was wrong yesterday. If you had more than | $250k in SVB yesterday you probably just took a huge haircut. | | Hundreds of startups will become illiquid as a result of SVB's | collapse, and there will be major layoffs here in the next 90 | days as founders realize that they lost their funds and cannot | raise in the current VC environment. | highwaylights wrote: | [flagged] | morpheuskafka wrote: | > Hundreds of startups will become illiquid as a result of | SVB's collapse, | | I know SVB was like a "high tech bank" that partnered with | things like Stripe Atlas, but is there any reason that startups | were using it for their regular operating funds? Other than the | name, was there something that actually made this bank | particularly suitable for them? | chasd00 wrote: | High interest rate and naive customers who think they're the | smartest guys in the room. | LightFog wrote: | They were proactive in incubators and allowed new companies | to open accounts and make large deposits right away, when | many mainstream banks wouldn't or were too slow. I'm guessing | plenty of startups stuck with them through inertia at least. | cragfar wrote: | I can't say specifically for tech startups, but a lot of | times lenders will require you to use their banking services | as a funding requirement. | borski wrote: | They 'understand' startups. That is, they were willing to | work with founders of new ventures, didn't require insane | proof of provenance of funds (because suddenly millions of | dollars would appear overnight), and would support founders | with mortgages, for example, that were running companies that | weren't yet necessarily profitable but were well-funded | nevertheless. | 0x457 wrote: | Try to walk to BofA as an entity that didn't exist yesterday | and see how that goes. | yieldcrv wrote: | Its not that bad. | | But it works better at a criminal bank. Particularly one | that might open a bunch of extra accounts for you when you | aren't looking. Obviously that means opening the first | account won't be the problem either. | | Get a big criminal bank and they won't freeze your account | for dumb reasons. Or smart reasons. | | So just follow the settlements with the federal government, | its advertising. | dboreham wrote: | Not BofA, but I've done this several times at Wells Fargo | and never had a problem. | vineyardmike wrote: | > If you had more than $250k in SVB yesterday you probably just | took a huge haircut. | | You may not lose money. The money isn't gone yet. The | restructuring may save the money. There's a playbook for this | sort of thing. | hef19898 wrote: | Well, and until everything is sorted all your deposits above | 250k are illiquid now. So, I guess one way to not go under is | to find a bank that gives you a generous credit line against | whatever deposits there are at SVB. At huge risk margin, and | quite a discount on the deposits. If there are such banks | willing to do so, that is. | samstave wrote: | all Thos banks usually start with 'swiss' passports in | their name. | woeirua wrote: | No one knows for sure. We don't know what the value of their | HTM MBS actually is on the open market. | | What we do know for sure though, is that this process will | take months, maybe years, to play out and many startups will | run out of money long before this is resolved. | prasadjoglekar wrote: | You most definitely will. SVB already fire-sold 21Bn in MBS | and took a 1.8Bn loss on that. Someone is eating that | loss.... | | Separately, this is going to cause a lot of finance vultures | to look at other banks who also have MBS portfolios on their | books. The show's only beginning. | hef19898 wrote: | MBS, as in _Mortgage Backed Securities_??? Those MBSs? Oh | dear, I am having very serious flash backs now... | kevinpet wrote: | All men are mortal. My cat is mortal. Therefore my cat is | a man. | | Not all mortgage backed securities are subprime CDO | squareds. | hnthrowaway0315 wrote: | IMHO MBS is not as evil as it sounds. After all stocks | are backed by even more fragile things. | fallingknife wrote: | Stocks aren't usually levered at more than 10:1, though. | MBS are. | jcadam wrote: | Time to re-watch _The Big Short_ again. | makestuff wrote: | Don't worry everyone pays their mortgage...right? | timr wrote: | No, this isn't true. SVB has some unknown amount of cash | and other assets on hand. We have no idea what that is | right now, or what percentage this is of the shortfall. | | Someone will buy SVB, and they will put capital in as part | of the purchase. | hnthrowaway0315 wrote: | I wonder if anyone has Bloomberg terminal access can take | a look and check whether there are disruptions in MBS and | its hedging tools. | vitorsr wrote: | I have access to Refinitiv. I think it looks fine? | | https://workspace.refinitiv.com/web/cms/?pageId=mbshome | hnthrowaway0315 wrote: | Thanks. Do not have an account but I get it. | kragen wrote: | US$1.8B is 1% of SVB's deposits; a 1% haircut wouldn't be | that bad | | i suspect the real number will be closer to 40% than 1% | sambull wrote: | It's possible they'll socialize the losses on that for | profit risk taking | Me1000 wrote: | Is there any reason the FDIC itself cant just hold onto the | bonds until they mature? The federal government doesnt need | liquidity the same way a bank does, they wouldn't need to | sell them for less than face value. | | Edit: this is actually a serious question, if someone knows | the actual answer. | | I understand that ideally the government wouldn't want to | hold onto the bonds, but is there any statutory (or other | real) reason why they would _have_ to sell them at less | than face value? If you could guarantee 100% of deposits | could be returned by just holding onto the bonds until | maturity, that seems like a worthwhile trade. | civicsquid wrote: | Past losses aside, the press release says that there are | about $180B in deposits with the bank holding about $210B | in assets. Assuming the FDIC liquidates and restructures | the bank, I don't see why deposits could not be made whole. | | If there were fewer assets then deposits, then yes the | 250k+ accounts are probably out of luck. | oceanplexian wrote: | The "assets" are actually held-to-maturity securities | (bonds) that are yielding less than the risk free rate. | Who would want to buy a bond that yields 2% when you can | buy treasures that yield 4%. So while they might have | $210B in paper assets but there's no chance they will be | unable to unload them without taking a loss, putting the | bank upside down. | Me1000 wrote: | The federal government doesn't need liquidity in the same | way that a bank does, why would they even need to sell at | all? | vineyardmike wrote: | And restructuring tends not be stay "gov owned" - the | government assumes ownership to stabilize the market then | tries to sell off the business to another business. Often | there's some incentive to assume a massive amount of | customers and assets. The gov may even take on the | intermediate loss (the FCID is an _insurance_ agency | after all). | Me1000 wrote: | Yeah, I can see why in general the government wouldn't | want to hold on to assets, but bonds are kind of a | special class of asset in that they do eventually mature | and will naturally just be something they don't need to | manage (within a relatively short time period too). If | you expect that the sell off could take years to | complete, some of those bonds will be halfway to maturity | by the time they're sold. | | If I'm the FDIC and I have the opportunity to return 100% | of the funds to depositors at the cost of just holding on | to a bond for a few more years than I otherwise would, | that seems like a tradeoff I'd make to stabilize a lot of | companies. (I'm of course biased here) | ok_dad wrote: | > Who would want to buy a bond that yields 2% when you | can buy treasures that yield 4%. | | Whatever bank/organization that wants to have SVB's | customers, probably. If an even bigger bank comes in, one | which can take on those lukewarm assets for a decade | without risk, then they can immediately position | themselves as the "new SVB" and get a bunch of VCs and | startups as customers. I assume that they could stand to | profit some from such an arrangement, but I'm not a | banker, so maybe not? | petesergeant wrote: | > Who would want to buy a bond that yields 2% when you | can buy treasures that yield 4% | | The government, to protect the economy | bentlegen wrote: | Will those assets still be worth $210B as the days tick | by? I'm not a macro financial analyst, but I have to | imagine trying to liquidate $210B of bonds, stocks, etc. | will cause at least some of that value to fall - that's a | big number. | nemothekid wrote: | If someone well capitalized buys the bank, then they | don't need to liquidate. The bonds aren't worthless, they | just trade much lower now that interest rates have risen, | however if you can wait until they mature you will get | your money + interest. | vineyardmike wrote: | Once the FDIC kicks in they can sell off to a different | bank which can absorb them without touching the open | market. Alternatively the FDIC can guarantee the bank for | the duration necessary to sell assets slowly. They could | likely sell the bank as a whole to another bank if | assets>liabilities without too much disruption. | matheusmoreira wrote: | If people have to be reassured to begin with, it's already | over. Money only exists because people keep believing it does. | As soon as they stop believing it's gone. | banku_brougham wrote: | That gummint fiat money looking better all the time. | Bud wrote: | [dead] | andrewcamel wrote: | Yep... I bet this is about to pull forward a lot of startup | death. Gun now to VC heads to save things. Forcing decisions | they were hoping they wouldn't have to make for at least | another 6-12 months. | briandear wrote: | I bet a lot of VCs had significant money in that bank as well. | Even if companies could raise money, there wouldn't be as money | available. | gumby wrote: | VC firms don't generally have tons of cash sitting around | compared to their fund size. When you raise a fund, an LP | does't just hand you $20 mil, then simply promise to send you | up to $20 mil when you ask for it. | JumpCrisscross wrote: | > _a lot of VCs had significant money in that bank_ | | Everyone I know pulled yesterday. | gsibble wrote: | I know a lot of individuals and startups, most over the | $250k limit, who did not get out in time. SVB disabled | wires and transfers for many yesterday. | dougmwne wrote: | The trouble in a bank run is that it's impossible for | everyone to have gotten their money out yesterday. Those | first in line caused the collapse, the rest are out of | luck. Nice to hear you have lucky friends. | eddsh1994 wrote: | In a fractional reserve people can't all win | eddsh1994 wrote: | Don't know why this is being downvoted - if a bank takes | $100 and keeps $20 liquid while investing $80, and then | everyone comes for their money, the first $20 is | available but the rest will be slower if not completely | lost. If everyone tried to take their money yesterday | some people will win but a large number will lose... If | there _wasn 't_ a run on the bank chances are it could | have (slightly?) weathered the storm. | pclmulqdq wrote: | Everyone who can read a balance sheet could figure out | there was a lot of trouble after the announcement of the | sold securities for a significant loss. The VCs telling | portfolio companies to ride it out may have been looking | for bagholders to ensure that they can get their own money | out. | omgomgomgomg wrote: | But why would the startups become illiquid? | | Do they get the investments from the banks or do they park the | investment money in this bank? | | And why this bank, when there are many more risk averse | institutions out there? | NordSteve wrote: | For business banking, you want a bank that understands your | business. SVB was in the first rank of banks that understood | startups. | | Many startups aren't particularly sophisticated financially | and just kept their capital in cash in the bank. | hef19898 wrote: | What did James Ray say again about FTX? Something along the | lines of "a group of highly unsophiscated people"? Man, the | CFOs of the affected start-ups should all look for a new | job. By the way, preventing things like that is something a | good MBA does. | tome wrote: | > James Ray | | John Ray? | hef19898 wrote: | Yes, that's the one! I knew it was something with "J"! | CyanLite2 wrote: | They become illiquid because they don't have access to their | money that was in SVB. They can't make payroll, can't pay | vendors and landlords. The employees will leave first. | Vendors next. | omgomgomgomg wrote: | But normally, they will be bought by another bank coming | Monday and resume business. The fdic assigns a buyer and | pays the buyer, from what I understand. | | Edit. I just realized, in the us, if there is no bidder, | the fdic can close down the bank or run it itself. | jojosbuddy wrote: | Bridge loans, DES, convertible notes, etc..., I'm sure their | were loan "products" for startups similar to helocs (likely | what put them in the hole). The appetite for crypto/fintech | startups was huge during the pandemic and likely pressured | them to get creative on products and overleveraged. It's all | unwinding now. | | Unfortunately, harder now for startups, mind that all those | startup dreams from laid off FANG staff just got their rug | pulled. | dehrmann wrote: | > likely what put them in the hole | | No. It sounds like they bought a bunch of safe, long-term | load-backed assets. When interest rates went up, the value | of the assets went down. This isn't a problem if no one | withdraws before the loans are due, but if they do, they | have to sell the assets that declined in value. | johnbellone wrote: | The same people that were saying that yesterday were removing | their deposits. They just wanted to be there first. | hef19898 wrote: | There are three ways to succeed in this business: Be first, | be smarter or cheat. And I don't cheat. | | Margin Call is such a timeless, great movie! | xapata wrote: | But to be first, you must be smarter. Or cheat. | johnbellone wrote: | Indeed! | skywal_l wrote: | And even though I like to think myself as smart, it's a | hell of a lot easier to be first! | hef19898 wrote: | Didn't he say sometjing like "while believe we have a | hell lotta smart people under this roof, it is a lot | easier to be first"? After all, it wasn't brains that got | him in his chair, earning the big bucks, he can assure | you! | highwaylights wrote: | Do you care to know why I earn the big bucks? | | I'm here for one reason alone. To guess what the music | might do a week, a month, a year from now. And standing | here tonight I'm afraid that I. Don't. Hear. A. Thing. | | Just... silence. | FireBeyond wrote: | And to spin the quote further: | | "And there are a lot of smart people in Silicon Valley. | It's a hell of a lot easier to be first." | mangosteenjuice wrote: | A good lesson for everyone who forgot the last cycle. | | Slowly, then all at once. | themitigating wrote: | Do you think it's strange people are excited for the economy | to fail? | chasd00 wrote: | I was taught disruption is good. | yr1337 wrote: | When you see how much of a massive everything-bubble we | were (are?) in, I can see where people are coming from on | this one. Time to get some sanity back into this economy, | and the people who will hurt the most are those who also | benefited the most in the past 3 years (crypto-bros, | useless startups with dumb valuations, etc.) | themitigating wrote: | And they deserve it? | ashwagary wrote: | >Do you think it's strange people are excited for the | economy to fail? | | People knew free money was dangerous, planned for a return | to sanity (QT) in 2018-2019, and were financially punished | for acting responsibly by believing the Fed would follow | its roadmap. | | They may get their day in the sun now and I cant blame them | for being happy at the first signs of a temporary return to | reality. | gretch wrote: | I think people are excited that we can get back to money | tracking with actual value generation and not financial | hacking. | | Events like these are similar to Enron and Theranos. No, | I'm not excited to see "the energy industry" or "the | medical industry fail", but that's not really what it was, | was it? | plonk wrote: | SVB isn't Lehman Brothers. | dehrmann wrote: | It won't take out the broader economy, but it could really | damage a lot of small companies in the tech sector. | uoaei wrote: | It will take a significant amount of work to prove that | those companies were providing net-positive outcomes for | our civilization. | Me1000 wrote: | Well, they were paying the salaries for hundreds of | thousands of people (if not more) and making sure they | and their families had health insurance. | rvnx wrote: | Which in turn may not be able to pay for their mortgage. | Which could cause getting Silicon Valley more affordable. | [deleted] | nodesocket wrote: | I worry about all the valley based companies that held their | payroll and operating expenses with SVB. It's going to take | awhile (potentially years) to deal with FDIC an clawing back | what's left of funds. I.E. what about huge infrastructure related | companies like Gusto, Brex, Xero? This is very concerning. | knodi123 wrote: | > Silicon Valley Bank is the first FDIC-insured institution to | fail this year. The last FDIC-insured institution to close was | Almena State Bank, Almena, Kansas, on October 23, 2020. | | How humiliating. At least this isn't an epidemic. | 1970-01-01 wrote: | I've seen double black diamond slopes with less of a drop: | | https://www.google.com/finance/quote/SIVB:NASDAQ | ecf wrote: | With so many banks dropping 20%+ I don't see how this doesn't | result in an economic catastrophe. | RaSoJo wrote: | So SVB's problem was that they had too much of money? | kmlx wrote: | Silicon Valley Bank UK confirms it's a standalone independent UK | regulated bank. | | London, 10 March, 2023: Silicon Valley Bank UK, the financial | partner of the innovation economy, today moved to confirm to its | UK clients, partners and external stakeholders its financial | position as a standalone independent banking institution that is | regulated and governed by the PRA in the UK. | | Silicon Valley Bank UK has been an independent subsidiary since | August 2022 with a separate balance sheet to the SVB Financial | Group and an independent UK Board of directors. Silicon Valley | Bank UK fully abides by the UK regulatory requirements as covered | by the Financial Services Compensation Scheme and by the | Financial Ombudsman Service. SVB UK, Ltd. is ring-fenced from the | parent and its other subsidiaries. | | Notes to editors | | Funds from client deposits placed with SVB UK, Ltd. are managed | in the UK for the benefit of our UK clients. None of our | operations in the EU outside our UK Subsidiary are licensed to or | take deposits. | | https://www.svb.com/press/release?Channel=45991&Account=SVB_... | prennert wrote: | For posterity: | https://web.archive.org/web/20230310175421/https://www.svb.c... | rvnx wrote: | The announcement is somewhat funny in a way that "independent | Silicon Valley Bank"'s announcement actually happens on the | website of the US website they are not supposed to have links | with. | Randalthorro wrote: | Their regulatory framework and finances are independent not | the company itself | tbarbugli wrote: | Dumb question perhaps: why only SVB crashed? I imagine all banks | in US had an influx on money deposited in the same period as SVB | zackmorris wrote: | Looks like the FDIC coverage limit was raised to $250,000 in 2008 | and made permanent in 2010, before that it was $100,000 since | 1980. | | https://americandeposits.com/history-and-timeline-of-changes... | | Plugging that into any online inflation calculator, $1 in 2010 is | $1.33 in 2023. So FDIC insurance should really cover $333,000, | and people could lose $83,000 or more due to coverage not being | raised. | | This is one of 1000 examples of how deregulation and defunding | government programs often backfires on the people calling for it. | It's almost like the people who casually deal in hundreds of | thousands of dollars don't know the value of the dollar, because | they got that money by skimming it from their employees. | cjbgkagh wrote: | 'Bracket creep' almost never works in your favor and that is by | design. The government knows perfectly well how to peg things | to inflation. | dylan604 wrote: | >how deregulation and defunding government programs often | backfires on the people calling for it | | You make this sound like the avg citizen called for this, | because this is who gets screwed in these situations. The heads | of banks and the banking industry called for it, and not one of | them will even notice the blip in their lives. | egiops wrote: | Umm our CEO just posted on the team channel that SVB is our bank | and we don't know what happened yet | | What does this mean for the company I work for, are they screwed? | positr0n wrote: | Worse case, imho, is your company has trouble making the next | payroll since most of it's funds are temporarily inaccessible. | And after the dust settles they take a ~10% haircut on all the | cash they had in the bank. | | SVB still has lots of assets, they just aren't very liquid and | it's possible the value (if you sold them all today) isn't | quite enough to cover all deposits. | formerly_proven wrote: | Yesterday I read on here that "xyz doesn't mean SVB is going | under like FTX did five minutes after doing that". | karpierz wrote: | The difference is that SVB's depositors will see most of their | money back, which is the point of the FDIC taking over. | johnbellone wrote: | I wouldn't be too sure about that. 93% of SVB deposits are | uninsured. | jb1991 wrote: | I'm super curious why in the world that in 2023, nearly all | the deposits in the country's 18th largest bank are _not | insured_ ? _what_? | johnbellone wrote: | I am more concerned that large VC shops are doing deals | with the 18th largest bank because "that's what we've | always done". | dragonwriter wrote: | Because deposit insurance only covers $250,000 per | depositor per ownership class, and commercial bank | customers often have deposits >> $250,000. | rafaelero wrote: | Welcome to fractional reserve banking system. | delfinom wrote: | FDIC is federal insurance and it's for the individual | entities that deposited the money. It's capped at $250k | per account at the failing bank. It's meant to protect | the little guy and not the big guy that failed. It also | encourages users to diversify their financial | institutions if you are really packing money away in | accounts that exceeds $250k. | | Otherwise no financial institution is actually insured | against it's entire book. That would be insanely | expensive and financially complicated at the scale banks | operated at. For example, JP Morgan Chase has $3.7 | TRILLION in liabilities on the books. Where the hell is | an insurer going to get $3.7 trillion to gamble? | Macha wrote: | By the government. Because government insurance is | designed to protect individual accounts as that provides | the greatest ratio of impacted voters/exposure. | | Could be some of these companies have other types of | insurance against this, but for a lot of small startups | this is way down the list of things you'd get private | insurance for. | rcme wrote: | The FDIC only insures up to $250K per account holder. | mynameisvlad wrote: | FDIC insurance, regardless at which bank, only covers the | first 250k per depositor per bank. | dragonwriter wrote: | ...per ownership category, of which their are, I think | 14, and sometimes the insured party isn't the depositor | (e.g., "Employee Benefit Plans" are a category, and the | plan _participants_ are treated as the insured party for | calculations in that category--and since its a separate | category, it doesn 't effect any single or joint accounts | those participants happen to have at the same | institution.) | mynameisvlad wrote: | I had it in my comment initially and removed it. When the | bank's deposits are several magnitudes more than the | limit, I don't think that distinction will do anything | but muddy the waters. | | Even if each owner had all 14 types, they only get | $3.5mil in insurance. And the bank has, allegedly, | somewhere around $200 _bil_ in deposits. | karpierz wrote: | You can't insure the vast majority of deposits; with what | money would you insure all of the world's money? | gtop3 wrote: | The issue is in trust. Banking's value proposition is | trust. The bank is trusted to hold deposits and to | process withdraws. Adding insurance just changes the | trusted entity. FDIC insurance exists to increase trust | for individual deposits. | | 1. FDIC insurance only covers $250k. FDIC insurance is | mostly to reduce personal risk, so individuals feel | comfortable keeping their own money in the bank. This is | key to the banking industry because individuals are much | more likely to horde physical currency than businesses | are. | | 2. Who would insure the bank for unlimited deposits? If | it's a non-governmental organization how would depositors | know the insurance company is good for it? If it's a | governmental organization then the taxpayer would | essentially be a codified safety net for corporate risk | taking. The insurance is more political palpable (and | affordable) if it's seen as protecting individuals from | bad banking practice then if it's seen as a bailout. | | 3. Banks ideally are the safe organization to hold cash. | A bank failing is seen as a failure not only for the | individual bank, but for the set of regulations that | banks must follow. One bank failing reduces trust in all | other banks, so it's in the industry's best interest to | accept regulations that prevent bank failures. | dahdum wrote: | FDIC insurance is to protect consumers and small | businesses. I think of it as the same concept as | accredited investors, once you have a certain amount of | money, you get the _freedom_ to dive into the shark pool | and _responsibility_ to manage that risk yourself. SVB | was a high yield (4.5%!) bank. That comes with some risk. | kevin_nisbet wrote: | But SVB also has locked in assets to be auctioned off. So | it's going to depend on what sorts of haircuts occur on | those assets sales. | MrMan wrote: | the assets the bank held are worth some % less than the | amount they took in deposits but its not 90% less, its | something like 20%. so on average, people will get | something like 80% of their money back. I dont think the | asset price declines were catastrophic. | karpierz wrote: | "Uninsured" doesn't mean "all of your money is gone, sucks | to be you", it means "you'll take a haircut proportional to | the amount of missing assets from the pool." And yes, if | the bank is a Ponzi scheme, then that pool is empty, but | SVB's problem is liquidity, not overall solvency. The money | is there, it's just locked at a suboptimal interest rate, | which may cost you 10 - 20%. | | This isn't like FTX where your "assets" are worthless IOUs | written to yourself. | davidgerard wrote: | May also be solvency - their assets are MBSes whose | market value went down with the interest rate rise, that | being the proximate cause of the panic that set off the | bank run. | johnbellone wrote: | Isn't that the definition of uninsured? | function_seven wrote: | No. If I crash my car into a $80,000 BMW and totaling it | --and I have no insurance--the other party will still be | able to sue me and partially recover their losses. Maybe | they get $63k from me and eat the other $17k. | | The bank has assets. Just not enough to cover all | liabilities. That's why you see the term "haircut" being | used a lot in these threads. | CamelCaseName wrote: | Only 2.7% of SVB's deposits will be covered by FDIC. | dllthomas wrote: | I thought it was 2.7% of accounts are fully covered by | FDIC? That's only going to be 2.7% of deposits by | coincidence, and what it means for the others depends on | just how dramatically over the limit they are... unless I | miss something (which is plenty possible). | dllthomas wrote: | Per another thread, it may in fact be 2.7% of deposits | insured rather than accounts. | kgwgk wrote: | We don't really know yet if they will be getting most of | their money back. | | The only guaranteed amount is 250k. | dannyw wrote: | When, though? | | If your company can't access your money to access payroll for | X months, you might as well as be dead. | kasey_junk wrote: | The press release answers some of that. Insured money is | there on Monday. Uninsured money will get their first | payout no later than next week. | | After that its a question but typically depositors will | know the answer very quickly because their claims come | first. | delfinom wrote: | Not quite, the uninsured money will be partially paid out | depending on how the books look (since the FDIC has to | liquidate the bank), however a chunk of the money can be | in limbo for now via receivership certificate that tracks | the amount you have claim to. | | From the PR | | >The FDIC will pay uninsured depositors an advance | dividend within the next week. Uninsured depositors will | receive a receivership certificate for the remaining | amount of their uninsured funds | | This is a 100% standard FDIC statement and not unique to | SVB btw. | | https://www.investopedia.com/terms/a/advance- | dividend.asp#:~.... | karpierz wrote: | > All insured depositors will have full access to their | insured deposits no later than Monday morning, March 13, | 2023. The FDIC will pay uninsured depositors an advance | dividend within the next week. | HDThoreaun wrote: | So you'll get 250k plus an unspecified percentage of the | other 93% of deposits the bank is holding. Startups have | millions in SVB, it will be at least months before they | have access to that. | delfinom wrote: | Yep, the additional percentage paid out in advance will | be based on the bank's books once the FDIC digs into it | to estimate what can be recovered. The rest is after | liquidation. | [deleted] | w10-1 wrote: | "When, though": now. The article says checks continue to | clear, and branches open Monday, the next business day. | | And | dragonwriter wrote: | > The difference is that SVB's depositors will see most of | their money back | | Depositors will see all of their insured money back, | uninsured deposits will be recovered based on available | assets and/or terms of any resale by the FDIC, but could be | lost in whole or substantial part. Large depositors could | potentially see substantial losses. | manquer wrote: | The assets are all regulated t-bills and MBS with real | interests and secured by hard assets not made up first | party coins with manipulated values | bell-cot wrote: | "Denial isn't just a river in Egypt." | preinheimer wrote: | Adam Conover did an interesting episode on the mechanics of a | bank failing in the US, and how the FDIC practices for this | moment. | | It's in The G Word, their episode on Money. | https://www.netflix.com/ca/title/81037116 | vagab0nd wrote: | Why can't this bank borrow from the Fed overnight lending market | to fulfill the withdraws? | havkom wrote: | I have no idea but maybe they are not solvent anymore (negative | equity, even if small)? (I guess Fed will not loan to insolvent | banks, but I do not know if that is the case?) | | If so, would be interested to know if anyone knowledgeable in | accounting rules could speculate a bit here what has happened - | has any event forced a revaluation of assets on the books due | to accounting rules for example? | havkom wrote: | I asked ChatGPT now about the federal reserve loans | alternative: | | Why would FDIC take over an unliquid bank instead of the bank | just loaning money by the Federal Reserve? | | The Federal Deposit Insurance Corporation (FDIC) is a US | government agency responsible for protecting depositors and | maintaining stability in the banking system. When an unliquid | bank fails, the FDIC may step in to take over the bank and | manage its operations. | | One reason the FDIC may take over an unliquid bank instead of | the bank just loaning money from the Federal Reserve is that | the bank may be insolvent, meaning it does not have enough | assets to cover its liabilities. In this case, simply | borrowing from the Federal Reserve would not solve the | underlying financial problems of the bank. | | Taking over the bank allows the FDIC to manage its operations | and assets, and potentially sell off its assets to recover | some of the losses for depositors and creditors. This process | is known as "resolution" and is intended to minimize the | impact of a bank failure on the broader financial system. | | Additionally, if the FDIC determines that the bank is not | viable in the long term, it may choose to liquidate the bank, | selling off its assets and using the proceeds to pay off | depositors and creditors. | | Overall, the decision to take over an unliquid bank instead | of simply loaning money from the Federal Reserve depends on | the specific circumstances of the bank and the broader | financial system. | resters wrote: | The knowledge that this would happen is why it happened in the | first place. SVB execs won't take a pay cut. | WalterBright wrote: | The WSJ lays much blame on the way regulators regulate banks: | | https://www.wsj.com/articles/washington-is-the-systemic-risk... | bgc wrote: | An interesting tidbit from the Bloomberg live thread[0]: | | >The FDIC prefers to close a bank over the weekend, shutting it | down on Friday and reopening Monday, Steven Kelly, senior | research associate at the Yale Program on Financial Stability, | told me. | | >"The midday takeover suggests the bank couldn't responsibly | operate until the end of the day," Kelly said. | | [0]https://www.bloomberg.com/news/live-blog/2023-03-10/the- | fall... | dang wrote: | Related ongoing thread: | | _The Demise of Silicon Valley Bank_ - | https://news.ycombinator.com/item?id=35098607 - March 2023 (64 | comments) | | The previous major threads appear to be these (did I miss any?): | | _SVB in talks to sell itself after attempts to raise capital | fail_ - https://news.ycombinator.com/item?id=35094466 - March | 2023 (270 comments) | | _Ask HN: How is the SVB situation affecting your startup?_ - | https://news.ycombinator.com/item?id=35094447 - March 2023 (130 | comments) | | _Banks lose billions in value after tech lender SVB stumbles_ - | https://news.ycombinator.com/item?id=35087666 - March 2023 (9 | comments) | | _Bank run on Silicon Valley Bank?_ - | https://news.ycombinator.com/item?id=35086836 - March 2023 (791 | comments) | purpleblue wrote: | The fact that no other bank stepped in to buy the assets makes it | seem like this is going to be dire for depositors. There's | something wrong in the books, or the liabilities are higher than | the assets, both of which means that depositors are going to lose | some money. | | I have a friend that uses SVB for his startup and now all his | funds are frozen. The big question is how long will the money be | locked up for? Could it be 6+ months? | itg wrote: | So any startup which had more than $250k in SVB only has $250k | left now I'm assuming? Hopefully this doesn't have a bad domino | effect. | delfinom wrote: | $250k is guaranteed by FDIC insurance. | | The rest is limbo until the bank is liquidated and the | remaining money is distributed. | HDThoreaun wrote: | 250k on march 13th. The rest of the account will be released as | the FDIC sells the banks assets, which will probably take | months. | tedivm wrote: | I'm copy/pasting a commend I made elsewhere, but I'm not sure | this is the case. | | > I worked at a startup that took in over $100m in investment, | and I was curious so I asked the cofounder how they protected | that. According to him the money was divided up into chunks | smaller than $249k, pushed off to a custom entity made just for | the purpose, and then invested in bonds or CDs on a rotating | basis. | | Basically if you have a ton of money having it sit in a bank | account is one of the worst things you could do with it, so | most people who bring in a lot mostly just keep operational | expenses in their bank account while leaving the rest of the | money in other financial instruments. | NordSteve wrote: | The "bad bank" (SVB) will be liquidated and the proceeds | distributed to the creditors. How much that will be for | depositors won't be clear until that process occurs. | discodave wrote: | Probably just a haircut. How much nobody knows yet, but | according to the FDIC release, 3 months ago they actually had | $209B of assets, so it's not a FTX-like 'oops we accidentally | your money' scenario. | havkom wrote: | Is this a good guess as any? | | * With-in a week or so uninsured accounts will get 40-60 cents | per dollar | | * In years when the liquidation process is finished they will | have gotten 5-20 cents more in addition per dollar | | * Shareholders will get nothing in this scenario | | Are there any better guesses or any flaws that makes this guess | unresonable? | christkv wrote: | How many of companies will loose access to liquidity and face | bankruptcy next? | hi wrote: | Heads up founders who banked with SVB - Customers with accounts | in excess of $250,000 should contact the FDIC toll-free at | 1-866-799-0959 | rvz wrote: | Oh dear. It guess this is how the VC pyramid scheme collapses. | $151BN uninsured deposits in the bank. [0] | | Now all those unprofitable startups will be falling like dominoes | as now the money is tied up in the bank with withdrawals | disabled. | | [0] https://twitter.com/FedGuy12/status/1634038788468113408 | marcosdumay wrote: | That amount of confidence on the fact that the music would | never stop is... I dunno, I don't get any good adjectives. I | can't understand it. | | It's not even the case that they did it for the returns, | because the returns were negative. Is it a regulation thing | that forced banks to overinvest in long-term bounds? | johnbellone wrote: | You're getting downvoted because people are upset, but this is | a real problem that could have been avoided. We'll come out of | it stronger, but its going to hurt. | bagels wrote: | Many people will not come out of this stronger. | tarr11 wrote: | Does this mean that SVB customers are going to lose deposits | over the FDIC limit (250k?) | trimbo wrote: | No because SVB has assets with value to sell. That's the | "dividend" the FDIC refers to in the press release. | rekttrader wrote: | For now yes, you get a note on what's owed that remains and | in time you get some of your money back post bankruptcy. | | Keep your accounts lower than 250k | johnbellone wrote: | Or better yet, don't listen to your VC's relationship | people and put all of your money in one bank. | roflyear wrote: | Many bank's terms are if you get a loan from them, you | need to use them as your only bank (or only accounts | receiving deposits, or something). It is negotiable but | it is the norm. | alwaysbeconsing wrote: | > Keep your accounts lower than 250k | | For full precision, if you're concerned about this, be | aware that it's 250K per _depositor_ at a given bank, | rather than per _account_. That is, all your qualifying | accounts at the bank are considered as one pool and 250K of | that is insured. More detailed information, including how | joint accounts are handled, here: | https://www.fdic.gov/resources/deposit- | insurance/financial-p... | ncallaway wrote: | SVB's assets will be divided up and given back to creditors | (including depositors). So remaining depositors likely will | get something back eventually, but we don't know how much yet | (10%? 50%? 85%). There will also likely be a delay in getting | those funds back as the process plays out, which is probably | more dangerous to many companies than the haircut (assuming | the hair-cut isn't too severe). | hintymad wrote: | Just heard that the payroll company Ripping is down, as they use | SVB as their partner. What a rippling effect... | fudged71 wrote: | Which other popular companies have SVB as their main partner | for providing products/services? | imhoguy wrote: | https://twitter.com/Rippling/status/1634201986894577665 | mosfets wrote: | What does the "takeover" mean? Will people's deposit still stay | intact? | dpweb wrote: | May be nice for an acquirer. Roll those long term bonds into very | short term treasuries - take that big loss now - and earn 4% | going forward. | | Rates will eventually top out - they just had made a very bad bet | at 1.5%/10 yr. | zamnos wrote: | _Eventually_ , sure, but we don't really know where. And | neither does the Fed, though I'm sure they have ideas on how | far they _want_ to go. They don 't control the jobs report | though. | | Rates are 5% now, so a spread of 3.5%. If rates go above 8.5% | (which they were, from 1973 to 1992) then the acquirer is in | basically same hole as SVB, no? | omgomgomgomg wrote: | Hold on, what happens if someone raised money from them for an | incorporation? | | They have to pay backbas usual, right? | Macha wrote: | Yes, if you owe money to a bankrupt organisation, the creditors | of that organisation now have your liability as their asset and | will still expect payment. | NordSteve wrote: | Only 3% of deposits in the bank are FDIC insured; other | depositors will need to wait for the receivership process to run | to get access to (what remains) of their deposits. | | edit: replace "bankruptcy" with "receivership" as the latter is | usually a faster process than the former. | treis wrote: | This isn't true. The bank is in receivership and which is a | different form of bankruptcy. The FDIC will liquidate assets or | find a buyer relatively quickly. Depositors will end up getting | most or all of their money back. | sp332 wrote: | _The FDIC will pay uninsured depositors an advance dividend | within the next week._ | jb1991 wrote: | > Only 3% of deposits in the bank are FDIC insured | | why is that?! | NordSteve wrote: | Because most of their depositors were business that kept | >$250K (the insurance limit) in the bank. | tome wrote: | Why would someone keep more than $250K in bank deposits? | Isn't it more prudent (looking back no more than 15 years) | to keep T-Bills or some other liquid security that isn't | subject to a bank run? | blibble wrote: | $250k isn't much for a company with employees | | you have to keep some cash somewhere to meet short term | expenses (like payroll) | tome wrote: | Is it not possible to meet short term expenses with a | short term loan which is discharged over a few days by | selling liquid assets? Maybe banks just don't want to let | you do that. | SpicyLemonZest wrote: | It is, and no prudent company should have lost their | _entire_ war chest unless their funding arrived just | yesterday. But when you 're spending $10M or $100M a | year, it's operationally challenging to make sure you | never have more than $250K in the bank while you're doing | it. (It's much, much better to be imprudent and have too | much in bank deposits than miss payroll because you have | too little.) | synu wrote: | Because the insurance is for $250k and most depositors had | much more than that. | bagacrap wrote: | Only 3% of accounts were under 250k. An account of $251k isn't | part of the 3% figure, but is almost totally insured. | ncallaway wrote: | Where'd you get the 3% figure? The only thing I saw in the | article was that it was not determined. | | > At the time of closing, the amount of deposits in excess of | the insurance limits was undetermined. The amount of uninsured | deposits will be determined once the FDIC obtains additional | information from the bank and customers. | | Is the 3% figure from SVB or an estimate from another source? | NordSteve wrote: | Likely number is bigger than 3%, as they had a giant outflow | over the last couple days. | NordSteve wrote: | https://twitter.com/GRDecter/status/1634208652595699713 | ncallaway wrote: | Thanks! | pastor_bob wrote: | Bill Ackman and Wall Street calling for a government bailout | for all depositors: | | https://twitter.com/BillAckman/status/1634032841687285761 | NordSteve wrote: | I can't see that happening in today's political climate. | Imagine the stories juxtaposing coddled tech workers against | the cost of the bailout. | bagacrap wrote: | And what is the cost of the bailout, oh sage? | | > As of December 31, 2022, Silicon Valley Bank had | approximately $209.0 billion in total assets and about | $175.4 billion in total deposits | | I have a hard time believing they lost 20% of their assets | in the last 70 days. The shortfall, if any, should be | minor. | lyrrad wrote: | I think the asset figure did not include unrealized | losses on bonds that they intended to hold to maturity as | banks are not required to deduct those from their total | assets. As deposits flowed out of the bank, they sold | some assets and realized those losses. | | The FT reported a couple weeks ago that they had an | unrealized loss of $15B in bonds: https://www.ft.com/cont | ent/0387e331-61b4-4848-9e50-04775b4c3... | | I think we'll have a much better idea of the shortfall, | if any, over the weekend as the FDIC tallies up the | remaining assets and deposits. | weard_beard wrote: | AKA the inversion of long and short term treasury | absolutely screwed them and JPow announcing additional | rate hikes was the nail in the coffin. | twoodfin wrote: | Could the Fed do this in a back door way? Buy the devalued | bonds at above-market rates? | senttoschool wrote: | What happens to the deposits above $250k in this case? | | Ouch for startups that didn't pull. | hijinks wrote: | they turn into creditors of the bank to try to get the money | back from asset sales. That could take years though it isn't | quick | senttoschool wrote: | Isn't that a death sentence for a startup? Even if you get | your money back years later, you're company is already dead | because it can't make payroll. At that point, the money will | just go back to the VCs? | ncallaway wrote: | From the FDIC release there will be an advance payment on | uninsured assets within the next week. | | My guess is they take a week to look through the books, | determine an absolute floor for the value of assets, and | use that floor to proportionately pay out uninsured | depositors. | | So, some additional funds will be available soon. We don't | yet know how much. | | The rest will probably be locked up while the process plays | out. I've heard different timelines for that. | hijinks wrote: | basically but the FDIC usually comes in real quick if they | think a collapse might happen. Rumor is there's enough | assets to cover the loses but it just couldn't handle the | run happening. | | I believe SVB will be open for business on Monday | boringg wrote: | "Customers with accounts in excess of $250,000 should contact the | FDIC toll-free at 1-866-799-0959." | | At least its toll free... | m00dy wrote: | [flagged] | ajhurliman wrote: | Fixes what? An insolvent bank got was taken over by a national | authority, all of the deposits were insured, account holders | don't even notice anything happened unless they're following | the news, the banking system doesn't even skip a beat. | | This sounds like everything went according to the highly | regulated plan. | willmadden wrote: | FDIC insurance only covers accounts up to 250k. It's really | only suitable for protecting middle class individuals, not | corporations. | | 97% of the 175 billion on deposit was not covered by FDIC | insurance. | | Those companies are going to be wiped out unless the | government steps in and exceeds the requirements of the | insurance. | voisin wrote: | > 97% of the 175 billion on deposit was not covered by FDIC | insurance. | | Source? | dragonwriter wrote: | > all of the deposits were insured | | There's no official accounting yet, but most accounts seem to | estimate that a very large fraction are not, because of FDIC | insurance limits. | ajhurliman wrote: | The accounts are still insured even if the insurance | doesn't cover 100% of the deposits | zamfi wrote: | > all of the deposits were insured | | Only up to $250k -- and an overwhelming majority of SVB's | deposits were in accounts in excess of this amount. | mewse-hn wrote: | Yeah famously the feds step in and cover your deposits when a | crypto exchange collapses | willmadden wrote: | Why is hacker news chocked full of people who don't | understand crypto? | | You are not supposed to use centralized exchanges to custody | your assets. | | "Not your keys, not your crypto." | | It's the entire point of crypto to not keep it on a | centralized exchange! | antibasilisk wrote: | You're not supposed to keep your money in exchanges | stouset wrote: | Yeah famously the feds step in and cover your deposits when | [your wallet is compromised|you lost your password|your | hard drive crashed|the price of your algorithmic stablecoin | goes to zero|you put in the wrong address|you open an NFT | that drains your wallet|your DAO hands all its assets out | to someone smarter than its programmers]. | antibasilisk wrote: | just don't do those things and keep backups, it's not | that hard unless you're a cryptobro larper | telotortium wrote: | What's the famous slogan? "You are your own bank!" | [deleted] | kuczmama wrote: | What I don't understand is why do banks work this way? | | Imagine you were designing the bank from scratch having no | knowledge of the current banking system. How would you do it? The | most obvious thing would be if a customer deposits money, you | would hold 100% of the money 1 to 1 exactly how they deposited | it. Then the bank could make money by providing services to their | customers. | | If I had to bet, most people who have money in a bank today | _think_ this is how banks work. | | But in reality, when a bank receives money, a bank will take some | percentage of their customers deposits (90% or so), and then | invest that money trying to make a return on it. This works as | long as all customers don't try to withdraw their money at once. | | But when enough customers... say 10% of the customers try to | withdraw money from the bank at once, since 90% of the money was | in other investments, the money isn't really there, and you get a | bank run. | | Silicon Valley Bank is not new, the whole reason we have FDIC | insurance is to protect against bank runs. As long as this is the | system we follow, we will continue to get bank runs. | | I feel like the entire banking system is broken because "The | money isn't actually there". There needs to be a better way then | relying to the government to bail out banks who make bad | investments. Either a bank should be backed 1 to 1, or there | should be some other way to keep hold of your money. | bombcar wrote: | There _are_ banks that do offer the 1:1 ratio you want; they | charge you a quite hefty fee to do this. | | But from time immemorial banks work by taking money from you | (short term) and selling it to someone else (long term). | Originally the banks were "protected" by being able to claw | back the long term at anytime; but that caused even worse | problems. | | FDIC provides a way for "common people" to be protected from | this; the other option would involve something like the USPS | offering cash-only banking for people. | nine_zeros wrote: | > What I don't understand is why do banks work this way? | | This is such a great question. It has depth and nuance. If I | understand it correctly, it comes from a place of wanting | stability. Why wouldn't anyone design a banking system that is | fully backed and stable? Who the hell wants these violent booms | and busts? This looks like something that can be kept stable | right from the get go. | | I hear you. The main reason I can think of is that "banking is | crookery". | | The old goldsmiths were crooks who understood fractional | reserve. Imagine if we were to ban the current system and asked | banks to hold every deposit 1:1, they could - for a small fee. | But that will mushroom a black market of lending for interest. | All the banking crooks will have no choice but to go to the | black market. This will cause the black market to grow faster | than stable banking, which will lead to more unregulated chaos. | | The only alternative I can think of is equity-based islamic | finance style banks. While these banks have interest in varying | forms, they don't have as much asset risk because the interest | rate is largely meaningless because lending/borrowing is not | the main way to earn money. | rafaelero wrote: | > What I don't understand is why do banks work this way? | | People don't want to lose their money to inflation, so banks | are implicitly required to make up for that. Also, it's just | too tempting for them not to use the money that is collecting | dust. | | Hopefully people will emerge from this with a better | understanding of Bitcoin's advantage to normal fiat system, | which is something that is severely lacking in discussions I | see here in HN. | themitigating wrote: | Then how would a bank provide loans for cars and houses? They | might also have to charge a very high fee to hold your money | and not provide interest | nemo44x wrote: | > Then the bank could make money by providing services to their | customers. | | The point of a bank is to loan money. That's it. This is how | they make money. They need deposits so they can loan money. | They pay the depositor a part of the interest on the loans they | write. They don't exist to sell services because that's a | really bad business. They provide services to attract deposits | so they can write more loans. That's what banks are. | | > ...and then invest that money trying to make a return on it. | | No, they don't do that. They loan the money. If they can't loan | it then they put it into a variety of safe places that can earn | some interest, among other things. But they don't gamble | depositors money. Investment banks may, but that's an entirely | different thing. | ncallaway wrote: | > Then the bank could make money by providing services to their | customers. | | Which services? And those services would need to be something | that I can _only_ provide by being your depositor (otherwise I | 'll get beaten by someone who provides those services _without_ | the added burden of holding and securing your physical money. | | You've basically designed a system that increases the costs of | being a bank, and eliminates the main source of profit, and | hand-waived over how to close that gap. | | I suspect it's simply unprofitable to run a bank in the model | you've provided. I suspect the only way to make that system | work is by saying "banking is a public good, it's OK if it runs | at a loss" and making it a gov't provided service. I don't | really see a path to private banks existing in the model you | outlined. | kuczmama wrote: | That's a very good point. I think services could include | things like financial management, checking, sending/receiving | fees, etc. | | You're right, in this model it wouldn't be nearly as | profitable to be a bank as it is now. Potentially, it could | be a "public good" provided by the government, or it could be | like a lot of the brokerages who provide investment services | and charge a commission on top. | | Also, you're right it would be very hard for banks to be | anywhere near as profitable as they are now if assets are | backed 1:1. | | But in some sense, banking is _already_ viewed as a public | good since the FDIC is backing all of the bank deposits. So | at the moment we kind of have a weird hybrid situation where | banks are kind of pseudo-private, but also backed by the | government. | mempko wrote: | Banks don't lend out deposits. They don't take deposits and | lend out 90% or so. Fractional reserve banking is a model of | how banking works but it's a wrong model. In reality banks make | loans (which create deposits). They try to attract deposits | from other banks because they need enough bank reserves to | cover liquidity issues (like customers transferring money to | other banks). When a bank transfers deposits to another bank, | they must transfer reserves too. There is really a 2 tiered | money system in the US. There are bank reserves (which you and | I can't have) and deposits (which you and I do have). | | How banks actually work was described well by the Bank of | England. https://www.bankofengland.co.uk/quarterly- | bulletin/2014/q1/m... | kgwgk wrote: | > Fractional reserve banking is a model of how banking works | but it's a wrong model. [...] They try to attract deposits | from other banks because they need enough bank reserves | | Not completely wrong, after all. | PragmaticPulp wrote: | > Imagine you were designing the bank from scratch having no | knowledge of the current banking system. How would you do it? | The most obvious thing would be if a customer deposits money, | you would hold 100% of the money 1 to 1 exactly how they | deposited it. Then the bank could make money by providing | services to their customers. | | Now imagine you've finally settled on a cost structure that can | pay all of your insurance, operating costs, payroll, and | everything else. You charge monthly fees and you might also | charge per-interaction fees to do anything or talk to anyone. | | Then a competitor comes along that operates in a fractional | reserve manner. They not only offer zero fees, they actually | pay customers interest to keep their money in the bank. There | is a risk of failure, but it's rare and all evidence points to | customers not suffering massive losses when it does happen due | to various regulations. Inconvenient, yes, but it's unlikely | that you're going to lose all of your money. | | The majority of your customers would leave for the competitor | bank. | AvAurora wrote: | Not if you make inducing bank runs by means of marketing | legal. | stuxnet79 wrote: | I see the point you are trying to make here but your argument | isn't very convincing. You are completely ignoring the impact | regulatory oversight would have. If fractional reserve | banking was banned outright due to the risks it poses, then | the situation you just described would never emerge. | | As time goes on it's becoming more obvious that the current | status quo is unstable. Our financial institutions regularly | engage in ponzi like activities and we've become accustomed | to near catastrophic collapse at the end of every business | cycle. | | If we are going to stick to fractional reserve banking then | we need to come up with better reasons why otherwise I feel | like the entire system needs to be reevaluated. | adrr wrote: | Also where would the capital come from to give out loans? | suresk wrote: | 1:1 banking essentially guarantees long-term loss of principal | for depositors, albeit slowly. The main "service" a bank would | provide in that scenario is holding onto your money for you and | instead of paying interest on it, charging you a few percent | per year to hold onto it for you. | | Also, in your model, where does money for loans come from? How | are borrowing costs impacted by a major source of funds for | loans going away? | stoicking wrote: | I think what you described is a vault. A bank is where I go | when I need money for a car or a house. A vault is where I put | my money to be 100% safe. | adgjlsfhk1 wrote: | The problem with this take is fractional reserve is really good | for the economy because it expands the money supply. The | problem with a bank that holds 100% of the money is that it has | to charge it's customers to use it, so they won't get | customers. | ThrowawayTestr wrote: | >What I don't understand is why do banks work this way? | | Because that's how you make real money. | | Fractional reserve banking is the biggest scam in history. | chernevik wrote: | The whole point of a bank is maturity conversion, the | transformation of short-term deposits into long-term loans. | | It generally works because while any one depositor's funds are | short term, the pool of such deposits is generally stable. A | good chunk of today's deposits will fund tomorrow's | withdrawals. Banks also have elaborate instruments like | commercial paper and the Fed discount window to cover short- | term liquidity gaps. A bank with assets it can't sell quickly | enough can generally borrow briefly from some other bank to | cover the term gap. But there is a limit on how much such | borrowing a bank can do, and SVB has hit it. | | It seems that SVB made a classic mistake of putting a lot of | "hot" money into long-term assets, thus taking on interest rate | risk. They probably should have put the surge of deposits into | shorter-term instruments, but that would have forced them to | reduce interest on deposits or their own profits. | UniverseHacker wrote: | The ability to 'borrow' someone else's money to do something | valuable with it opens huge opportunities. This model is what | fueled the massive economic growth of the last few hundred | years, made the industrial revolution possible, and made home | ownership possible for non-aristocracy. | thetrb wrote: | People expect interest when they park a large amount of money | in a bank. Where should that interest come from when the money | just sits there? The bank will have to invest is somewhere | (ideally somewhere very safe like in Government bonds) where | they can then collect interest. | | So it looks like in this case SVB chose MBS with a pretty low | interest rate and long maturity, which they now have to sell | due to the bank run you mentioned. | noncoml wrote: | If you have a large sum of money that you don't expect to need | them soon, do you put the in the bank or do you invest them? | | Probably invest then. Why would the bank put its money in the | bank if you are not? | 420official wrote: | The bank can happily choose to invest *its* money, it | shouldn't be investing *my* money. | eddsh1994 wrote: | Mortgage-backed securities strike again | | https://twitter.com/jamiequint/status/1633956163565002752 | tpmx wrote: | A Swedish white collar pension fund (Alecta) was the 4th largest | owner of SVB. It's been big news over here today. I think I have | some pension savings there. | | Their investment in SVB represented 0.6-0.7% of their total fund. | I assume that the FDIC takeover means it's a total loss. | | Was this a manufactured bank run? | | https://www.bloomberg.com/news/articles/2023-03-10/why-svb-w... | cissou wrote: | That's wild. I wonder if it's good news for neobanks like Mercury | and Brex who will see an influx of new customers, or on the | contrary, startups will seek old, boring, safe banks instead of | niche boutiques with lots of exposure to industry risk. | dopeboy wrote: | In my circle of founders, it appears JPMC is winning out. We | are currently on Brex via lending club and monitoring the | situation closely. | AndreLock wrote: | I think it's the latter. If anything, this will negatively | impact Mercury and Brex in the long run as companies will favor | safety above all else. | [deleted] | sam345 wrote: | lots of comments about bank but what about business clients ? WSJ | says lots of startups in danger of losing their funds over FDIC | limit ? Anybody having experience with that ? | https://archive.is/tetbD | | Here's a good thread | https://news.ycombinator.com/item?id=35094447. on affect to | startups | nsxwolf wrote: | I had never even heard of the Silicon Valley Bank. It sounds | fake. Is this really a contagion risk? | DLarsen wrote: | I think I'm going to start asking potential employers where they | do their banking. | capableweb wrote: | I don't think it should be like this, but most surely your | profile will be flagged as "suspicious" if you ask such | questions. | steve76 wrote: | [dead] | ShamelessC wrote: | I'm fairly certain that would be A-okay with the person you | responded to. | zamnos wrote: | Asking them to name the bank is a bit of a weird one, only | because the answer can't be SVB anymore, and I'm not sure | what OP would do with that information. (So it's FRB, then | what? Unless you have inside info that they're about to fail, | and you're interviewing _this week_ , I don't see how their | banking partner's material) But if a startup you're | interviewing at won't answer what their runway is, or the | rest of the reverse interview business questions, then that's | a red flag and you should run far, _far_ away from them. | | * Are you profitable? | | * If not, how long is your runway? | | * Where does the funding come from and who influences the | high level plan/direction? | | * How do you make money? | | * What's preventing you from making more money? | | * What is the company's growth plan for the next 1 year? 5 | years? | | * What are the big challenges you see coming up? | | * What have you identified as your competitive advantage? | | https://github.com/viraptor/reverse-interview | kube-system wrote: | There are some founders who are aware that their early | employees are invested in the financial security of the | company, and not only aren't scared of these questions, but | openly discuss company finances. | banku_brougham wrote: | Aw shucks I wonder if any of my clients kept their working | capital at SVB. | [deleted] | firstfewshells wrote: | I wonder if this has any effect on the deposit sweeping programs | run by firms like robinhood, betterment and wealthfront. They | promise 4%+ yields with freedom to take out your cash any time. A | quick look at their partner program banks suggests they more or | less transfer the deposits to the same set of banks. | hw wrote: | Are there any public companies that bank with SVB? Startups that | went public in recent times? | somenameforme wrote: | An explainer post [1] connected to that Tweet is something I | found extremely informative (assuming it's accurate): | | "- In 2021 SVB saw a mass influx in deposits, which jumped from | $61.76bn at the end of 2019 to $189.20bn at the end of 2021. | | - As deposits grew, SVB could not grow their loan book fast | enough to generate the yield they wanted to see on this capital. | As a result, they purchased a large amount (over $80bn!) in | mortgage backed securities (MBS) with these deposits for their | hold-to-maturity (HTM) portfolio. | | - 97% of these MBS were 10+ year duration, with a weighted | average yield of 1.56%. | | - The issue is that as the Fed raised interest rates in 2022 and | continued to do so through 2023, the value of SVB's MBS | plummeted. This is because investors can now purchase long- | duration "risk-free" bonds from the Fed at a 2.5x higher yield. | | - This is not a liquidity issue as long as SVB maintains their | deposits, since these securities will pay out more than they cost | eventually. | | - However, yesterday afternoon, SVB announced that they had sold | $21bn of their Available For Sale (AFS) securities at a $1.8bn | loss, and were raising another $2.25bn in equity and debt. This | came as a surprise to investors, who were under the impression | that SVB had enough liquidity to avoid selling their AFS | portfolio." | | [1] - https://twitter.com/jamiequint/status/1633956163565002752 | resource0x wrote: | Ackman panics, appeals for a bailout | | https://www.msn.com/en-us/money/other/billionaire-investor-b... | BlandDuck wrote: | "This is not a liquidity issue as long as SVB maintains their | deposits, since these securities will pay out more than they | cost eventually." | | But that's exactly the problem. With higher interest rates, | those deposits will be looking for a higher deposit rate. With | their assets tied up in low-paying long-term bonds, SVB will | not be able to pay that higher rate. | | It would only work out "eventually", if the depositors would | accept a below-market rate until the bonds matured. | | EDIT: This is indeed a _solvency_ issue, not a liquidity issue, | as also pointed out below. | danpalmer wrote: | It's never a liquidity issue as long as no one tests the | liquidity! | lkbm wrote: | He meant _solvency_ issue. Someone else called this out | downthread and he confirmed. Definitely felt like it should | 've been corrected more prominently, though. | jamiequint wrote: | Yes, I mis-spoke. If only there was some way to edit tweets | or to pin your replies to the top of a thread :P | zzleeper wrote: | And yet he is wrong! | | They were stuck with assets earning <2% for 10+ years, | meanwhile depositors were demanding higher returns (else | they would put their money in other banks, in 6m tbills, | 10yr treasuries, etc.. all of which paid a lot more). | | And thus, "it's not a solvency issue as long as depositors | are stupid and don't realize they can get more $$$ from | other banks" ends up being quite misleading | benlivengood wrote: | So they didn't require the deposits earning 2% to be in | term CDs like sane banks and credit unions do? | blantonl wrote: | "Eventually" | | The markets can stay irrational longer than you can remain | solvent. | pishpash wrote: | All liquidity issues are solvency issues when marked to | market. | actionablefiber wrote: | That's true in a tautological way, but there really is a | difference between liquidity and solvency. | | If a firm's assets will _eventually_ mature and be worth | more than the current liabilities, then a private rescuer | can make a lot of money by bailing them out. If the assets | will never recover or pay out, then someone will be holding | the bag. | kgwgk wrote: | But it's important that they are eventually worth more. | Enough to provide the rescuer with a substantial gain | that compensates them for their troubles. Solvency in a | "breakeven" sense is not enough. | andromeduck wrote: | Why even chase 1.5%. | berkeleyjunk wrote: | They got too much in deposits very quickly and could not | originate loans at the same speed. If they kept the money | uninvested their operating costs would have eaten up their | principal (even if they had to pay 0% in interest to their | customers) | pirate787 wrote: | On $80B that's $120 million a year | snewman wrote: | 1.5% of $80B is actually $1.2B | postalrat wrote: | If you could make 1.5% off other people's money how much | would you "invest"? | notShabu wrote: | One of the differences between a central bank and regular bank | is that the regular banks should do the riskier stuff and offer | the higher interest rates. | | This in theory creates a diverse non-correlated system of | capital deployment with the best projects winning over the bad | ones. | | However when the central bank offers interest rates that a | private bank cannot match even when it's deploying into safe | and endorsed assets like MBS then some weird stuff happens... | | The Fed can promise risk-free returns at whatever rate they | want but once it exceeds the private banks', then the banks no | longer serve any purpose. If there were a way for individuals | to hold accounts directly w/ the Fed, they'd all do that. Money | will be sucked away from banks that deploy capital in the | private sector and squeeze into ones that just passthrough to | the Fed's like money market funds. | | With high enough interest rates, the Fed can end up sucking up | liquidity even from good and safe projects and cause widespread | asset collapse b/c the entities that are supposed to be doing | price discovery can't compete anymore. | itissid wrote: | Noob Questions: How do banks typically diversify their | investments so that this kind of thing does not happen? Also | don't they have to have some kind of liquidity cushion? Can't | they just cover their short term costs by borrowing(I thought | there is an overnight facility for lending between banks to | borrow at low rates) | LanceH wrote: | With only a look at the summary numbers above, it looks like | they tied up 40% or so to 10+ years. I don't know what the | right percentage should be, if that much is going to be tied | up in hold-to-maturity, you would expect it on a rolling | basis which reflects the long term liquidity of your | deposits. | | On its face, such a purchase would only be done assuming | rates and markets will remain the same. I wish I could say | that accusing a bank of making such a naive purchase means | that interpretation is wrong, but these banks keep doing | things like this since it's always worked out before. I'm | sure it's much more complicated, but sometimes that's because | it should have been a lot less complicated. | EMM_386 wrote: | I don't understand why you would lock up that much money | for 10 years at 1.5% interest. | | Did they expect interest rates to stay at 0 for 10 years? | That is illogical. | rvnx wrote: | Especially illogical, considering it's not their own | money that they locked, but customers funds (that they | owe to the customer in the short-term). | abm53 wrote: | If that was the market clearing price, then to the extent | that rate expectations set the bond price (which of | course is debatable) this would have been the consensus | view at the time. | rsync wrote: | "97% of these MBS were 10+ year duration, with a weighted | average yield of 1.56%." | | I'd like to learn more about the dramatic drop in MBS - | elsewhere, downthread, it is asserted that they have dropped | 30-50% ? | | _I understand the inverse relationship between bond price and | yield ..._ | | ... but I am surprised that an asset yielding ~1.5% drops 30% | in value when treasuries of similar duration rise to 3-4%. | | Are there other factors at play with MBS in early 2023 - such | as increased delinquencies - that are putting downward pressure | on their price ? | fspeech wrote: | Interest rate rise will cause the same loss for bonds of the | same duration. However MBS don't have fixed durations. As | interest rates go up, borrowers are expected to hold onto | their mortgage longer. So the expected duration goes up for | an MBS as well and loss is expected to be higher than bonds | with similar duration to begin with. However there is a | mitigating factor for MBS in a rising rate environment, that | is they are amortizing instruments. So the duration doesn't | go up as dramatically as callable bonds/CDs. | nilsbunger wrote: | It's pretty straightforward -- if you have asset yielding | 1.5% forever, you can make it an asset yielding 3% by cutting | its price in half. | | In this case it's a little more complicated since you also | get the principal back in pieces, but you can calculate the | price today to create the equivalent of a 3% yield instead of | 1.5%, and you'll get a significant price reduction. | ikiris wrote: | Go watch Margin Call. | [deleted] | hervature wrote: | I will first try to explain with simplified numbers and then | do the equivalent calculation somewhere else. | | Let's assume you buy a $100 bond with 0% rate for 10 years. | For simplicity, let's assume it's a riskless bond. Now, let's | suppose those same bonds now pay 5% a month later. Well, the | smart thing to do would be to sell your 1-month old bond and | buy the new one. Of course, everyone is doing the same thing | so the price has to drop until the bonds are equivalent. You | would get $100/1.05^10 = $61.39. Of course, the old bond | still pays 0% but now, on paper, the price of the bond should | grow 5% every year as we get closer to maturation. | | Going to the real world, it would be something like 4.5% | (current Fed rate - expected to be higher) minus 1.5% (the | MBS rate they have) is 3% difference and so $100/1.03^10 = | $74.41. Now, you said 10+ and so doing the same thing with 15 | years is $64.19. This is also not including the fact that MBS | is strictly worse than treasuries in terms of riskiness and | so it's easy to imagine 50% off. | [deleted] | actionablefiber wrote: | > You would get $100/1.05^10 = $61.39. | | Emphasis on the _exponential decay_ relationship between | market price and time-to-maturity. If you change that 10 to | a 30, the bond is worth $23, and if you change it to a 50, | it 's $8.72. For a bond that pays $100 at maturation. | | I think laypeople intuitively guess that long-dated bonds | are safer, because that is sort of how it feels when you | are borrowing money to buy a house. But in terms of the | market value of the bond, you add exponentially more | interest rate sensitivity as the time-to-maturity | increases. | boosting6889 wrote: | There's a misconception that bonds are safe investments. They | are not. You're just trading one kind of risk for another. | You can do the math, compare 4% and 1.5% compounding for 10 | years and that's why no one wants the bonds yielding 1.5%. | Dumping 90%+ of your liquid funds into a single thing other | than cash is completely insane especially when it's not | yours. | snuxoll wrote: | Treasury bonds are "safe" in the sense that you _will_ | (because the US Government will not default on her debt) | get your money back. The caveat is you will get your money | back _at maturity_ ; if you need it before then, well, | market value adjusts based on current yields. | | If you're investing in bonds without building a ladder | you're honestly doing it wrong. With the past 15 years of | easy money and low yields it might have seemed pointless | given rates barely moved, but completely giving up on any | ability to capitalize on higher yields if rates move up is | just poor investing :/ | SmartJerry wrote: | Bonds are perfectly safe investments when the normal | consideration of safety is that you cannot lose money and | you know your exact return through maturity. Can you miss | out on better investments, ofcourse. The only issue is | investing someone else's money into bonds - because they | are the ones to decide when the cash is needed, not you. | But I'd be shocked if at any given time at least 90% of | cash is not invested in someway. You only want to keep what | you need immediately out of investments. | bialpio wrote: | Safe investment means you're not risking losing the money, | not that there will never be a better opportunity (that may | be just as safe). Alternative cost is not really coming | into play here IMO. | ohgodplsno wrote: | Investing in the exact same kind of unsafe assets that brought | the 2007 crisis, as well as assets that cause house prices to | stay unaffordably high. | | Yep, all of SV is truly made of bumbling idiots. That whole | solution is truly hilarious and watching all these clowns lose | their money is going to be fun. | berkeleyjunk wrote: | Actually not. The kind of asset they invested in does not | really matter. If they invested in super safe government | bonds at <1% at the same time, they would have had the _exact | same issue_. It is the rapidly rising interest rates that did | them in. If they were smarter they could have done a rolling | ladder of short maturities but probably someone there was | lazy. | dahdum wrote: | They could have stopped offering the very high savings | yields that attracted that capital, but profits and exec | comp would have dipped. So...this instead. | darkerside wrote: | That would have resulted in just as much of a flight, to | higher yield instead of safety. | dahfizz wrote: | Gotta love the monday morning quarterbacking. "Get rid of | the thing that attracts all your customers, surely then | there will never be a bank run." | dahdum wrote: | The execs have been pulling $3-10M/yr compensation and will | walk away wealthy, legally in the clear, and probably into | similar roles and comp elsewhere (or simply retired). They | aren't bumbling idiots, though if they were, they'd be hella | crafty ones. | | I don't think the depositors, investors, or VC's that pushed | for SVB were idiots. SVB was a good bank, with a good | reputation, and good services that got mismanaged into | oblivion. | lapcat wrote: | > An explainer post [1] connected to that Tweet is something I | found extremely informative (assuming it's accurate): | | [1] - https://twitter.com/jamiequint/status/1633956163565002752 | | That tweet is unattributed _verbatim_ from | https://www.livemint.com/news/world/explainer-silicon-valley... | | [EDIT:] See the thread, it seems that the story may have stolen | from the tweet! Pretty shocking for one of India's biggest | business publications (and with 2 million Twitter followers). | jamiequint wrote: | My tweet was posted before that article. | lapcat wrote: | What are you saying? | | 1) You wrote the Mint article. | | 2) Mint took the text from your tweet unattributed. | | 3) ??? | jamiequint wrote: | Looks like #2 | lapcat wrote: | > Looks like #2 | | Wow, this appears to be the case, at least judging from | the timestamp on the first reference I could find: | https://twitter.com/livemint/status/1634091187442266112 | | That's massive journalistic malpractice! | rvnx wrote: | He is correct, but he is blaming the FED raising interest | rates. The responsible is not the FED, but the negligent | management of SVB that purchased such products because of | greediness. | | When interest rates raise, previously issued bonds lose in | value because there are more attractive ones available. | | It's like if they missed the Chapter 1 lesson about investing | into bonds. | baremetal wrote: | If you inspect the values of SVB here: | https://www.svb.com/about-us/living-our-values | | You can see that managing money responsibly is not one of | their values. | AviationAtom wrote: | Relevant Bits About Money article on FDIC and bank failure: | | https://www.bitsaboutmoney.com/archive/deposit-insurance/ | | I should add: apart from 2008, bank failure has historically | been quite rare | mooreds wrote: | Affecting stripe payouts too: | https://support.stripe.com/questions/important-information-a... | dools wrote: | What's interesting is that this bank failure as well as the | failure of a neo bank Xinja in Australia despite taking in | deposits both illustrate that it is not the case that banks | make money by "lending out deposits" but rather by issuing | loans and then attracting enough deposits to make their lending | operations profitable. | 323 wrote: | I had the vague impression that after the 2007 crisis, banks | holding retail deposit accounts were not allowed to invest in | stuff like MBS, only investment banks (without retail accounts) | were. | dragonwriter wrote: | > I had the vague impression that after the 2007 crisis, | banks holding retail deposit accounts were not allowed to | invest in stuff like MBS, only investment banks (without | retail accounts) were. | | You are confusing the Great Recession with the Great | Depression. | | The 2007 crisis and subsequent Great _Recession_ was | contributed to by the 1999 repeal of that rule, adopted in | response to the Great _Depression_ ; there were several | efforts to restore it after the Great Recession, but none | succeeded. | davidw wrote: | > 10+ year duration, with a weighted average yield of 1.56%. | | > the value of SVB's MBS plummeted. | | How much 'plummeting' did they do in numerical terms? Something | with those kinds of yields doesn't sound like it ought to be a | super risky asset. The mortgage lending market tightened up a | lot after the great recession...right? | [deleted] | mitthrowaway2 wrote: | A bond with a 10-year yield of 1.56% has a price of $0.85 on | the dollar. A bond with a 10-year yield of 4% has a price of | $0.676 on the dollar. So if yields increase from 1.56% to 4%, | the bond price falls by 21%. | mikeyouse wrote: | They're very safe assets, they just have a long duration | which makes them really risky if you could need them to cover | deposits. | | To make things more straightforward, let's just compress it | to a 1-year time frame vs a 30-day bond. So a $100 MBS at | 1.5% would pay you $101.50 if you held it for 1 year. If you | have $100 in deposits and a $100 MBS bond, you're "solvent". | But what happens if after 30 days, your depositor asks for | his $100 back? You either need to sell your MBS or find other | money to pay them. | | If you try to sell the MBS to pay that $100 deposit liability | and interest rates are about the same as they were when you | bought it, you'd likely get around $100 and things are okay. | If however, rates have spiked since then (like they have | here), investors can either buy your bond that pays 1.5% or | they can buy a new issuance 1-year bond paying 4% or 5%, or | perhaps a 30-day bond paying 1.5%. So you need to give them a | discount in order to sell your bond -- in this case it might | be upwards of 30% or 40%. | | So if you sell your MBS, you'll only get $60 or $70 for it -- | leaving you a huge shortfall that you need to makeup from | your other reserves. If you could convince your depositor to | leave his money in the bank until that bond matures, you'd be | completely fine -- but the timing mismatch and interest rate | spike just kills the bank. | davidw wrote: | I get how it'd put them in bankruptcy or whatever the | precise term is for a bank. I'm just curious what it means | in terms of people getting their money back. If their | assets lost 10% of their value, I could see that being | enough, combined with the bank run, to put them under. But | if everything else gets sold off at 90 cents to the dollar, | that's not awesome but it's not like "poof it's gone | entirely" either. | BobbyJo wrote: | > But if everything else gets sold off at 90 cents to the | dollar, that's not awesome but it's not like "poof it's | gone entirely" either | | You answered your own question. People will very likely | get most, or even all, of their money back, just after | the gov is able to offload some of the assets. Problem | is, if you're a startup, you can't just wait a few months | for the cash to make payroll. | kgwgk wrote: | The risky part is (or more precisely has happened to be) the | 10+ year duration, more than the ~1% yield over treasuries | (which may be too low to compensate for the additional risk | but is not what has brought the bank down). | dahfizz wrote: | You can't use your intuition about stock prices for | bonds/fixed income. In FI, its all a numbers game. As rates | go up, prices go down. | Someone1234 wrote: | That has to be an inflation adjusted yield, right? Why would | anyone do anything remotely risky for such terrible returns? | You can almost find government bonds with similar average | yields. | Macha wrote: | Weren't the rates on government bonds negative if you were | a large investor like a bank? | zzleeper wrote: | Nope! I got a 2.0% mortgage in 2021 (no points or anything) | and the bank then turned around and sold it to Freddie who | paid them 1.7% (so the bank made a nice 0.3% just for | originating the loan). | | Then Freddie packed my loan and sold it to others for | something likely to be below 1.7%... | dahfizz wrote: | >You can almost find government bonds with similar average | yields. | | Not a few years ago. T-Bills were paying like 0.1% in | 2021[1] | | [1] https://home.treasury.gov/resource-center/data-chart- | center/... | kgwgk wrote: | And 10-year bonds were well below 1%. | | https://fred.stlouisfed.org/series/DGS10 | bjornsing wrote: | > - This is not a liquidity issue as long as SVB maintains | their deposits, since these securities will pay out more than | they cost eventually. | | You mean it's not a solvency issue? It sounds like a textbook | liquidity issue. | Eumenes wrote: | The team making these poor choices at SVB should be criminally | charged ... The tax payer shouldn't have to bail out banks. | berkle4455 wrote: | Another bank will acquire the company and make depositors | whole. Government won't actually do the bailout, just | facilitate/force it. | Eumenes wrote: | So where does the lost money come from? Another bank just | gives it up? | bryfb wrote: | FDIC is funded by premiums from participating banks. | Beyond the insured limit, there isn't really a guarantee | that the "lost money will come back." | berkle4455 wrote: | Another bank will commit to meeting 100% of investor | deposits, take ownership of all SVB's assets, and provide | liquidity to shore up any depositor concerns. Why would | they do this? They get to acquire SVB insanely cheap | (basically just the cost of covering the losses), get | loads of new now-happy customers, and be hailed as a | hero. | Asparagirl wrote: | Unless, of course, this predicted white knight never | appears because _lots_ of other banks are secretly in | similarly shaky positions where they are _also_ holding | lots of long-term Treasuries or MBS that are in some | respects extremely safe but which also pay only 0-1% over | 5-10 years, and those "assets" would need to be fire-sold | at 65% of face value if the bank ever needed cash | quickly... | | And even if that white knight or even off-white-ecru | knight did come along and want to buy the bank next week, | what if they don't decide to make every depositor whole, | for those holding cash above FDIC limits? They certainly | don't have to do that. They could just buy the loan book. | Or the warrants or early debt for a number of Silicon | Valley startups. They can be vultures, not Santa Claus... | | I think people don't quite grasp what could be coming | next. | tempsy wrote: | honestly disgusted by the blatant PR moves by YC and Founders | Fund yesterday in leaking their "advice" to their founders to | get out of SVB | | Very blatant weaponization of FUD to drum up deposits for their | investments in Brex, Ramp, and Mercury. | [deleted] | misssocrates wrote: | Would it be better to keep good advice private? | zdbrandon wrote: | As someone who was considering using one of those "banks" in | the coming months, this whole ordeal makes me want to stick | with Chase, Wells Fargo, etc. Stripe integrations be damned. | hef19898 wrote: | If you are outside of B2B, you do not need Stripe. You need | a solid business bank, ideally multiple ones. | | And if B2B is relevant, well, have an accoubt, or multiple, | at a bank with Stripe integration to handle customer | payments anf refunds. And keep everything else at different | banks. | [deleted] | hef19898 wrote: | Or just some, as it turned out, valid business advice. That | being said, I would never let my investors choose my banks | (as in more than one bank) holding my company's cash. And I | definetly wouldn't use some not-to-big-to-fail, not | international bank to hold my multi-millions in VC money, | which is the only yhing keeping my company a float. | tempsy wrote: | Giving the advice is not what I'm referring to. I'm | referring to intentionally leaking the advice to the press | so they run the story about how Peter Thiel is warning | everyone which accelerated the outflow. | hef19898 wrote: | Ah, I wasn't aware of that. I am not the least surprised | so that Thiel is, however, involved in this. | dang wrote: | (We detached this subthread from | https://news.ycombinator.com/item?id=35097120, which contains | "that tweet".) | mcenedella wrote: | Great moderating dang! Appreciate your tireless work to make | hackernews great. | walrus01 wrote: | > As a result, they purchased a large amount (over $80bn!) in | mortgage backed securities (MBS) | | Do we now have people making decisions on stuff like this who | are too young or clueless to remember what happened with the | 2004-2007 mortgage backed security bubble that popped in the | 2008-2009 financial crisis? Seriously? Did nobody learn the | lessons on this? Countrywide and other originators of MBS and | CDOs? | mason55 wrote: | > _Did nobody learn the lessons on this?_ | | I'm not sure you learned the lessons. Other than MBS being | coincidentally involved, this has literally nothing to do | with 2008. | dahfizz wrote: | Do you think MBS are always and forever a bad investment | because of a bubble 15 years ago? | | The MBS wasn't even the problem here. If they had 10Y | corporate bonds or Treasury notes paying the same rate, they | would have had the same problem. | dragonwriter wrote: | > Do you think MBS are always and forever a bad investment | because of a bubble 15 years ago? | | I think heavy exposure to a single type of long-term asset | for a retail bank is always going to be a bad investment | decisions, because risks materialize, and correlated risks | tend to materialize together, and when a retail bank | suddenly lacks liquidity... | walrus01 wrote: | To be clear, I think MBS are morally wrong in how they're | implemented in the market, yes. | | A bubble 15 years ago? We're in a massive housing price | increase bubble _now_. | | Buying $80bn of MBS in the middle of a well-known housing | price bubble is catastrophically stupid. | twblalock wrote: | Any investments whose value was sensitive to the Fed's rates | would have had the exact same problem. | | In 2008 MBSes were bad because the underlying value of the | investment turned out to be bad. That's not happening this | time. All that's happening is the same thing that happens to | any bonds -- when rates increase, older lower-rate bonds lose | value because why would anyone pay full price for them when | they can get a new one with a higher rate? | alexlesuper wrote: | The problem is with MBS but not for the same reason. | SilasX wrote: | The error wasn't that the mortgages defaulted too much (like | in the '08 crisis) but that interest rates went up, which is | a distinct problem, and, from the comments in these | discussions, not something that the capital requirements | adequately capture. | voisin wrote: | > - 97% of these MBS were 10+ year duration, with a weighted | average yield of 1.56%. | | This is a pretty insane bet. Why didn't they ladder the | maturities to have a lower average duration and less risk? | rvnx wrote: | As a bank, parking the money into long maturity bonds, | especially when it's not your money, and your customer can | take the money back anytime, and the current rates are 0% (so | can go upward only...). | | Sounds like an insane investment decision. | baremetal wrote: | At least SVB _was_ diverse and inclusive. With extensive | ESG virtue signaling. With that kind of pedigree, well, | never you mind about making sound financial decisions. | | https://www.svb.com/about-us/living-our-values | athammer wrote: | What does ESG have to do with this? Seems like your | politically motivated to see the world through one lens. | kimbernator wrote: | How is that relevant at all? | makestuff wrote: | My pessimistic view is that bonuses were paid out on invested | cash not on cash just sitting there. So they had to buy | something to get a fat bonus. | voisin wrote: | Shocking portfolio design isn't regulated given how much of | banking is regulated. | DiscourseFan wrote: | I don't get it. I'm no expert in finance but even I knew the | fed wasn't going to stop raising interest rates because I had | the common sense to know the fed would fail to trigger a | recession by doing so. | [deleted] | riazrizvi wrote: | When I set my 'Hindsight Goggles' to 100, I too saw that the | Fed would keep raising interest after the initial rounds, | because unemployment would stay low despite massive layoffs, | somehow, and that prices would keep rising. And I am an | expert in finance. | synu wrote: | I, too, am a genius in hindsight. It's great to be in such | rare company. | hangsi wrote: | Surely in retrospect, it must have been obvious you would | find such people despite their rarity? | DiscourseFan wrote: | There still a war on, inflation wouldn'tve gone down until | that ended. And you have to take the temperature of things | in your daily life, its like Keynes said, people are driven | by the "animal spirit", the market doesn't always (or ever) | make sense, you have to get a feel for it and use specific | data to support that feeling, not the other way around. | Jesus am I the only one taking out more lines of credit | with the expectation of an extended period of inflation? If | everyone else is doing that (which they should be), the | money supply will continue ballooning, the economy will | stay strong and unemployment low. | riazrizvi wrote: | If people keep borrowing everything will be alright? | Society, the economy, doesn't work that way. | | The economic good times are when confidence, trust, risk | taking are all high. That music stops when people lose | confidence, the Great Financial Crisis, just like all | recessions are fundamentally a loss of confidence. This | causes people with funds to claw them back, and retreat | into their castle, and wait for the bad times to blow | over. This is what happens when the economy collapses. | When prices and asset liquidity crash. When rates go up. | When you can't borrow anymore and when you have to pay | back the money you are borrowing, because it's in the | fine print that they can ask for it back whenever they | like. Then inflation goes up. Borrowing rates go up. | Asset prices go up, unless no-one has confidence in that | particular asset (eg stocks or property where those | companies are based). | | Consumer leverage is not a bulwark against recession. | abigail95 wrote: | I thought layoffs were way below trend? What layoffs? | boosting6889 wrote: | Why couldn't they just say they're doing a funding round to | finance international expansion so they can support | entrepreneurs all over the world or some similar corporate | bullshit we hear nonstop? | FireBeyond wrote: | Because most of the potential investors are sophisticated | enough to realize they wouldn't be 'investing' as plugging | holes in what would be rapidly turning into a Ponzi scheme. | KptMarchewa wrote: | Because, as described in the link, the gap between deposits | and liabilities is likely to be over 25B. | JumpinJack_Cash wrote: | > > 97% of these MBS were 10+ year duration, with a weighted | average yield of 1.56%. | | But why didn't they just hold money at the Fed given that they | are a bank and they can? | | It's literally splitting hairs between what the Fed Fund Rate | is and what they got on their MBS. | | Explainer post says end of 2021 they made that trade, in March | the Fed raised the Fed Fund Rate to 0.20%, and by April it was | 0.77%. | | Had they waited just 5 months they'd have got a better Risk | adjusted return by just keeping the money at the Fed | gerad wrote: | If they could have forecasted the future at that point, they | could have made even more money than that! | BobbyJo wrote: | If you could forecast even 6 hours into the future, you'd | be the richest man alive in weeks. Nevermind months. | jwozn wrote: | Yeah, but banks don't profit by holding money for months. | the88doctor wrote: | Even if SVB maintains their deposits, that _IS_ a liquidity | issue, it just isn 't a solvency issue. | kypro wrote: | > - The issue is that as the Fed raised interest rates in 2022 | and continued to do so through 2023, the value of SVB's MBS | plummeted. This is because investors can now purchase long- | duration "risk-free" bonds from the Fed at a 2.5x higher yield. | | Let's be clear, the issue wasn't that the Fed raised rates to a | historically average level, it was that they were manipulating | the bond market in 2021 with trillions of dollars of QE. | | Over the last few years the Fed has basically done a pump and | dump on the bond market, and SVB being a bank was basically | forced by regulation to buy long-dated bonds for yield. | | I've seen a lot of people speak critically of SVB and I get it, | but I think people should take a minute to ask why the hell | bonds were yielding such a low amount in 2021. I just wonder | how much longer we're going to blame, banks, crypto investors, | bond investors, equity investors, home buyers, etc for what's | happening to the value of their assets. When central bankers | make government bonds trade like meme stocks this is what | happens. Perhaps if we didn't do that, SVB and many others | wouldn't be in this position. | NovemberWhiskey wrote: | > _Let 's be clear, the issue wasn't that the Fed raised | rates to a historically average level, it was that they were | manipulating the bond market in 2021 with trillions of | dollars of QE._ | | One of the principle, statutory purposes of the Federal | Reserve is to conduct monetary policy to achieve maximum | employment and stable prices. That means it's the _job_ of | the Fed to manipulate interest rates. | mattwad wrote: | Actually, they are sacrificing employment to stabilize | prices: https://time.com/6253699/federal-reserve-inflation- | interest-.... The interest rate hikes are designed to cause | unemployment, and it's not even working. | maskil wrote: | Don't see how anyone could view the feds actions in the | last few years and conclude that they had this as their | mandate | kazen44 wrote: | mind you the alternave is far worse. | | Having unstable prices for staple goods will lead to unrest | very, very quickly, which in term results in a downturn in | the econonmy, which in term leads to even more unstable | prices and thus more unrest. | highwaylights wrote: | Nah, the bank is responsible for their decisions. | | They bought $80b of fixed-rate bonds at historically and | artificially low interest rates in a time of massive QE. Even | based on the information available at the time, this is not a | surprising outcome _at all_. | abfan1127 wrote: | that doesn't excuse the Fed's behaviors. | SantalBlush wrote: | Whether or not the Fed's behaviors are excused is not the | topic of conversation. | freejazz wrote: | What's the fed's obligation to that bank that you are | making this point? | reso wrote: | The fed wasn't buying bonds for lulz, they were doing it | to carry out their primary function. | danielmarkbruce wrote: | It's easy to criticize the fed, but they did a pretty | good job during COVID and they did a pretty good job | during 2008. | | The charge of "manipulating bond markets" is pretty | absurd - their mandate is to influence inflation and | employment via interest rates. Of course it has an impact | on bond markets. | yterdy wrote: | Not to let the banks off the hook, but | | >They did a pretty good job during COVID | | One word: "transitory". | danielmarkbruce wrote: | It was surprisingly accurate.... mom inflation has been | reasonable for several months now | nervlord wrote: | That's.. Delusional. It's barely budged. | danielmarkbruce wrote: | https://www.bls.gov/news.release/pdf/cpi.pdf | | Note all the months since July 2022. It's good to read | the source material rather than hyperventilating news | articles. | yterdy wrote: | By that metric, and it took quite a bit longer to get | there than ideal. It's also still elevated historically | and compared to FFR, all of which is a roundabout way of | saying that inflation has and continues to destabilize | the outlook. Stability historically comes after an | n-month lag of the FFR and core inflation meeting, right? | Well, banks are failing now, and 4Q24 is a ways off. | | I just don't know if I'd call it a "pretty good job," is | all. They were caught-off guard and didn't move quickly | enough. | danielmarkbruce wrote: | They are always caught off guard. Try predicting anything | macro and see how well it goes to plan. Then try not | moving too fast or too slow. | | The idea that they aren't doing a good job because they | aren't perfectly precise with their timing is silly. | nerdponx wrote: | Two wrongs don't make a right! | danielmarkbruce wrote: | And the $80 bill was about 40% of their assets. And their | depositors are all businesses who will move the money out | fast because it's not insured over 250k. | disgruntledphd2 wrote: | Yeah, this is all very odd. What the hell happened there? | | In retrospect, the Chief Risk Officer leaving and not | being replaced immediately was a bad sign: | https://fortune.com/2023/03/10/silicon-valley-bank-chief- | ris... | [deleted] | KirillPanov wrote: | > I just wonder how much longer we're going to blame crypto | | HN will blame crypto for everything, for ever. Because it's | trendy to do that. | JoeJonathan wrote: | Or because it's actually a huge scam. | nvr219 wrote: | And because crypto is garbage. | [deleted] | darkerside wrote: | Is there a reason they couldn't have just purchased shorter | term bonds and securities instead? | muzz wrote: | Greed. Those were yielding close to zero and they wanted | the 1.x% | polygamous_bat wrote: | It's an interesting reward mechanic for the bankers, | "heads I walk home with big bonuses, tails I go home with | a big severance and our customers get screwed". | roguecoder wrote: | ... housing prices have continued to rise at wildly | unsustainable rates, leading to record homelessness. Which is | the exact opposite of what happened with the crypto market, | where the Ponzi scheme collapsed. | | When the assets haven't even moved in the same direction, I | don't know how you are going to blame federal policy to | counteracted the recessionary impact of covid for moving | them. Whereas the fed has caused significant damage & also | been ineffective at fighting the current supply-side | inflation caused by Russia's war of aggression. | harambae wrote: | There's always degrees of speculation that are going to | vary - cryptocurrencies, tech stocks, consumer staple | stocks, gold, commodities, real estate, etc. | | No one expects that real estate will skyrocket and tank | like shitcoins (even in 2008, the residential real estate | market didn't bottom out until 2012). But that doesn't mean | that Federal Reserve policy has been good. | | I'd highly recommend the book (or audiobook) "The Lords of | Easy Money: How the Federal Reserve Broke the American | Economy" for anyone who is interested in a historical | summary of the FOMC. | jamiequint wrote: | I hope it's accurate. What I should have said though is "This | is not a *solvency* issue as long as SVB maintains their | deposits", it's obviously a liquidity issue. | rqtwteye wrote: | "to generate the yield they wanted to see on this capital." | | Sticking to unrealistic goals seems to to be the downfall of a | lot of financial institutions (and probably a lot of other | companies). Same happened with Deutsche Bank in the 2000s. The | CEO declared that they wanted to achieve higher ROI and to | achieve this they had to start doing ever riskier stuff until | it blew up in their faces (and the taxpayer generously bailed | them out so they could keep their big bonuses). | weego wrote: | When the fuck are retail banks going to be ring-fenced away | from being able to trade in MBS. They're consistently cancerous | to our banking systems. | tertius wrote: | This isn't an MBS problem. It's just a poorly performing | asset problem. | walrus01 wrote: | This is a symptom of the problem of middle class single | family home residential real estate being treated as an | unreasonably-price-increasing bubble inflated investment and | not a place for people to live in. | | The irrational exuberance in price increases in this segment | of the market over the past 4-5 years is not sustainable. | | It is not logical, sane or normal for houses that were valued | at $150k five years ago to now be valued at $400k in some | suburbs and metro areas. | s1artibartfast wrote: | It's logical or sane if you think capital investment | options in New areas is going to dry up and existing assets | are the best opportunity for preserving or growing your | money. | | How much would you spend on the house if you're only | alternative is to watch your capital disappear | dahfizz wrote: | This has nothing to do with MBS in particular, it is a | fundamental aspect of the fixed income market. | zomglings wrote: | I do not think this is a problem of mortgage-backed | securities. | | The problem is that SVB tied up their liquidity for 10 years | at a yield far lower than they would get with more secure | investments after the FED's rate hikes. | | The specific assets they invested into are immaterial. | mannerheim wrote: | Yep. Let's not forget this same thing pretty much happened | last year in the UK - pension funds got margin called | because they borrowed money to buy gilts (UK gov bonds). | Low interest bonds, money tied up, messed them up when | interest rates rose. | snuxoll wrote: | Aye, the mistake was the duration, not the instrument. I | hope nobody would take 60% of their brokerage account and | invest it in a 10 year bond either, ladders exist not just | to manage liquidity but also to limit the duration you have | to suffer low yields with. | bluetwo wrote: | There are some big parts to this story we don't know. | | Yes, they sold the treasuries and took a bath. But if that was | their best option, it speaks very poorly to the other "assets" | they held on their balance sheet. | | We may find out in the coming days that they had a big position | in Silvergate, which went bankrupt yesterday, and they had to | mark their position to zero, creating the need for liquidity. | PhaedrusV wrote: | I heard elsewhere they were extending loans to startups with | pre-IPO shares as collateral, so yeah, that was their best | option apparently. | duxup wrote: | I have some family who (with some other partners) founded a | small community bank that has grown over the years. | | They expanded in some areas by buying other small community | banks, specifically in areas where there was a big increase in | income in the local area (from mineral rights, etc). | | The smaller banks that they bought were in a situation where | suddenly they had large amounts of cash incoming, and customers | who were paying off / not taking out loans like they used to. | | They didn't have the reach (mostly confined to a small rural | region) to use that cash to give out loans elsewhere so they | looked to merge or be bought by someone who did. | | Until I heard about those banks I hadn't considered "too much | money" was a problem. | navane wrote: | with interest being zero as it was the past couple of years, | can the bank not just sit on that money and literally do | nothing? What operational expenses do they have? | [deleted] | ronjobber wrote: | Sure, if depositors said "ok we'll let the bank ride this | out." But that's not what happened. | disgruntledphd2 wrote: | Yeah, and remember that this particular bank has a very, | very well-connected set of customers (in the graph theory | sense). So once the run starts, everyone tries to get in, | causing the actual run. | ptaffs wrote: | rent and maintenance if they have branch property, salaries | and benefits for staff at least. Banks have a lot of | regulation and audit requirements which take work. | tropicaljacket wrote: | but that doesn't increase with more deposits, right? | kccqzy wrote: | Actually if you think about the balance sheet for banks "too | much money" is a problem for them because deposits are | liabilities not assets. The money belongs to customers not | the bank. The bank must pay back the customers on demand. | | That said, I think historically many banks can easily avoid | the "too much money" problem by setting the interest they pay | on deposits to be low, and maybe even negative. | duxup wrote: | Agreed. Also too much money is hardly an automatic | existential crisis. They can do what I described, get | bought, merge, etc. | | Of course if you dump it all into unwise investments, | that's a problem. | goodoldneon wrote: | Why is "too much money" a thing? If a bank only wants $100 | million in deposits, but customers deposit $150 million, why | can't the bank set the extra $50 million to the side and | pretend like it doesn't exist until customers want to | withdraw it? | nbar1 wrote: | I believe it's because depositors want a return on their | "investment" | aj7 wrote: | Because the customers expected interest and the bank's | investment portfolio can't provide the necessary return to | pay the interest rate they used to attract the customers. | thecyborganizer wrote: | The customers who deposited $150 million expect some rate | of return on their deposits - in fact, you promised it to | them. In a year that $150 million needs to turn into $155 | million or whatever. | | So you need to lend it out, and charge interest, and use | that interest income on your loans to pay the interest on | your deposits. | | Sounds like SVB made a lot of loans or investment purchases | quickly, and then some of those went bad. | thepasswordis wrote: | Is this not what bonds are for? Savings accounts earn | less than just buying bonds, and the bank pockets the | delta. | | They got greedy. | kccqzy wrote: | Bonds have a duration until maturity. Savings accounts | can be withdrawn at any time. The bank normally pockets | the delta by taking up the risk of this mismatch. In this | case the risk became too much. | | Think about it from the other end. You have a mortgage. | But the bank needs money _now_ and asks you to prepay | your mortgage. What do you do? | drdec wrote: | That's exactly what the bank did - they bought bonds. The | type of bond they bought doesn't matter, what matters is | that in a rising interest rate environment, the face | value of the bonds fall and they are no longer producing | higher yields than the saving account rates. | | They didn't get greedy, they failed to anticipate the | speed and amount that interest rates would rise. | treis wrote: | Yeah, but they bought bonds to make their numbers work. | They had a choice of getting like 0.08% in overnight | funds or 0.36% in short term T-bills or locking it up and | getting ~3% in MBS. They chose the latter to make more | money. If they had chosen the former things would have | been far less critical. | | In retrospect this was a huge risk. They locked up way | too much money in long term securities for how flighty | their deposits could be. | snuxoll wrote: | 3% MBS, that's a good one. Try more like 1.25% coupon | rate with the crazy low mortgage rates were at when SVB | got the inrush of deposits (the banks and the GSEs gotta | make their money too, with mortgage rates near 7% UMBS | coupons are only at 5.5%). | disgruntledphd2 wrote: | They too, thought that the world had fundamentally | changed as a result of the pandemic. | gregruss wrote: | They did not get greedy. They bought bonds, and those | bonds turned into a liability. Because the bonds were | bought when interest rates were extremely low, they are | worth less than bonds at current rates and had to be sold | at a loss in order to shore up liquidity. That spooked | investors and prompted a run on the bank. | rvnx wrote: | The bank has short-term liabilities to their customers, | and decided to lend out the customers funds to someone | else for the long term. | | Total non-sense and greediness. | jaycroft wrote: | Because now the bank has to pay interest to depositors of | $150M instead of $100M, which means that they'll pay a | lower, less competitive rate. So, in order to keep | customers, banks are incentivized to lend out any and all | spare cash for whatever yield that they can get, in order | to give attractive rates to depositors. Losing customers | though shouldn't really be a problem for the bank, after | all, those customers did deposit "too much" money - once | enough have left to seek higher yields elsewhere, there | will be less cash on the sidelines, and so higher yields | for the remaining customers. I suppose if your whole | philosophy is "growth at any cost", and you're measuring | growth not just by AUM but also by number of customers, you | get excess risk taking and yield chasing. | rcme wrote: | At the SVB bought the securities in question, interest | rates were 0 across nearly all savings products. SVB was | trying to maximize profits for itself and shareholders. | This isn't about attracting customers with high-yield | accounts. | skellington wrote: | How bad can it be when most banks are paying 0.2% on | savings accounts and nearly 0% on checking? | actionablefiber wrote: | I feel _most banks_ are coasting off the inertia from | longtime and /or unsophisticated customers. | | Up until I switched to a neobank late last year to get | some actual yield on my savings, I'd been using the same | brick-and-mortar checking and savings account I opened in | high school. | actionablefiber wrote: | So the conversation goes: | | A: We have too many depositors! We are not getting enough | yield to pay interest without taking on risk. | | B: What if we reduced the interest we pay on deposits? | | A: Then we'd stop getting new depositors! Our only option | is to take on risk. | | You are right, this feels like a very unsympathetic | problem to have. If you are a regulated bank you need to | act like a grown-up and understand that overworking the | soil and underworking the soil will both give you a bad | yield in the end. | abigail95 wrote: | paying a lower rate literally solves the problem of | having too much deposits. | | they wanted a higher return so they increased their risk | and blew up. | jellicle wrote: | Well, yes, if your bank is receiving too many deposits and | you didn't want to be vulnerable to a SVB-style failure, | then you could: | | - set your rate of paid interest on demand deposits quite | low - what's going to happen, some people will pull their | deposits? That's fine, that's what you want. | | - re-deposit those excess deposits at other banks, taking | only their meager interest payments on demand deposits | | The math here works fine. As long as there's some | difference between the rate you're paying on deposits and | what you're getting, no matter how small, you're fine. And | if you need cash quickly, hey, those are DEMAND deposits at | other banks, you should be able to withdraw them | immediately. You can spread the risk of a run on your bank | around to every other bank. | joosters wrote: | At first glance, bank balance sheets are unintuitive and feel | 'the wrong way round'. When someone deposits $1m at a bank, | the bank doesn't have $1m more assets, it has $1m more | liabilities. | | (Yes, this is a gross over-simplification) | im3w1l wrote: | I think it should be both: The $1m that was deposited is an | asset, the customer's ability to withdraw $1m is a | liability. | skybrian wrote: | Yes, bank deposits are a liability for the bank, which is | why a bank won't increase the amount you have in your | account if you ask nicely. You have to pay them. If | someone's bank account went up by $1 million, the bank | better have gotten $1 million more in assets from them | somehow, or something weird is going on. | | (Often, the asset comes from the bank making a loan. You | can pay later.) | selimnairb wrote: | Running a bank sounds like a huge PITA. | joyfylbanana wrote: | That's why it pays. | WJW wrote: | This is correct. The only reason people still do it is | because it makes them boatloads of money, not because it | is fun in any way. | lottin wrote: | I work in a bank and it's kind of fun. | somehnguy wrote: | Working in a bank and running a bank are _slightly_ | different I would assume | wdb wrote: | One way to control it is by lowering interests on accounts | to make it less attractive deposit money | StillBored wrote: | Which is why there is a ~4% spread on savings/CD interest | rates at banks right now. | | Edit: maybe I wasn't clear and should have said "between" | banks. Synchrony bank will give you 4% in a _savings_ | account (https://www.synchronybank.com/banking/high- | yield-savings/?UI...) while my local credit union and | many big banks (ex: bank of America are at 0.01%) are | still effectively 0% | | In the past (<2008), cash accounts (savings/cds/etc) I | remember there being a %1 or so between banks, but these | days its huge. | snuxoll wrote: | Synchrony offers such high yields on savings because | their big product is consumer credit cards, and even at | 4% APY on savings accounts the spread to a 25% APR credit | product, even factoring in risk, makes it extremely | profitable to do so. | | That's really the big reason why savings rates vary so | much between banks, if you have a bunch of consumer | credit lines then high savings rates make sense, if you | have a bunch of lower fixed-rate collateralized loans | then you can't get away with lowering your spread so | much. | kgwgk wrote: | Not exactly. The banks do not want less deposits (ask SVB | how bad that can be!) but they try to get away with | paying as little as possible and keep the spread. (You | wouldn't say that the main objective of companies when | they raise prices is to have less customers, would you?) | nickff wrote: | If they wanted more deposits, why would they pay as | little as possible to 'keep the spread'? No bank is | anywhere near monopoly; there are tons more deposits to | get (if you want them, and can make money safely on a | spread). | kgwgk wrote: | For the same reason that many businesses do not want | "more customers" above anything else - to the point of | selling at cost or at a loss - and if they increase | prices is not necessarily because they want "less | customers". | NovemberWhiskey wrote: | To my mind, although it's in-principle equivalent, the | clearer way to think about this is that banks _borrow_ | money from depositors and _lend_ that money via loans or | investments. | | The primary business of a bank is borrowing short and | lending long - where short and long refer to the holding | time: i.e. taking demand or short-duration term deposits | and making mortgage, car and other types of loans. | | If you do this badly, you can lose money due to duration | risk (you might end up paying more on your demand deposits | than your mortgage book is bringing in), but you also have | liquidity risks because your depositors can ask for those | deposits back faster than you unwind your lending. | | If you have both of these occurring at the same time, | you're then in severe difficulty, because the only way to | repay your depositors is by borrowing money ... which is | going to be harder if you look unprofitable ... and that | very borrowing can exacerbate the perception of a bank in | trouble. | | That's basically what happened here. | missedthecue wrote: | And to make matters more confusing, deposits are called | assets on the balance sheet! | kgwgk wrote: | You may feel relieved - and less confused - if I tell you | that deposits are liabilities in the balance sheet. | mytailorisrich wrote: | They have both $1m more assets and $1m liabilities. | | But that does not reflect risk. | | For instance, now they take those $1m in cash and use them | to make risky loans or investments. At face value the | balance sheet is the same because they still have $1m in | asset... except that the risk that this asset turns into | eff all has significantly increased. | disgruntledphd2 wrote: | yeah, like SBF's "balance sheet". https://www.ft.com/cont | ent/0c2a55b6-d34c-4685-8a8d-3c9628f1f... | | Theoretically they had assets, but most of them were just | internal magic beans. | javajosh wrote: | Not an expert, but was having some thoughts. | | Let debt be a graph where the nodes are people (with | ledgers) and the edges are all of the form "alice rents $x | from bob for y% APR". Actions that resolve/relax graph are | payments of the form "alice pays bob $z", that lead to all | balances being 0. Let the edges decay to null when balance | is 0, such that a 'resolved graph' is simply a list of | nodes with no edges, meaning 'no one is in debt to anyone'. | | From this we can infer: 1. There is only | one logical 'debt graph' in the world since they can (and | do) all join. 2. The people running the graph do not | want the graph to die, ever. 3. The profit of the | debt business is proportional to transactions over time, | which is proportional to edges of the debt graph. 4. | They want to (add, prevent from decay) as many edges as | possible. | | I somehow feel like I've caught my first, hazy glimpse of | something important. | 1attice wrote: | This is actually a nascent PhD-level thesis. Follow this | thread. | fecaldog wrote: | 2. The people running the graph do not want the graph to | die but want the edges to decay. | | Thanks for this, I am now also having some thoughts. | occamrazor wrote: | They have both 1m of assets more than before, _and_ 1m of | liabilities. | dragonwriter wrote: | A deposit of $x adds both $x in assets (cash) and $x in | liabilities (account balances). | treis wrote: | This isn't an over simplification it's just wrong. The bank | does have more assets (the 1 million in cash) that balances | the liability (the 1 million they owe to their customer). | eftychis wrote: | Yes, but the problem is the 1 million is unlikely to be | in cash. Here, it is in MBS issued at low interest rates | and thus practically ~$500k if the security is sold right | now. | | Banks have a serious problem in their hands as they have | to figure out a way to keep buying assets that they have | to buy by law, while the Fed is going to keep increasing | the interest rates via selling their MBS portfolio at a | rate that makes "yesterday's treasury or MBS" the loser. | | If action is not taken we haven't heard the end of this. | KirillPanov wrote: | What? | | No, it's cash. | | If I deposit $1m in cash at the bank, the bank suddenly | has an extra $1m liability and an extra $1m _cash_ asset. | kenjackson wrote: | You're right, the full million isn't a liability. But | anyone depositing 1M isn't putting it in a non-interest | bearing account. So now you are generating liability | every second you sit on the cash. Which means you need to | "invest" it. | lxgr wrote: | And you think that the bank just keeps sitting on that | cash until you withdraw it again, paying you interest in | the meantime? | tylerhou wrote: | If they are sitting on excess cash, they can lower | interest rates on deposits. | | The point is that when banks receive deposits, in the | short term, their assets/liabilities doesn't change. | mbreese wrote: | It's cash, until the bank converts it to something else. | For example a loan. | | Yes, it is initially cash. But if the bank wants to make | any money, it needs to convert that cash into some other | vehicle for generating interest. | louloulou wrote: | No one is showing up at a bank and depositing $1M of | physical cash (except maybe Mexican drug cartels). | | That $1M you're depositing is presumably the liability of | _another bank_. | nabla9 wrote: | So true. | | Money for banks is what raw material is for manufacturing. | What they are doing is risk management (analyzing risk, | packaging risk, selling it, buying it). | pishpash wrote: | Too much money is only a problem if you are greedy for | returns, like all the investors who lost money when yields | were unsustainably low the last few years. They could have | deposited it with the Fed and have been totally fine. | | Individual investors don't even have that option and also | have inflation to deal with. Banks don't. | coredog64 wrote: | 6 month T-bills were yielding 0.7% last year at this | time. Inflation for 2022 was over 6%. | | It's not that people are greedily chasing returns, it's | that they don't want to lose significant chunks of their | capital due to loss of value. | pishpash wrote: | No, they were greedy. They were going to lose it one way | or another, either through inflation or through asset | depreciation. There was no way around it. Going to a | riskier asset doesn't help because all assets have the | same interest-rate risk embedded. They just took on more | risk in addition to that. | | Real rates were negative for 10+ years (and still are on | the short end!). That's everyone paying for trillions of | dollars of wars, speculation and bad investments. The | bill has to be paid. | | But as mentioned, none of this applies to intermediaries | like banks. They aren't forced to take on any risk. | disgruntledphd2 wrote: | > Real rates were negative for 10+ years (and still are | on the short end!). That's everyone paying for trillions | of dollars of wars, speculation and bad investments. The | bill has to be paid. | | They sure were, and fortunately humanity took that free | money and invested it in sustainable energy technology so | that at least we got a bunch of infrastructure out of it. | | Oh actually wait we just had austerity for some reason. | duxup wrote: | I think coredog64 is speaking more generally. The bank in | the article was foolish. Other banks can still encounter | real problems with too much cash on hand... granted they | don't have to go hog wild on MBS or anything like that. | pishpash wrote: | Yes, why did they invest in MBS, with negative convexity, | at historically low rates! | duxup wrote: | I think there is a limit. The bank costs money to run, | customers expect interest (even if little). | | That money isn't doing anything to cover those expenses | if some of it isn't "working" to produce returns. | pishpash wrote: | Banks don't pay the Fed rate on deposits so they already | have that to pay expenses. In fact more deposits = more | money on the interest differential but expenses don't | scale with money. | acchow wrote: | A $1M deposit adds to both assets and liabilities. | | In double entry accounting, you mark any changes with both | a debit and a credit. This allows you to see not only why | one account changes (a single entry), but also the cause of | that change (the second entry). | jfengel wrote: | I think programmers find double-entry bookkeeping | counterintuitive. It feels error-prone. In programming, | you keep a single source of truth. Any time you copy the | same data to two different places, one of them is always | wrong. | | Double-entry bookkeeping makes sense once you understand | the the invariants you have to keep, and why you need to | track 5 different types of books. Some of those accounts | work in opposite ways, such that credit to one is a debit | to another. | | It all works out and is essential for "debugging" | problems (when money appears to go missing -- or worse, | materializes and you don't know why). But there's some | counterintuitive language and it'll mess you up until you | accept it. | ghaff wrote: | The other thing you get into as scenarios get complex is | that there's a tendency to ask questions like "Why are | you recording it this way rather than that way? The | second way seems more logical to me." | | The answer usually being some variation of "Because | that's the way the Financial Accounting Standards Board | says to do it." | mcsoft wrote: | Double-entry bookkeeping is essentially the law of | conservation of energy applied to balance sheets. It's | much more deep as it was invented some 5 centuries | earlier than programming. | dragonwriter wrote: | > I think programmers find double-entry bookkeeping | counterintuitive. It feels error-prone. In programming, | you keep a single source of truth. Any time you copy the | same data to two different places, one of them is always | wrong. | | Double-entry bookkeeping is creating of an audit- | trail/error-evident data store; which is the purpose of | the apparent duplication. But it can be viewed as a | _view_ of dataset reflecting a single source of truth, | that documents value _flows_ ; every movement of value | has a source and a sink, and the amount that moves _from_ | the source must equal the amount that moves _to_ the | sink. Losing the redundancy that allows error-checking of | records, you could view each accounting transaction as a | triple of (source, sink, amount). | jfengel wrote: | I think if a programmer were designing accounting, they'd | put the flows in the database, and build views out of | that. They might materialize the views for performance | reasons, but they'd treat those views as suspect and the | first response to any bug would be "blow away the | accounts and recreate them". | | You couldn't do bookkeping with actual books that way, | and historically this way makes sense. Nor is it likely | that the accountants are going to rethink their field | from the ground up for the convenience of programmers. | CPLX wrote: | I mean, this is kind of how accounting does work. To a | basic approximation a reconciliation is a line by line | review of each of the flows, and an audit is "blow away | the accounts and recreate them" and both happen all the | time. | btilly wrote: | Double entry bookkeeping IS error prone - you have 2 | opportunities to make each mistake. | | However single entry bookkeeping is FRAUD prone. Just | change one number and your theft is hard to track down! | | That is why the adoption of double entry bookkeeping was | critical for allowing commercial institutions to outgrow | a size where owners could individually trust all who were | working for them with access to money. | osculum wrote: | That's an oversimplification. Saying that it's error | prone because you have to write in two places is akin to | saying that using a checksum is error prone: you have to | write now the vale AND the checksum! More opportunities | to make an error! | | Doble entry accounting is very similar to a checksum in | that sense. It provides error detection. If you make a | mistake in one of those two places, you will know | immediately. As opposed to single entry, where you can | carry that error indefinitely until somehow you catch it. | rkhacker wrote: | So, in essence, the single entry bookkeeping will be | sound if the change is not allowed? | moate wrote: | This sounds like "0 code". No code is the best code | because it never breaks, has 0 serve space requirements, | will never need to be reformatted, etc. | crdrost wrote: | Yes, and once you get the programmer to realize this, it | all makes sense. | | The ledgers are not the source of truth. No: this is a | journaled filesystem; the transaction log is the ultimate | source of truth. When you detect faults you recover from | the journal, if something isn't completely written into | the journal then it does not exist. The zero-sum property | exists on every individual transaction and each | transaction has an ID and the ledgers point at these IDs | for auditing purposes. | | So why have the zero sum property? Well, for one thing, | it creates a uniform access model, I can't just credit my | account, I have to debit someone else's account and they | can have rules that might prohibit me from doing so. By | carefully setting up these accounts you can also do | what's sometimes called "behavior anomaly detection." | | So for instance normal financial cards kind of work by | opening up your entire wallet to a cash register and | asking the cash register to pull out exactly the amount | that you owe, understandably this might not be desirable | if you are tracking some in-game-gold transactions in an | internet game. You can get as elaborate as you want but | think for example of a quick-consistency-check rule | saying that "accounts starting 4xxx (player balances) | never transfer directly to each other, instead users are | expected to put the exact sum of money plus a little 5% | padding into one of their 5xxx accounts and then give | someone else a token permitting them to withdraw from | that account." Stuff like that. A developer tries to code | something up that doesn't go through this process and | runs into errors in testing and has to conform their | code's behavior to the less risky process so that nobody | is ever opening their entire wallet to a griefer. | spicybright wrote: | I have a friend that's an accountant that tried to | explain how it worked. I thought it was more or less | being responsible for counting money, but I think my eyes | glazed over a bit trying to understand it. | | But to be fair he did pretty much the same when I tried | to explain programming. | | Always important to step outside your software bubble | once and a while. | lamontcg wrote: | I'm trying to understand how to read older 10-Ks and | apply the capitalization of operating leases to those | reports (converting property that is leased into capital | to get an accurate estimate of the capital employed at | the business) and with my background in IT and physics it | is still a bit hard to follow (what I'm slow at is | language, and really this is just learning a foreign | language). | zestyping wrote: | The name "double-entry" is a little bit misleading. The | "double" part makes it sound like you are duplicating | work, but that's not really what's happening. | | If you were accounting with pen and paper, you would | write the transaction amount twice -- positive in one | column and negative in another. This maintains the | invariant that money cannot be created or destroyed. | | In terms of an abstract data model, though, each | transaction is best thought of as a flow, or a weighted | arrow. It has one amount and two ends: a source and a | destination. The "double" in "double-entry" really just | means that the arrow has two ends. Obviously every arrow | has to have a head and a tail -- it doesn't make sense | for there to be no source or no destination. | | The credit vs. debit thing confuses people a lot, and in | my opinion is a red herring. If I could wave a magic | wand, I would delete the words "credit" and "debit" from | accounting because they are hopelessly inconsistent. | | All you have to do is think of the conservation of money | like the conservation of mass -- when it moves, it leaves | one place and arrives at another. The moment I stopped | using the words "credit" and "debit", my understanding of | accounting went from "I have no idea what I'm doing" to | "Everything is intuitively obvious." | hathawsh wrote: | You'd think that the solution to that confusion would be | database transactions (commit everything or nothing), but | there are exceptions. In ACH, sometimes you have to send | out a lone credit or debit with no matching entry. It | feels very wrong, but it's necessary because it balances | out some other entry in another file (that you might not | have access to.) | | OTOH, once you have double-entry bookkeeping in your | brain, you won't want to go back. I now feel that, from | the perspective of a business or consumer, money is never | created or destroyed, it only moves between accounts. | WalterBright wrote: | The reason for the invention of double entry bookkeeping | was to detect arithmetic errors in summing the ledgers. | tylerhou wrote: | Programmers like a single source of truth -- until | duplicating data is necessary for reliability | (redundancy) or performance (replication). | | There is a reason why planes use 3+ CPUs running the same | code, or why Google runs more than just one cluster of | search. | matteotom wrote: | I've been running my own finances with double entry | bookkeeping (via beancount) for about 4 years now, and | it's ended up being super useful. As long as I'm 90% sure | I got all the income, expenses, investment buys and | sells, and transfers between accounts, I can add | "balance" statements for a date and easily work backwards | to find if I missed anything. | mytailorisrich wrote: | If by 'error' you mean the amount of a transaction then | yes you enter it twice but that should not really | increase errors. | | Now, on the other hand, it is especially designed to | _account correctly_ for that amount in order to keep your | accounts correct and balanced. It is be much easier to | lose track of things with single-entry accounting. | antoniuschan99 wrote: | SVB is a commercial bank for tech/biotech, venture & private | equity firms. | | FDIC insurance of 250k is a months salary for <25 engineers. Less | than 3% of depositors hold less than 250k. | | FDIC takeover does not necessarily mean that SVB will cease | operations permanently. I haven't yet read of depositors not | being able to withdraw vs when FTX was collapsing. With FDIC | taking over, seems they're going to liquidate more assets to pay | off creditors and depositors. Or sell the bank to another | financial institution. SVB is Top 20. | | Washington Mutual was also a top consumer bank that FDIC seized | and was sold to JP Morgan. JP Morgan ended up assuming | responsibility of the depositors. | avelis wrote: | If a company has a loan out to SVB does that get sold off to | basically another lender? | weatherlight wrote: | So.... how many companies won't be able to make payroll in 5 | days? | nostromo wrote: | For comparison, Bear Stearns had $350b in assets in 2006 (and | much less when they crashed in 2008). | | SVB had $210b in assets yesterday. | Edmond wrote: | Please reboot Silly-con Valley...I mean the show. With everything | that has happened with crypto and the current mayhem I think two | solid additional seasons can be made. | Zealotux wrote: | I loved that show, such fun to watch! They definitely could | make a lot with the crypto-nonsense indeed. | esalman wrote: | We need a reboot featuring crypto+AI. | pakyr wrote: | Silicon Valley actually already had an ill-fated crypto scheme | arc - remember PiedPiperCoin? | adrr wrote: | It didn't have NFTs or failed exchanges. | dylan604 wrote: | It would have to be with new players, as they pretty solidly | tied a bow around that cast. | tpmx wrote: | Bring back the whole cast including TJ Miller (sober or not, he | brings it) ... but not Middleditch. | | https://www.usatoday.com/story/entertainment/celebrities/202... | [deleted] | mbStavola wrote: | It's kind of amazing how much optimism there was just an hour ago | regarding SVB's position. | treis wrote: | What are you talking about? Pretty much everyone I've seen has | called this a bank run and said to get your money out since SVB | announced they were trying to raise money. Techcrunch called | the announcement shooting yourself in the foot. | fidgewidge wrote: | Read the other threads. | https://news.ycombinator.com/item?id=35088919 | | "SVB is our bank, I got in touch with a member of the senior | team there and got the following message to share. (My own | interpretation is I'm comfortable and I'm not planning to | pursue it further at the moment)" | treis wrote: | I see one person saying that and a bunch of other people | telling them why they're wrong | kgwgk wrote: | << literally no one saw this coming a couple of [hours] ago. >> | dylan604 wrote: | are you quoting something from a couple of days ago? | kgwgk wrote: | https://news.ycombinator.com/item?id=35096247 | | (I'm needlessly mean, I know.) | johnbellone wrote: | There's a strong correlation here to people who have deposits | in SVB. This was all but certain yesterday. | FormerBandmate wrote: | Turns out Twitter making bank failure a meme didn't really help | anything at all. It'll be very interesting to see what happens to | uninsured depositors | ofchnofc wrote: | [dead] | albatross13 wrote: | Probably a dumb question, but what determines if a deposit is | insured or not at an FDIC insured bank? | [deleted] | abofh wrote: | Investment products are not FDIC insured; Accounts over 250k | are not FDIC insured; In this case, that's probably the bulk | of 'uninsured' - large accounts, or creatively sold | investment products. | bombcar wrote: | Investment products can (and often are) FINRA and SIPC | insured - but this is NOT an insurance against _loss_ (FDIC | doesn 't insure your interest, just the principal which | changes each time interest is paid, the moment FDIC steps | in your interest-earning can go to zero) - it is insurance | that you actually _own_ what the investment says it is. | | So if you buy stock via Vanguard, and Vanguard mismanages | itself into death, you still own the stock and eventually | it'll be at another broker. | zeitgeistcowboy wrote: | I'm not sure if this helps answer your question, but coverage | is automatic if you have your funds in an FDIC insurance bank | (most all of them) and if it's in a normal savings type | account and then any amount 250k or less. | ncallaway wrote: | Deposits > $250k per depositor per bank are uninsured. | | https://www.fdic.gov/resources/deposit-insurance/faq/ | bagels wrote: | Up to 250k is insured, amounts beyond that are not. | ramses0 wrote: | * Amount less than $250k * "Deposit Account" => not a "fancy | investment interest account" | | Details: https://www.fdic.gov/resources/deposit-insurance/ | | Not Covered: https://www.fdic.gov/resources/deposit- | insurance/financial-p... | swift532 wrote: | Not a dumb question at all. AFAIK it is the amount, in the | USA it's $250K. Other countries have similar situations, most | of the EU is 100K EUR. | albatross13 wrote: | Awesome, that makes sense. Thanks! | azinman2 wrote: | > Silicon Valley Bank is the first FDIC-insured institution to | fail this year. | | Wow FDIC is fully calling it a failed bank. Just yesterday they | were releasing statements saying they're in a good position. | Uncle Sam just fully opened Pandora's box and made the judgement | public! | NovaDudely wrote: | It is fun (in a morbid kind of way) just seeing how quickly the | confidence on these things turn. | | "Company is 200 years old and we will go for another 200 years | more!" | | 2 Days later | | "Whoops, all the moneys gone. Bye!" | purpleblue wrote: | This is how quickly a bank run can happen. They announced they | were seeking funding, people started withdrawing all their | money, and the investors all pulled out, leaving SVB high and | dry. Now it's dead. | kasey_junk wrote: | The FDIC calls them failed banks by definition. If they step | in, you failed. They have a failed bank list and Sivb is going | on it. | Havoc wrote: | That's pretty normal for confidence based stuff like this. | There isn't really a point in regulators/insurers releasing a | "well we're about half confident" message. So it flips from | full confidence to zero confidence. Bit jarring but the sharp | transition is not unexpected. | tibbon wrote: | Time to test if the regulation after Bear Sterns was sufficient. | Surely it was enough to prevent issues as promised | throwawayapples wrote: | SVB's eventual consistency was a bit too eventual. | ChicagoBoy11 wrote: | Ha - got a nice chuckle out of that one. Good levity for a time | that is needed, and nice and extremely topical CS joke to boot! | roflyear wrote: | So let's say you work at a startup that has all their cash at | SVB. Are you basically without a job now? | capableweb wrote: | Depends on how big the startup is, how high the burn rate is | and how on top of things the founder is and if they managed to | pull the money before everything broke down. If the startup is | small, you should be fine, $250K should be accessible | relatively quickly, beyond that will be a process that can take | long time and there is no guarantees. | | But a small scrappy startup with not super high burn rate might | be hugely impacted. Large startups with high burn rate are | pretty much screwed though and are gonna have to downsize | pretty aggressively and quickly. | standapart wrote: | Probably safe to say: Stripe isn't going to be able to raise a | couple bil to pay tax liabilities in this environment. | rvz wrote: | I'm having a feeling that Stripe is totally fucked and tangled | in this situation. | | From Atlas, employee stock option taxes and it's IPO | fundraising might be all on the line. | whalesalad wrote: | Well that escalated quickly. Glad I am banking w/ Mercury and | hope they are not impacted by this. | wonderingyogi wrote: | Mercury isn't a bank, it uses Evolve Bank & Trust and Choice | Financial Group. | whalesalad wrote: | True, I am just glad it isn't SVB. | IndoorPatio wrote: | https://arstechnica.com/tech-policy/2023/03/silicon-valley-b... | davidgerard wrote: | First actual FDIC takeover since 2020, I think. | kerowak wrote: | For comparison, alamena had 68m in deposits compared to SVB's | 175b | | https://www.fdic.gov/news/press-releases/2020/pr20119.html | megaman8 wrote: | yes but if you look at the decade before that, it was pretty | common about 3-10 or so bank takeovers per year, from the link | below. | ellisv wrote: | | The last FDIC-insured institution to close was Almena State | Bank, Almena, Kansas, on October 23, 2020. | | From the release. | sjkoelle wrote: | strong "days since last fatal accident" vibes from that | sentence | _delirium wrote: | The FDIC also maintains a "failed bank list" that is kind of | interesting to browse (goes back to 2000): | https://www.fdic.gov/resources/resolutions/bank- | failures/fai... | game_the0ry wrote: | 2008 bear sterns vibes. | | The fed's move in interests rates was bound to break something. | This is the first big name and, while banks are taken over by the | FDIC often and it never makes the news, this one will be | especially interesting bc it is _Silicon Valley_ Bank. Naturally, | people and the media will associate with the rest of silicon | valley, bringing extra scrutiny to every brand name tech company, | especially the ones that are still barely profitable. | | And any accounts over $250K, _poof_. | | Edit - this has been the first fdic takeover since 2020, so no, | it does not happen often. | Pasorrijer wrote: | I mean, potentially. | | The reality is they try to protect as much of the assets as | they can and even those over 250k will probably not lose as | much as they would have without the FDIC | 34679 wrote: | Good luck to any companies with over 100 employees trying to | make payroll and other obligations on $250k. | version_five wrote: | Re Bear Sterns, there were lots of political reasons it was | allowed to fail while others were protected. If I remember | right something about them not helping with the Long Term | Capital Management collapse for example. There will have been | people who had the opportunity to help SVB and collectively | decided it was better to let it fail. It will be interesting to | understand the decisions that were made when the dust settles | fallingknife wrote: | They did intervene with Bear. The JPM acquisition came with | all sorts of backstops and guarantees from the Fed. Lehman | was the one where they didn't intervene, which is why there | was no acquisition. | banku_brougham wrote: | great callback. revenge on Jimmy Cayne for when genius | failed. | | Dont forget it was Lehman that failed first, Bear got special | treatment amongst the Citi, AIG, et al bailouts. | alex_young wrote: | Bear was sold at a %90 discount (so not a complete loss) 1 | week before Lehman failed. | [deleted] | Octokiddie wrote: | Bear Stearns was the first shoe to drop. Intervening would | have spooked the market. Later implosions were addressed | because there was no alternative. | | Unless you experienced that time, it really hard to | understand the pervasive denial of what was obviously | happening. | | You'll see the same thing happen this time around, and will | have an equally hard time conveying just how strong the | denial was. | Ancalagon wrote: | When and where does the next shoe drop this time then? | Octokiddie wrote: | It's possible we haven't seen the first shoe yet, and | bank failures like this one are just the canaries | dropping dead. | | To speculate about where that first shoe might be in this | case and who's wearing it, it might help to consider | where the buck ultimately stops. | mywittyname wrote: | Edit - this has been the first fdic takeover since 2020, so no, | it does not happen often. | | This chart of historic bank failures paints a different | picture: | | https://www.fdic.gov/bank/historical/bank/ | ezekg wrote: | And this chart paints an even different picture: | | https://twitter.com/alistairmbarr/status/1634275645235793920 | TaylorAlexander wrote: | Is total assets a useful measure here? I would be more | interested in a chart that showed budgetary shortfalls. It | sounds like SVB is only short about 10% of total assets if | I am remembering what I read earlier this morning. | kmlx wrote: | lehman brothers had total assets of $639B when it filed for | bankruptcy on September 15, 2008. adjusted for inflation | that's ~$800B. | scythe wrote: | Lehman was an investment bank -- they didn't take | deposits. Wikipedia describes them as a "financial | services firm". | cableshaft wrote: | Almost all of those are during The Great Recession or the | aftermath of it, so I think it's not that crazy of a claim to | make. | | Also means we may be about to start seeing a lot more of them | again, assuming we're getting closer to the next big | recession. | dragonwriter wrote: | > Also means we may be about to start seeing a lot more of | them again, assuming we're getting closer to the next big | recession. | | That's a _giant_ assumption. | cableshaft wrote: | It is. It's also a prediction that a lot of executives | and CEO's and pundits and politicians and bank managers | are marking right now. | | I'm not claiming it's definitely going to happen, but if | it is about to happen, we can expect to see a lot more of | these failures to start happening, based on that graph. | | I didn't realize there were that many bank failures | during the Great Recession myself. I thought it was only | a handful, just a few high profile ones. | borski wrote: | > And any accounts over $250K, poof. | | That's not quite true; the FDIC will pay uninsured depositors | an advance dividend within the next week. | eli wrote: | And they'll probably get 90%+ back eventually. The bank's | money isn't _gone_ it just isn 't liquid. | om42 wrote: | My finance-foo is quite weak, what does advance dividend mean | in this context? | ejb999 wrote: | most likely a partial payment - i.e. you have 500K in the | bank, 250K is insured and you know you will get it back - | the other $250K nobody knows how much will be available | when the dust settles, but maybe they (FDIC) feels | confident they can give you 10% of that now, and keep | making more payments as the picture becomes clearer on how | much you can eventually get back. You won't get any final | payments for many many months when everything is fully | resolved. | aobdev wrote: | Management at the now FDIC-controlled bank will estimate | the value of SVB's assets, such as loans and bonds, and | give depositors a fraction of that value to be paid in | advance of the sale of those assets. They do this to | prevent the collapse of all those companies who were SVB | clients, which would be bad for the economy. | jffry wrote: | From an FDIC guide [1] I found: | | "advance dividend: A payment made to an uninsured depositor | after a bank or thrift failure. The amount of the advance | dividend represents the FDIC's conservative estimate of the | ultimate value of the receivership. Cash dividends | equivalent to the board-approved advance dividend | percentage (of total outstanding deposit claims) are paid | to uninsured depositors, thereby giving them an immediate | return of a portion of their uninsured deposit. Sometimes | when it is projected that all depositor claims will be paid | in full an advance dividend will be provided to unsecured | creditors." | | [1] https://www.fdic.gov/bank/historical/reshandbook/glossa | ry.pd... | borski wrote: | Early repayment of _some percentage_ of the uninsured | deposits, prior to full liquidation and /or acquisition. | Depositors have first access to funds either way. | yeahsure22 wrote: | It's not interesting because of its name, it's the 18th largest | bank in the US. A domino that big usually doesn't fall alone. | Also, FDIC hasn't taken over a bank since 2020. This isn't | exactly a common occurrence. | mywittyname wrote: | "Since 2020" is not a great metric, since a lot happened in | 2020. | | Here is a chart that shows the number of bank failures over | the past decade [0]. As you can see, having a year with 0 | failures is actually the outlier. The average annual bank | failure over the past 20 years is roughly 20 per year and the | median number is 8 per year. | | [0] https://www.fdic.gov/bank/historical/bank/ | pbourke wrote: | A failure in "First Community Bank of Left Buttcheek, GA" | is not the same as the failure of a $200B institution. | bombcar wrote: | Note that FDIC has a precise meaning for a "bank failure" - | many more "failures" occur but FDIC gets there early enough | and arranges for another bank to "take over" - more or less | quietly. These are usually tiny community banks. | game_the0ry wrote: | > It's not interesting because of its name, it's the 18th | largest bank in the US. | | Given how much media attention silicon valley gets, for | better or worse, the name of the bank would have some affect. | | Tech and fintwit are both blowing up on SVB, there are like 4 | SVB related posts on HN front page, I even some reddit posts. | | This will be big in the media, and therefore the public | conscience. | pbourke wrote: | It's also the second largest U.S. bank failure. WaMu was | considerably larger when adjusted for inflation - $300B in | 2008 dollars (> $400B in 2023) vs SVB at $200B in 2023 | dollars. | fairity wrote: | The bigger story here will probably be the follow-on effects, | assuming it takes a long time for uninsured deposits to be | recouped. | | I wonder how many businesses will be forced into a fire sale due | to inability to raise cash to cover short-term liabilities. I'm | sure some private equity firms' mouths are watering right now. | chernevik wrote: | I don't understand why anyone would park any sum larger than, | say, $5mm in a bank deposit for more than a minute. | | It isn't hard to dump those funds into a money market fund backed | by short-term commercial paper or even short-term Treasury bills. | Or to just buy the Treasury bills outright. Such holdings are | quite liquid and can be absolutely secure. | | Use the bank account for clearing, keep a couple million in it | and sell assets as needed to top-up the account or to prepare for | known cash outflows. | | I'm sure there are cost and complexity trade-offs. But "don't | lose the cash" would seem to be priority #1 and worth some | trouble. | | I suppose the idea was that SVB managed all that for you. But one | look at its financials shows the asset/liability term mismatch, | and interest rate risk, so the risk of loss of cash was nonzero. | So they were NOT managing maturity risk for these large | depositors, and, well, now look where they are. | timdaub wrote: | Would love to understand if this is actually good financial | advice here. My bank plays broker for all the assets I own and | tbills are part of that. | | FDIC wrote: | | > As the FDIC sells the assets of Silicon Valley Bank, future | dividend payments may be made to uninsured depositors. | | So to me that sounds like those ,,risk-free" assets will get | liquidated too. | | I'd love to hear an actual professional confirm/deny this. | Because if it's true, then the real risk-free assets are gold, | in your teeth, real-estate and BTC. | kgwgk wrote: | The bank's assets will be liquidated. If you have a | securities account at a bank those are your assets, not the | bank's. | cglace wrote: | If you take an SVB loan you have to keep your money in SVB. | johng wrote: | https://open.spotify.com/track/6j1D7df1BqtulVza3iIL6c?si=EuQ... | ozten wrote: | I was wondering how us tax payers would end up paying into the | crypto ponzi scheme. | beebmam wrote: | Maybe the federal reserve should slow down its rate increases | before we cause a crisis. | nemo44x wrote: | Agreed. It has become cargo cult like at this point. The Fed | needs to pay attention to more than inflation and consider the | time aspect of money and interest rates. Creating unpredictable | chaos to optimize around a single (important) metric is not | going to create a desirable effect. | Zetice wrote: | lol so the fact that we didn't have $250k of runway ends up being | a good thing? | ElfinTrousers wrote: | I mean, you could argue that relatively speaking you're better | off, since you're probably not suddenly trying to satisfy | champagne tastes on a malt liquor budget. | benjaminwootton wrote: | Does this mean that depositors have lost access to their funds | until the bankruptcy process, with the exception of $250k which | will be available on Monday? | NordSteve wrote: | That is correct. | FireBeyond wrote: | Technically yes, but the FDIC is also working to release as | much uninsured funds as possible as an "advance dividend". | dangerboysteve wrote: | SVB is one of the banks Stripe uses for its Atlas program. | havkom wrote: | If someone has both a loan from and an account with Silicon | Valley Bank, can they skip paying the difference of the amount | they are compensated and their account balance towards the loan? | kmod wrote: | IANAL but I think yes and no? I think you're still obligated to | pay your loan payments, but there's also a concept of "netting" | where in certain circumstances you are entitled to what you | describe. | | Definitely don't take my word for it, just throwing this out | there as maybe a starting point for more research. | ulrashida wrote: | The biggest joke has to be all the "analysts" who chimed in with | neutral or buy ratings as recently as yesterday. | | I wonder what, if any, consequences fall their way other than the | obvious professional embarrassment of a missed call. | diimdeep wrote: | It's 17 largest bank in US that is $0.25 trillion assets that is | basically collapsed. It is a big sign of possible hyper inflation | and much larger banking system problems for the entire world, | that is still relying on USD. | formvoltron wrote: | Sorry but why didn't the VCs get together and bail this bank out | themselves??? | gumby wrote: | I suspect all depositors will be made whole. The bank had a | liquidity crisis; it had reserves in excess of its liabilities. | | Every bank borrows short term (you can walk up and withdraw your | money at any time) but lends long (e.g. mortgages, though SVB | writes few of those). The recent management grabbed some very | long federal bonds; as rates have risen the resale value of those | long term assets (paying a lower interest rate) fell. They can't | unwind that position and cover all possible demands. | | FDIC will transfer the accounts to another bank, guaranteeing the | 250K at least (I believe SVBs own liquid assets could cover | _that_ ) and may use its own asset base to cover the balance, | siezing SVB's other assets and stuffing them into FDIC's piggy | bank. It's not like those government bonds _won 't_ pay | out...eventually. | fairity wrote: | > I suspect all depositors will be made whole. | | Agreed. The FDIC report shows $209b in assets and $175b in | deposits. | | Even if they took the full $15b estimated loss to liquidate | their HTM bond portfolio, they'd have $20b to spare before not | being able to cover deposits. | | Am I misunderstanding? | anonuser123456 wrote: | The assets may not be valued anywhere near market prices | given the recent run up in interest rates. They don't have to | reprice the asset if they intend to hold it to maturity in | the face of fluctuating rates. | kmod wrote: | These statements seem pretty contradictory: | | - "it had reserves in excess of its liabilities" - "They can't | unwind that position and cover all possible demands" | | I'm guessing that you're thinking of some sort of valuation of | their assets that says something like "well they're _really_ | worth more than they 're currently valued at", which is a | common claim on this story but it's a pretty bold one? | gumby wrote: | That's a good question. The key is where I wrote that it was | a _liquidity_ crisis. | | An analogy: you (hypothetically) keep your money in some | 6-month CDs, with about a month's worth of expenses in your | savings account in case something unexpected comes up. Then | you lose your job and by the end of the month you haven't | found a new job. You could liquidate your CDs, but the early- | liquidation penalty might mean you still won't have enough to | pay your bills. If only you could wait for maturity. | | So yes, at mark-to-market firesale prices that means SVB | can't pay out in full _today_ to every account holder and so | FDIC has to step in. But FDIC (who has a very large balance | sheet) also seizes those assets. They give the accounts to | another bank. Then FDIC can unwind those seized assets in | whatever timely fashion it wants. | | There's a second factor: in a secular banking crisis they may | pay out only the guarantee (currently $250K; for a while | (during the GFC IIRC) it was temporarily $500K. But we are | not in a secular banking crisis; not only has the Fed | completely restructured bank reserve requirements in response | to the GFC but SVB is a single, small bank, not even a | regional one, with a run-of-the-mill crisis. This is the kind | of failure that you put all the new hires on because they can | learn without any up-to-the-minute crisis stress. This is | what they learned during onboarding :-). In such a situation | it's better to pay out move than the $250K, probably several | million, to prevent any "contagion" (since SVB has "Silicon | Valley" in its name). | | I have no special knowledge of FDIC's internal thinking: they | could make them whole now, or make up to $250K whole now and | pay out some later, or yes, they could force a few people to | take a haircut. Those (small number of) panicing VCs would be | better off calling their senators than their portfolio | companies. | | PS: BTW hypothetical you has more options than those above: | you could take out credit card debt, perhaps tap a HELOC you | might already have in place, etc. SVB had similar options: | they did have a $15B fire sale and got an investment from | General Atlantic. It wasn't enough. | ummonk wrote: | They're just saying that many of the assets are | insufficiently liquid to be instantly sold off to cover all | the withdrawals during a bank run. | kmod wrote: | I don't think anyone is saying this? The decrease in value | is due to wrong-way interest rate exposure, not due to a | fire sale | bagels wrote: | Well, it's going to be both. Dumping 200b of bonds isn't | going to yield premium prices. | engineeringwoke wrote: | There's a $40 billion hole in their balance sheet... | gumby wrote: | As fairity pointed out in a comment to this thread, "The FDIC | report shows $209b in assets and $175b in deposits." | | Unfortunately much of their balance sheet is illiquid | (consider loans they've made to venture-backed businesses, | and of course a poor choice they made in government debt | maturity). | | Thus a liquidity crisis; technically also insolvency, but not | gross mismanagement and excessive leverage by any means. | Unwinding it will be quite routine (see my reply to kmod). | tchalla wrote: | 93% of deposits are uninsured according to a recent regulatory | filing. So, I doubt it will be "all depositors" that would be | made whole. | | https://twitter.com/business/status/1634211584657571843?s=20 | tialaramex wrote: | FDIC means you get paid immediately regardless, but the bank | will almost invariably turn out to be good for the rest, just | not quickly. | mixdup wrote: | No, FDIC means you get paid up to $250,000 per insured | account immediately Any amount over that you are not | guaranteed to be able to withdraw. These people are a long | way from regardless | notafraudster wrote: | It looks like since 1/1/2014 (convenient stopping point | for my scrape), FDIC takeovers resulted in an average of | 76% of what's owed paid out (range 0%-98%). My guess is | the <50% payouts were mostly fraud rather than a | situation like this where it's a more traditional | liquidity event, so I'd suspect it'll be above average, | probably in the 80-90% range. | rcme wrote: | > No, FDIC means you get paid up to $250,000 per insured | account immediately Any amount over that you are not | guaranteed to be able to withdraw. | | The first half is what _FDIC insurance_ means. The FDIC | helps distressed banks in a variety of ways, including | insuring deposits under $250K, but typically all | depositors are made mostly whole again. | aioprisan wrote: | > but typically all depositors are made mostly whole | again | | Typically, but no guarantee. And on what time frame, | nobody knows. | mixdup wrote: | Typically the FDIC finds another institution to buy the | distressed bank, and backstops losses on bad assets. They | were not able to do that in this case | | I suspect many depositors will be taking losses in this | failure | pirate787 wrote: | IndyMac depositors got 50 cents on the dollar above the | insured amount in the 2008 collapse. | | https://www.ocregister.com/2009/03/20/depositor-losses- | final... | tinco wrote: | But by the time the depositors get their money all of their | employees will have left, and some other company will have an N | year lead on cornering the AI dog washing market. | bityard wrote: | Agreed. Lots of people here in the comments are making | assumptions about a system they don't understand. Depositors | with > $250k aren't necessarily going to "take a haircut," for | the reason you mentioned, plus a few others. Additionally: | | 1. Any financial advisor who recommended to these startups that | they should keep >250k in a regular bank account should be | fired. It's totally possible (and regularly done) to spread out | cash among several financial institutions to protect against | this very issue. | | 2. Any regular account with two or more signers (very typical | for a business account) is insured up to 500k. | | 3. If spreading out your 6- or 7-figure assets to multiple | institutions is too much of a burden, literally every business | bank has special accounts or add-on features that either raise | the FDIC default limit of 250k, or supplement it with external | insurance. Again, if any startup's financial handlers didn't | recommend this: fire them because they entirely failed to do | their job. | roguecoder wrote: | It seems like SVB was exploiting the lack of sophistication | among early startups, and now it is going to bite all those | startups in the ass. | | Wealthfront offers me as an individual better tools for | managing risk that it sounds like people who banked with SVB | were getting. | VagueMag wrote: | For Pete's sake, 1 month Treasury bills are yielding more | than almost every bank account. Just set up a TreasuryDirect | account and be done with it. | panarky wrote: | SVB is not a typical regional bank taking deposits from | middle-class workers, where most accounts are under the 250k | insurance limit. | | Banks that primarily serve ordinary workers typically have | over 50% of total deposits in accounts that are under the | limit, and are fully insured. | | But for SVB, _less than 3% of deposits are in accounts with | less than $250k_. | | The cold, hard fact is that if the bank doesn't have | sufficient assets to pay back depositors, no regulatory | sleight of hand changes that fact. | | There's a reason why large deposits aren't insured, and | that's because the rich have the knowledge and resources to | take care of themselves, and shouldn't co-opt the power of | the state to force ordinary people to subsidize them when | their bets go bad. | | It would be hideously immoral to bail out fabulously wealthy | VCs with funds from taxpayers and small depositors. | fairity wrote: | > The cold, hard fact is that the bank doesn't have | sufficient assets to pay back depositors. | | That's not true. As of December 31, 2022, Silicon Valley | Bank had approximately $209.0 billion in total assets and | about $175.4 billion in total deposits. Even if liquidating | assets forced a 15% haircut, depositors will be made whole. | | If a bail out is necessary, it's likely in the form of a | short-term loan to make depositors whole sooner rather than | later. And, such a bail out can/should be structured as a | loan with significant interest in which case it's not | really a cost to taxpayers. | panarky wrote: | That $209 billion number was not marked to market. Their | assets weren't worth that much then, and they're worth | less now. | | The cold, hard fact is that if the bank had sufficient | assets to let depositors withdraw their cash, then they | wouldn't be in receivership now. | | You can argue that they actually do have sufficient | assets, but they just can't access them right now, and we | just need to wait ten years for bonds to mature. | | But that argument only makes sense if you also say that | large depositors should wait ten years to get their money | out. | | Naturally, a dollar that you might receive ten years from | now is worth a lot less than a dollar you can actually | spend today, and if regulatory sleight of hand obscures | that essential fact to bail out the 1% of the 1%, that | would be extraordinarily unjust. | fairity wrote: | Once again, my point is that your following statement is | untrue: The cold, hard fact is that the bank doesn't have | sufficient assets to pay back depositors. | | It is not a cold, hard fact that they don't have | sufficient assets. It's entirely possible that after | liquidating their assets (on the time scale of months), | they can make depositors whole even after factoring in | the time cost of money. | SilasX wrote: | Not unless interest rates plummet, no. The bulk of | portfolio losses is from long term bonds losing value | with the increase in interest rates. Allowing more time | to sell doesn't help you there, especially if you have to | pay prevailing interest rates on any delay. | panarky wrote: | Of course you're correct, nobody knows the future. | | It's possible the $80 billion in mortgage-backed | securities they bought yielding 1% and maturing in 10 | years might be salvaged. They're now worth far less than | they paid because interest rates are up to 5% and nobody | wants to buy bonds that yield 1%. | | Maybe this receivership will bork a thousand startups, | throw a bunch more people out of work, and cascade into a | larger recession, driving interest rates back down to 1%, | and restoring the value of the mortgage-backed | securities, and making the bank solvent again! | kiratp wrote: | You're basically saying the employees at a non-tribal | number of startups should not be paid payroll because "fat | cat VCs". | panarky wrote: | No, I'm saying let the fat cat VCs fund the payroll, not | a quasi-governmental fund backed by taxpayers that | explicitly said uninsured deposits are not insured. | 015a wrote: | > The cold, hard fact is that the bank doesn't have | sufficient assets to pay back depositors | | This is not obvious at this time. This is not a cold hard | fact. They absolutely, undeniably had assets in excess of | depositor liabilities at the end of Dec 2022. They incurred | losses since then. The accountants are still accounting. | | > and no regulatory sleight of hand changes that fact. | | There _literally_ is regulatory "sleight of hand" to do | this, and the FDIC has a demonstrated history of doing it, | many times. When banks like this fail, they shop the assets | and existing customers around to other banks, and | critically: will _pay_ the acquiring bank to close the gap | between assets and liabilities + provide liquidity while | assets mature. | | > There's a reason why large deposits aren't insured, and | that's because the rich have the knowledge and resources to | take care of themselves, and shouldn't force ordinary | people to subsidize them when their bets go bad. | | The FDIC is _entirely_ funded by insurance premiums paid | for by the banks themselves. They are not tax payer funded. | | Your fear is causing you to spread misinformation and scare | people more than necessary. | panarky wrote: | _> ... absolutely, undeniably ..._ | | Were these assets marked to market, or were there | billions in unrealized losses even then? | | _> regulatory "sleight of hand"_ | | When claims on the FDIC exceed premiums paid, they are | absolutely backed up by taxpayers. | | There's a cap on what deposits are insured, it's not a | secret. Large depositors knew their funds were not | insured. | | It's not "sleight of hand" to shop the assets in the | market, maximize recovery, and make all depositors whole | if possible. By all means do this! | | But using FDIC funds to bail out uninsured depositors, or | monkey business with quasi-government agencies backed by | taxpayers paying above-market prices for securities, or | agreeing to accept below-market interest rates on loans | is definitely "sleight of hand" to obscure a direct | subsidy to extraordinarily wealthy people. | | By no means should insurance premiums paid on insured | deposits be misappropriated to bail out uninsured | depositors. | roguecoder wrote: | Being able to trust in the stability of banks is | subsidizing the economy, not just wealthy individuals. It | isn't CEOs who got tossed out of work in 2008, it was't | wealthy individuals who had a 27% unemployment rate. | | Wealthy individuals constantly try to game the system. | Not letting the games they play hurt the rest of us is an | entirely proper role for the government to take on. | kelnos wrote: | I think the problem is when those games don't hurt the | individuals playing them. After 2008, most of those | banking executives who screwed things up saw few | consequences. | | I agree that it's a good move for the government to use | taxpayer money to prevent an economic collapse. But | that's still the lesser of two evils: the government | should be working harder to disincentivize the kind of | behaviors that make wealthy individuals think that | playing these sorts of games is worth the risk. | | I'm not sure what "working harder" should entail (I'm no | expert on this sort of thing; others are), but I think | it's pretty clear they're falling short. | roflyear wrote: | > 3. If spreading out your 6- or 7-figure assets to multiple | institutions is too much of a burden, literally every | business bank has special accounts or add-on features that | either raise the FDIC default limit of 250k, or supplement it | with external insurance. Again, if any startup's financial | handlers didn't recommend this: fire them because they | entirely failed to do their job. | | Contractual obligations often prevent this, btw. Many SVB | customers had loans with SVB, which prevented them from using | other banks. | kgwgk wrote: | > 2. Any regular account with two or more signers (very | typical for a business account) is insured up to 500k. | | Is it typical for business accounts to be owned by someone | other than the business? | jabart wrote: | I don't think the signers count towards the limit like a | personal joint account does and would keep a business account | at $250k. | | https://www.usbank.com/bank-accounts/fdic-deposit- | insurance-... | bjornsing wrote: | > It's not like those government bonds won't pay | out...eventually. | | Does that really matter though? Anyone can buy and hold to | maturity. The market price indicates that that's not good | business. | nr378 wrote: | SVB held $21bn of 'available for sale' bonds and $91bn of 'held | to maturity' bonds on its balance sheet, that were actually | only worth $19bn an $76bn respectively on a mark-to-market | basis, which means a total unrecognised hole its in balance | sheet of $17bn. SVB's total equity was only $16bn[1][2] | | That means it didn't have a liquidity crisis, and it didn't | have reserves in excess of it's liabilities, it had a solvency | crisis, and it has more liabilities than it has assets (before | even considering the haircut it's assets will suffer at | liquidation prices). | | The crux of the issue here is that, for many types of assets, | banks are able to test whether they meet capital requirements | based on the price they paid for the assets, rather than the | price the assets are currently worth. So SVB was sailing along | nicely whilst it's bond portfolio slipped further and further | under water, and wasn't required to recapitalise when it should | have done. | | [1] https://ir.svb.com/financials/annual-reports-and- | proxies/def... [2] https://www.wsj.com/articles/bond-losses- | push-silicon-valley... | RC_ITR wrote: | People keep talking about how 'this is a solvency crisis | because if SVB had to sell everything today, they wouldn't | cover liabilities' when that is _the definition_ of a | liquidity crisis. | | EDIT: To be clear, think of it this way. I have a piece of | paper saying you'll give me $100 in 1 year plus 1% interest | that I bought for $98. | | No-one buys that piece of paper for $98 today, because they | can get the same deal with better interest. _But that doesn | 't change the fact that I will get $100 for it._ | | If deposits hadn't shrunk, $100 would go to SVB in 1 year and | everything would be fine, it's the fact that they have to | sell it so far ahead of maturity that's the problem, we just | didn't notice this phenomenon in the past few decades b/c | rates fell and prices went up. | | This is _not_ because SVB has a particularly risky book (we | 're talking treasuries here), it's because they didn't | account for declining deposits (itself a very stupid, but | unique bad decision unrelated to their risk tolerance). | purpleblue wrote: | No, I think you're wrong. | | The reason why depositors are going to lose money I think is | because the fire-sale valuation of the assets << valuation on | the books. I think depositors will lose a fairly big chunk of | their money, maybe 10-30% if not more. | | Their money was not sitting around in cash. It was in bonds | which lost a lot of value in the last several months. They also | have more exotic investments in the startups they work with, | which depending on how it works, could get a really bad | valuation as well. | gumby wrote: | See my reply to kmod in regards to this. It's the FDIC's | current balance sheet we're talking about, not SVB's. In a | liquidity crisis you don't have access to your capital. So | FDIC spends theirs, and takes control of SVB's balance sheet. | Also SVB is a small bank. | purpleblue wrote: | The only way things are okay is if FDIC makes SVB whole on | all its assets, which doesn't make sense. They are only on | the hook for the 250k, everything above and beyond will get | paid out by selling assets, much of which might be | considerably impaired, because of accounting differences. | You're telling me that if SVC had $1 billion in 0.1% 10 | year bonds, they would pay them face value for that now? | That's not how it works at all. | | SVB was the 15th largest bank in the US. That's not a small | bank. | gumby wrote: | That's not how FDIC works. Its job is to protect account | holders, not banks. SVB is dead; its shareholders and | bondholders will be wiped out, includng the money they | raised from General Atlantic this week. | | The account holders' accounts, and likely all the loan | portfolio, will go to another bank. The new bank will | adjust its reserves from the Fed in the usual way, and | may get some capital from the FDIC (warning: I am not _au | courant_ how the latter works post the GFC). | | The FDIC uses its own large (and augmentable by congress, | not that it matters in this case) balance sheet to back | some or all of the deposits. It seizes all of SVB's | assets and unwinds them as it decides to... _with the | proceeds going to FDIC._. Whether it dumps them on the | market or holds to maturity is the FDIC 's decision and | has nothing to do with what happens to SVB. The people | who went to SVB HQ and the people who decide what to do | with SVB's assets are completely different people. | | Read my reply to kmod. | | > SVB was the 15th largest bank in the US. That's not a | small bank. | | The money center banks are the ones that matter. Most | retail deposits are held by a handful of banks. Being the | 15th largest bank is not like being the 15th university | in the rankings (i.e. not that different from the top 10) | but more like being the 15th biggest car company. I | wouldn't call FDIC's balance sheet "enormous" but it can | handle SVB without breaking a sweat. | [deleted] | dahdum wrote: | DFPI specifically called them insolvent in their release today, | does that change your opinion on depositors being made whole? | | https://dfpi.ca.gov/2023/03/10/california-financial-regulato... | dragonwriter wrote: | > DFPI specifically called them insolvent in their release | today, does that change your opinion on depositors being made | whole? | | If the asset/deposits balance hasn't changed much since | December (which I'm not sure is the case), depositors are | _likely_ to _eventually_ be made whole for the deposit | amounts, but liquidity issues and facilitating sale of assets | to make that happen may result in substantial delays. For | depository accounts businesses relied on for regular | operations, that...may still create substantial additional | costs that will not be compensated. | | So, in a more holistic sense, it seems likely that depositors | will not be made truly _whole_ for the impacts, even if they | _eventually_ recover deposits. | kgwgk wrote: | Being made whole several years down the line may not be | better than getting liquidated as soon as possible. | | In a extreme example, getting $100 in 10 years is not as | good as getting $70 next month. | gumby wrote: | See my reply to kmod for further explanation on my statement. | opportune wrote: | The conundrum with underwater bonds/mbs is that you can make | depositors whole, or give depositors money back now, but not | necessarily both. | | If I had $1m in my account and it was invested 100% in MBS | around in 2021, it could take 10 years to actually get the | whole $1m back, and only be worth like $800k now. I have | effectively lost that 20% because you could just give me $800k | now and I could put it in a MBS myself to get the same results. | bombcar wrote: | The thing that's strange is FDIC took control and setup a | receiving bank for liquidation. | | That's not normal; FDIC works _quite hard_ to find a bank | willing to take over - usually they can work out what the | "cost" is to take over, and FDIC pays the receiving bank that | amount to "eat" the dying one. | | If they don't announce they have a bank to assume SVP by | Monday, it's quite abnormal. | NordSteve wrote: | Most FDIC bank takeovers are slow moving crashes, allowing | for a longer negotiation where buyers can evaluate the loan | portfolio they are buying. This is a reaction to a classic | run, so no time for that. | mixdup wrote: | Exactly. The fact they didn't have a bank lined up points | very heavily to the fact that they are not going to be made | completely whole. In the past, the FDIC has found a buyer and | as part of that process guarantees some amount of the losses. | IE: Savior Bank buys Failed Bank for pennies on the dollar, | or even for a negative amount. They get all deposits, insured | or not, and all assets--meaning loans. Then, the FDIC | guarantees they'll make Savior Bank whole some percentage of | losses on assets that go bad. Sometimes 80% or more | | This arrangement usually results in all depositors being made | whole, and the FDIC fund not taking any, or many, actually | losses, because most of the loans will still pay back, at | least partially | | They also do this before seizing the bank, so that it's all | very orderly and calms any panics | | SVB was looking for a buyer on the open market and that | failed--no surprise | | That the FDIC also could not find a buyer that they could | subsidize and announce the same day as the seizure is very | damning. I would be shocked if someone comes in later and | tries to buy it | | Also, the fact the seizure happened in the middle of the | business day, and not at the close of business yesterday | points to a somewhat disorderly and rapidly deteriorating | condition. I think maybe the run picked up a lot faster than | they expected | elliekelly wrote: | It seems like there's a lot of uncertainty around the | dollar amount of the deposits in excess of FDIC limits | which would make it difficult to figure out a deal. | bombcar wrote: | That's a really good point, FDIC usually swoops in Friday | night; and this was closed on a Friday during business | hours, that's actually insane; they couldn't hold on 8-10 | more hours, the run must have been really bad. | | Even WAMU (a huge FDIC action) was done after banking hours | closed on the west coast. | https://en.wikipedia.org/wiki/Washington_Mutual | ashwagary wrote: | I just saw recent footage of 40-50 people standing in | line outside an SVB branch waiting for service | (withdrawals most likely). | | I would surmise that the news spread fast among the tech | demographic the bank services and the run is really bad. | toufka wrote: | And in this case, tech savy individuals are willing to | send $XXM in 6 clicks, 3min after getting a slack | message. That's a pretty quick kind of run relative to | old-school 'stand in line for your personal life savings' | kind of run. | timr wrote: | It doesn't really work this way. It takes time to set up | acquisitions, even by the FDIC, and the "FDIC | stormtroopers sell bank overnight" is apocryphal. They do | weeks of legwork leading up to the actual handover of the | bank. | | We don't know the timeline here, but speculating that "it | must be bad" because things didn't happen overnight isn't | really responsible. | everybodyknows wrote: | What is "SVP"? | dredmorbius wrote: | I suspect a typo for SVB, "Silicon Valley Bank". | mikeyouse wrote: | So what I think is happening here is that if you take over a | bank the traditional way, you need to mark-to-market all of | the bank's assets -- so all of the losses from the long-dated | MBS that would be perfectly fine if held to maturity would | have to be recognized immediately, just crushing the balance | sheet of anyone who bought it. Probably trying to line | someone up who can either absorb that loss, figure out a way | to recapitalize without recognizing the loss, or get access | to some other lending facility. | t0mas88 wrote: | But from what I read it's common for FDIC to "sell" to the | acquiring bank at a price that wouldn't make a loss. | | So if you marked to market all those long term bonds and | then sold SVB to a bigger bank at the resulting (possibly | negative) valuation. Why wouldn't a big bank take that | deal? | czbond wrote: | Chase has wanted this bank for years. Either they are taking | advantage (takeover) or <conspiracy theory unfounded> helped | accelerate it. | gumby wrote: | Most of the good staff were poached by First Republic over | the past few years. That caused me to bank my current | startup at FR after more than 25 years of SVB. | | So I don't think there was much for Chase to buy. SVB has | been in decline for a while | ashwagary wrote: | Just saw a First Republic stock chart in crash territory, | contagion? | everybodyknows wrote: | Today's price range: 45-95 | | https://www.cnbc.com/quotes/FRC?qsearchterm=first | gumby wrote: | S&P bank sector is down across the board, but presume it | will regress to the mean fairly soon. Aren't many other | banks with exposure similar to SVB's. | alfalfasprout wrote: | First republic is in the same region and has a ton of | tech clients. Collateral damage. So far it looks like | they don't have the same exposure as SVB did though. | VirusNewbie wrote: | Interesting you say this, their stock is up despite rest of | my portfolio being red | kgwgk wrote: | The size of this failed bank is quite abnormal. The business | of this failed bank is quite abnormal. The surprising thing | may be that the find anyone willing to take it out of their | hands - let alone by Monday. | ecopoesis wrote: | When was the last US bank failure where depositors lost | money? | silisili wrote: | Appears to be 2020, from a cursory Google search. | | https://money.stackexchange.com/questions/129772/has- | anyone-... | | The oft quoted 'nobody has lost money' is from the FDIC, | and specifically says 'insured deposits.' | martythemaniak wrote: | Yeah, it seems companies should be mostly fine. Like you had 10 | million in cash yesterday, but now you get 10m in 10y TBills, | which you have to sell for $9m to get your cash back. It sucks | but it shouldn't change the trajectory of your startup. | rhacker wrote: | I read SVB and for some reason my mind kept thinking SBF.. is | there some connection outside my mind? | zenmacro wrote: | Wow, the government acted incredibly swiftly and decisively to | crush the possibility of a general bank panic. The current US | banking system is very different from the 2008 system. | yieldcrv wrote: | !remindme 2 months | chasd00 wrote: | well they got a finger in the dam leak at least. The question | is, is it the only leak or are other cracks going to appear | with more leaks? | MrMan wrote: | your last sentence is demonstrably false! | rrmm wrote: | From what I recall of the last set of bank failures this is | pretty much the FDIC's SOP. They swoop in on Friday with little | notice, close the bank, work through the weekend and open up | for business on Monday. It apparently made for some interesting | work environments. | delfinom wrote: | Because SVB was an actual bank with deposits that is FDIC | insured. This is their job and they always acted timely in any | situation, even before 2008. | | Bear Stearns in 2008 was an investment bank, they were not | hawking FDIC insured accounts. | jaxomlotus wrote: | We bank with SVB and our funds are now frozen. This is going to | be an incredibly painful weekend of waiting for news. For anyone | else impacted, wishing you the best - stay strong. | voytec wrote: | Fresh email from Alpaca (YC W19) on the matter: | | https://news.ycombinator.com/item?id=35099518 | perihelions wrote: | HN has "ample capacity" to serve its readers "with one exception: | If everybody tries to refresh this comment thread at the same | time, that will be a challenge." | | (I think it helps to log out? If you're in read-only mode) | jojosbuddy wrote: | Question now, with other regional banks getting some contagion | from this... For all those that pulled yesterday, where are they | parking their withdraws? National banks (e.g. BoA), other asset | classes, mattress? | anonuser123456 wrote: | This made Nouriel Roubini's morning. | Octokiddie wrote: | > At the time of closing, the amount of deposits in excess of the | insurance limits was undetermined. | | What are the insurance limits for companies? Same as individuals? | I get the sense that most of SVB's deposits were from startups | and small companies. And I also get the sense that $250K is not | much room for a startup trying to make payroll to employees with | Silicon Valley wages. | ncallaway wrote: | Yep, $250k. | NordSteve wrote: | For those who want to geek out, here's a great memo that | describes the liquidation process in great detail: | https://corpgov.law.harvard.edu/wp-content/uploads/2008/10/0... | | Someone holding a receivership certificate likely can sell it or | borrow against it. | boeingUH60 wrote: | In my whole life, I have never seen a bank run from start to | finish, but here we are. Interesting times! | rozap wrote: | A bank run powered by memes. | | We truly live in a world. | OldManAndTheCpp wrote: | Bank runs are always caused by memes -- the change is bank | runs powered by image macros, but memetic spread of the idea | "this bank may fail" is always what causes a run. | [deleted] | davidw wrote: | What's the best brief summary of what has happened so far? | NordSteve wrote: | During the last couple years, SVB got a ton of deposits, and | they didn't have matching loan demand. So they invested the | money in bonds. Unfortunately they make a bet that interest | rates would stay low, and bought longer duration (~10 year) | bonds. | | Interest rates have gone up, so the bonds they bought have lost | value. They tried this week to fix that by selling part of the | portfolio and raising capital, but did it in a ham-handed way | and triggered a bank run. | dragonwriter wrote: | Its worth pointing out that bonds are just debt instruments | and that their recoverable value responds to changes in the | economic environment in pretty much the same way as direct | loans with similar term would. | rafaelero wrote: | That's some terrible risk management. I can't believe they | thought Fed' action during the covid crisis wouldn't cause | inflation and prompt them to increase interest rates. | EVa5I7bHFq9mnYK wrote: | So they did exactly the same thing that FTX did - gambled | with clients' money and lost. | foreigner wrote: | That is what all banks do. | colinmorelli wrote: | I think an important backdrop here is the initial catalyst | for this (to my understanding) was a decline in VC funding | and elevated cash burn in their clients, leading to a net | outflow of deposits, which is ultimately what necessitated | selling securities in the first place. | | When the economy is generally healthy and your clients are | diversified, deposits remain fairly stable. If this had | happened, SVB likely would not have needed to sell the low- | yield mortgage backed securities to cover liquidity. SVB is | very exposed to the venture community and very impacted by | the changing climate. | beefield wrote: | I'm a bit confused. (Haven't followed in detail) Did they not | mark to market the bonds they bought and ended up insolvent | in reality but not in their books? Shouldn't the regulators | have pulled the trigger earlier, then? Or is this just a | liquidity issue and the bank is solvent, but the assets need | to be sold? | davidw wrote: | Interesting, thanks. What with the bad bet being some fairly | boring bonds... that should mean their investment didn't, | say, lose 90% of its value or something. Just that the 10% | (or whatever it was) it dropped was enough to put them over | the edge. But if they sell off those bonds that's still a | fair amount of money that can be recovered... right? | loeg wrote: | They made some bad-in-hindsight bets on low-interest, medium- | duration debt, rates went up 4%+, and also startups have less | cash in this environment, so they were obligated to realize | losses on the debt to pay withdrawals. The end result being | they were undercapitalized or at least not well-capitalized. | They attempted to raise funds by selling equity but this | incited a run on the bank. | neom wrote: | If you're struggling, email is in the bio, happy to chat. I've | heard a few folk are really in trouble right now and we don't | need anyone doing anything permanent, this too shall pass. Happy | to talk! There is a way forward! :) :) | | If you need to talk to someone immediately: 800-273-8255 | serf wrote: | >If you need to talk to someone immediately: 800-273-8255 | | it's an 800 number, perhaps you should be clear to where you're | directing people: the American National Suicide Prevention | Lifeline. | | I get that you're trying to be light-footed around the topic, | but I feel as if I must point out that not all people that need | to talk to someone even have the concept of self-harm on their | mind. | | If you actually _just need to talk to someone_ , try a | Warmline. [0] | | [0]: https://warmline.org/warmdir.html#directory | 650REDHAIR wrote: | You're a good egg. | notShabu wrote: | From reading the comments it's interesting how the failure seems | to have occurred. | | Not crypto hype, not bad loans, but long term bonds... It's | sounds very conservative and responsible. | berkle4455 wrote: | That's a whole lot of startups not making payroll or their SaaS | payments | mynameishere wrote: | Anyone know what the fire drill is on this? I imagine SV CFOs | on the phone with Goldman Sachs trying to get a 5 million | dollar credit line by COB today. Or shutting down operations. | [deleted] | [deleted] | champagnepapi wrote: | this is terrible. Many people will lose their jobs... due to | liquidity issues at their companies :( | artur_makly wrote: | So what happens to all the startups that were created via | Stripe/ATLAS with an SVB account currently less than 250k in cash | balances? Should they move their $ to a new bank? if so which one | is recommended? thanks! | mtoner23 wrote: | All those accounts are 100% totally fine, the fdic will move | their money to a new bank. YOu can google how this works but | its 100% seamless | cjbgkagh wrote: | Does the US and SVB have bail-in laws? There is a huge difference | between a preferred creditor and being at the back of the line. | As SVB has a rather low percentage of FDIC insured coverage at | ~5.69% compared to a more normal 40-60% they can't rely on FDIC | to get the more typical 90c on the dollar. But then again SVB | might have been healthier than other banks so maybe the dilution | won't be so bad. Historically depositors were first in line but | bail-in laws (depending on how they're written) has the | depositors balances converted to equity which is last in line. | Such laws are totally crazy but didn't have an impact because few | people knew about them so depositors were taking big risks and | not knowing about it there by not demanding the interest rates | needed to cover such risk. In effect it decreased the risk to the | prefered debtors, preference shares, bonds, etc lowering the | interest cost to the bank. Basically by transferring risk to | those who don't know better the bank makes free money. The idea | is sold as a win-win for taxpayers and bank health but only works | as long as depositors stay ignorant. If SVB is bailed-in with | conversion to equity then knowledge about that risk will spread | quickly and the follow on effects could be very substantial. I | think that can't be allowed to happen, which is probably why even | with such laws depositors tend to be a bit blase. But if that | does happen then holy shit look out. | cjbgkagh wrote: | Replying since I can't edit: FDIC is issuing a Receivership | Certificate which I am assuming has first cut priority so it | does not appear to be a bail-in. Debtors and equity will get | hosed, as it should be, hopefully they can avoid a bail-out as | well. | | Edit: I just noticed that it says that in the link of the | thread. I'm tired and I didn't read it carefully, my mistake. | eftychis wrote: | Just because there is a whole lot of misuse of terms that makes | it hard to understand certain comments and debate over if SIVB is | insolvent or illiquid, here are some definitions: | | https://www.investopedia.com/terms/s/solvencyratio.asp#toc-s... | | Defn. (informal) A company is illiquid if they can not service | short term liabilities/debt as it comes due. This includes the | ability to quickly sell assets to raise cash. | | According to what we hear Silicon Valley Bank is/was illiquid: | They were struggling to _liquidate_ at well below the maturity | value of the MBS to serve their liabilities -- withdrawals. They | were not able to service the withdrawal rate (there were | withdrawals/wires frozen for hours yesterday). | | In essence, driving themselves towards the insolvent side | (hopefully not, because if they are insolvent now (discounting | the equity value) we are going to have contagion. | opportune wrote: | The maturity value of a bond/mbs is not really the true value | at a given time between it being issued and maturing. You can | treat it that way as a person holding the bond if you pinky- | promise to yourself to not sell until maturity, but since banks | need to periodically sell these to let customers get their | deposits, that fiction doesn't work for them. | | These things trade on the open market and adjust to interest | rate changes. What really happened is that they bought a bunch | of securities backed by depositors that lost value at mark-to- | market. This is poor risk management, not some unfortunate | unavoidable issue caused by a bank run. They are insolvent at | market prices - illiquidity would be more like they have a | bunch of contracts or snowflake assets (like buildings, or a | security that doesn't trade on the open market). | | As a depositor, saying "in 10 years you will get the full value | of your deposit back" is bullshit: you could give me the actual | reduced value now, and I could invest it in the same kind of | instrument, and in 10 years I'd also have the full value back - | but I could do other things with it too, which may be | preferable considering it's _my_ deposit that I may need to | spend now rather than in 10 years. | | The fear is that many other banks are in the same position, | that they are technically underwater and vulnerable to runs | because the true value of their deposit-backed assets have | decreased due to interest rate increases, but that SVB was | affected first because their customer base of VC-backed | businesses just happened to have their withdrawal:deposit ratio | increase the most. | eftychis wrote: | The regulation to my knowledge does require marking to | maturity. Yes as I have commented elsewhere in this post, all | banks do this. | | SVB had the unique situation of being the canary in the mine, | as they had to get a lot of MBS during low interest rates of | 2021/2020. Your question is the jackpot one, yes: how many | other banks are following closely by. | | If the Fed continues or increases the rate hike I would be | surprised if we don't hear more -- assuming no other action. | | The silver lining might be that SVB might give the heads up | for the Fed, FDIC and government to act. | opportune wrote: | Sure that is the regulation, but just because it's a | regulation doesn't mean it's all you should do for risk | management, it's just the bare minimum. | | If the present value of a bank's assets are lower than the | present value of deposits, that is insolvency: calling it | illiquidity just because the bank doesn't want to sell its | actually-liquid underwater assets right now is a cop-out. | elzbardico wrote: | So SVB suddenly had too much money and too few people to loan | this money to, so they had to buy a dangerous asset that could | have exactly this problem with a raise on interest rates, where | every sane person in 2021 would know that all that stimulus money | would lead to inflation down the road and consequently a tax hike | from the FED. | | _" The cheapness of capital gives facilities to speculation, | just in the same way as the cheapness of beef and of beer gives | facilities to gluttony and drunkenness" _ MARX, | Karl Capital Vol. III Part V - Division of Profit into | Interest and Profit of Enterprise. Interest-Bearing | Capital Chapter 25. Credit and Fictitious Capital* | katmannthree wrote: | Yikes. Does anyone have an idea of which orgs have significant | exposure (like Molly White's FTX contagion graph[0])? | | [0] https://www.mollywhite.net/etc/ftx-contagion | TechBro8615 wrote: | 40% of startups just had their bank accounts cut down to $250k, | so... a lot. | [deleted] | tedivm wrote: | I'm not sure how true this is. I worked at a startup that | took in over $100m in investment, and I was curious so I | asked the cofounder how they protected that. According to him | the money was divided up into chunks smaller than $249k, | pushed off to a custom entity made just for the purpose, and | then invested in bonds or CDs on a rotating basis. | | I'm sure a lot of startups will be in trouble, but those that | are working with decent investors probably had help | protecting the assets. | [deleted] | [deleted] | e1g wrote: | The FDIC covers $250k per _depositor_ , not per _account_ , | and specifically does not cover bond investments. Either | your startup created 200+ entities to pull this off (good | luck with the rest of compliance) and didn't do bonds at | all, or the founder is misled. | tedivm wrote: | > Either they created 200+ entities to pull this off | | That's literally what they told me they did, and what I | was trying to say happened here. It's possible he was | misled, but he seemed pretty knowledgeable about this. | The money initially came from Softbank, who helped with | the process. | | Also, $250k per depository per bank. You can also | distribute the money across multiple banks to get higher | insurance levels. | postexitus wrote: | They either made the story up based on what they read on | reddit or you are making it up now based on what you have | read on reddit. There is a third possibility that that | person being incredibly dumb and they actually believed | what they read - but I give that a slim chance. | from wrote: | Why would someone lie about that? Having 30 bank accounts | does not confer any prestige upon you. There are | companies that do this for people (https://en.wikipedia.o | rg/wiki/Certificate_of_Deposit_Account...) and if you | Google "FDIC sweep" or "insured cash sweep" there are a | bunch of banks talking about how they support | automatically moving money out when an account gets more | than $250000 in it. | zamnos wrote: | What's more likely being lost in translation is that they | have an insured cash sweep account and explained how | _that_ works, and who exactly is creating the 30 bank | accounts is what 's being misunderstood in this game of | telephone. | costco wrote: | Why didn't they just use https://en.m.wikipedia.org/wiki/ | Certificate_of_Deposit_Accou...? I haven't used it I just | read about it in a Taleb book but it seems like it would | be much easier than creating all the accounts yourself | and you can interact with just one bank account instead. | tedivm wrote: | I'll be honest, there's a chance that this is exactly | what they did but that they didn't understand it or | describe it properly. My main point was that there are | ways to get protection beyond the FDIC limit, and your | link shows a pretty reasonable way to do that. | e1g wrote: | Assuming legitimate operations, this strategy is highly | atypical in corporate finance. There is no scenario where | this setup has less cumulative risk than keeping cash | reserves spread evenly across the top 2-3 banks. For a | startup, this is a red flag about the founders' | priorities, risk management, and ability to find | professional advice. | | As an intuitive measure, extrapolate this idea to Apple | or Microsoft, which keep ~$10B in cash on hand and also | need to protect it. | tome wrote: | > extrapolate this idea to Apple or Microsoft, which keep | ~$10B in cash on hand | | Literally cash, as in deposits? Or highly liquid assets | such as T-Bills? | tedivm wrote: | To be fair the founder was really incompetent, and the | money was pretty much wasted. When the company finally | sold it was well worth what my strike price was. | squeaky-clean wrote: | Per bank. You can use something like IntraFi to | distribute your deposits across multiple banks | automatically. | bombcar wrote: | At the $100m amount people may confuse FDIC with SIPC - | https://www.sipc.org | | What SIPC does is similar to FDIC but it basically comes | down to "If you buy stocks via Vanguard, Vanguard | guarantees that those stocks actually exist and that if | they fail you get them, and SIPC helps with that". | notyourday wrote: | This is literally the primary job of the CFO: | | Making sure that if there's X in cash or cash equivalent | at noon on March 9th, 2023 PST there's still X in cash or | cash equivalents at noon on March 10th, 2023 | a-r-t wrote: | Just a clarification: it's per depositor per bank. | majani wrote: | Chipper Cash raised $150m from FTX and $100m from SVB. Ouch | flutas wrote: | Potential contagion: https://imgur.com/a/Xh6Kudp | | These are companies, sorted by PPP loan size who had SVB as | their servicer. | mydriasis wrote: | Holy cow, O'Reilly in the top ten. That doth not bode well. | nnx wrote: | But I thought only crypto was risky? And that over-regulated bank | sector was totally safe? | | Imho, this is a great argument for the return of Free banking | (including crypto) as we see time and again that regulations do | not work. Fail early and fast, let the market innovate and pick | its winners and losers. | ehhthing wrote: | Except in this case, when SVB fails their customers will get | the vast majority of their money back as the FDIC liquidates | all of SVB's assets. When FTX fell, nobody got squat. | jitl wrote: | When a bank fails, it gets put into receivership and you get | (some of) your money back. There's enormous protection working | in your favor provided by the FDIC. When a crypto token enters | free-fall, there's no one to stop the market, and no one to | help you get your money back. It's gone. | UncleOxidant wrote: | > regulations do not work | | That's quite a lot of extrapolation from one bank failure. | cp9 wrote: | ... my guy what are you talking about. the regulations _saved_ | the depositors. if the FDIC wasn't around the little guy would | be getting screwed right now, as it is, the big guys are the | ones taking the brunt of the damage. if this had been crypto it | would *all* be gone and the little guy would be the one holding | the bag | nickrubin wrote: | Garry Tan: "30% of YC companies exposed through SVB can't make | payroll in the next 30 days. If you or your company are affected, | I recommend that you reach out to your local congressman to get | this on their radar TODAY." | | https://twitter.com/garrytan/status/1634286688922132481 | ecf wrote: | So is this going to be a "privatized profits, socialized | losses" type scenario? Are taxpayers going to be bailing out | this bank and the companies that use them? | justin66 wrote: | If the bank's failure doesn't represent a systemic risk to | the economy, such that the executive branch would be | justified in propping them up, we're talking about a | popularity contest. _Who does the American public like less, | nerds or bankers?_ might not play in congress quite the way | the OP is hoping. | | It might not come to that, since the specifics of the bank's | financials will determine whether everyone eventually gets | their money back. | cybersol wrote: | HN thread on this is here: | https://news.ycombinator.com/item?id=35100743 | [deleted] | computing wrote: | Libertarian, "small govt" VCs squealing for govt intervention... | It would be funny if not for tens of thousands of people who | might not receive their paycheck next week. | saos wrote: | How bad is this for wide economy? I'm scared. | temp2022account wrote: | Unless you had your money there the only change in your life | will be the headlines you glaze over. | ETHisso2017 wrote: | Where can we find a list of startups that have large quantities | of deposits at SVB? | arthurofbabylon wrote: | I am most curious about the decision to park so much capital in | such a low-yielding and long-term investment. Why? | marban wrote: | Unbank the banked. | [deleted] | NordSteve wrote: | It should not take too long to find out roughly what the | uninsured depositors will receive. The investment portfolio is | straightforward to liquidate. The loan portfolio will take a bit | longer to sell, but it's a well-worn process. If you haven't read | about Resolution Trust Corporation, it's worth a couple minutes | -- this is how the assets of failed savings and loan companies | were liquidated 40 years ago. | | https://en.wikipedia.org/wiki/Resolution_Trust_Corporation | imstil3earning wrote: | test | chollida1 wrote: | some note i've been taking | | > To protect insured depositors, the FDIC created a new entity | called the Deposit Insurance National Bank of Santa Clara, or | DINB. DINB will maintain Silicon Valley Bank's normal business | hours, with banking activities resuming no later than Monday, | including online banking and other services, the FDIC said. | Customers with accounts in excess of $250,000 are being told to | contact FDIC direclty | | > The company's main office and all Silicon Valley Bank branches | will reopen on Monday, | | > Uninsured depositors will get a receivership certificate for | the remaining amount of their uninsured funds, the FDIC said | | Keep in mind 93% of SVB's assest were not FDIC insured. | | > Silicon Valley Bank Had About $209.0B in Assets | | > Svb Is First FDIC-Insured Institution to Fail This Year | | Their recent attempt to raise money via shares and debt sales | failed, | ejstronge wrote: | >Keep in mind 93% of SVB's assest were not FDIC insured. | | >> Silicon Valley Bank Had About $209.0B in Assets | | I'm not an expert, but aren't deposits in a bank _liabilities_? | Assets are things like treasury bills and loans held by the | bank. | dragontamer wrote: | When Alice deposits $100 into a bank, the bank gains a $100 | liability (owes Alice $100), and then a $100 asset (the | cash). The asset is likely traded for a bond of some kind, in | this case a US 10Y treasury. | | The 10Y treasury was worth $100 in 2021, but today is only | worth $80. The bank still owes Alice $100 (a $100 liability), | but the asset's value has declined. This has caused... | issues... culminating in the past week of events. | roflyear wrote: | It's somewhat confusing to me, because a $100 treasury note | is only worth less than $100 if you try to sell it today. | You still will get your $100 back if it matures. | toast0 wrote: | $100 today and $100 in a year are not the same thing. | | If I deposit $100 into a demand account, I expect to get | $100 when I demand it. | | If you want to sell me $100 in the future for less today, | that's something worth considering, but that wasn't the | deal depositors had. | ellisv wrote: | Yes but many people want their money today, not in 10 | years. | roflyear wrote: | That's a bank run tho not "normal operating" status. | Jensson wrote: | Bank runs happens when you create conditions that can't | handle bank runs. Nobody would worry about keeping assets | at a Bank that wouldn't get destroyed if people started | asking for their money. | | Therefore although bank runs aren't normal, they will | almost surely happen to you if you put yourself in a | situation where a bank run would destroy you. So you have | to work as if bank runs are normal, or they will be | normal. | dragontamer wrote: | Damn near the entire customer base of Silicon Valley Bank | withdrew their money yesterday (Thursday), forcing SIVB | to sell those 10-year notes. | twoodfin wrote: | Right, but Alice and all of her friends want their money | back now, and it's your job as a solvent bank to give | them their money when they ask for it. | Octokiddie wrote: | This is the crux of the problem. SVB may have _intended_ | to hold to maturity, but the market forced it to sell to | raise cash. | | You may hold 100K in treasuries today, but if your | employer can't make payroll, you're gonna sell to pay | rent. | slymon99 wrote: | @danaris - if you are a bank and people want to withdraw | money, you need cash to pay them. By "the market" we mean | the banks depositors who withdrew their case (partially | due to these very concerns, hence why bank runs are | called bank runs) | jojosbuddy wrote: | Aside from all those tech founders (today's LP VCs) from | 2008-2020 likely held equity/deposits at SVB, and the | sheer call out by them to make a run on the bank | yesterday just broke the bank. The speed of fintech makes | it feel coordinated. | | Funny it seems like VC GPs were on the horn yesterday to | withdraw, and I know a number of LPs telling me last | Sun/Mon they'll be "out of the country" next month. Looks | like some folks had early info. | danaris wrote: | > but the market forced it to sell to raise cash. | | Can you clarify this part? | | I'm not super familiar with the intricacies of banking, | so my guess is that this is simply due to part of it I | don't know about, but...given all the "creative financial | instruments" I've heard about since the runup to the 2008 | crash, I have to wonder if this "market force" was at | least partly due to something SVB was doing that wasn't | terribly wise. | dragontamer wrote: | > was at least partly due to something SVB was doing that | wasn't terribly wise.\\\\\ | | A startup-focused bank probably shouldn't have been | investing into 10Y, 20Y, or 30Y US Treasuries, when their | customers might only have 2 or 3 years worth of life in | them. | | So yeah, there's a bit of stupidity here for sure. But | its the kind of stupid that I can imagine a lot of banks | making. | briandear wrote: | When someone opens a bank account and makes a cash deposit, | he/she surrenders the legal title to the cash, and it becomes | an asset of the bank. | bell-cot wrote: | It's an Accounting 101 situation ( | https://en.wikipedia.org/wiki/Accounting_equation ) - | | The (say) $100 cash I deposited to the bank becomes both an | asset (they have "my" $100 in the vault) and a liability | (they own me $100). So the accounting equation still | balances. | ejstronge wrote: | > When someone opens a bank account and makes a cash | deposit, he/she surrenders the legal title to the cash, and | it becomes an asset of the bank. | | I think this is Google's first hit when one searches this, | but I do not believe this is correct. Here is a source | saying the opposite, as an example. | | A liability, in general terms, is something owed to another | (e.g., a deposit) | | https://courses.lumenlearning.com/wm- | macroeconomics/chapter/... | | And another more reputable source: | | https://www.investopedia.com/terms/b/bank-deposits.asp | nordsieck wrote: | > I think this is Google's first hit when one searches | this, but I do not believe this is correct. | | So, I think the person you are responding to is trying to | explain the distinction between a bailment and a loan. | | Let's pretend that someone had a safety deposit box with | $1B at SVB. They'd get to keep the full amount, because | that is a bailment. The money never becomes the bank's. | | In contract, if someone deposited $1B at SVB, then the | actual money becomes the property of SVB. And the | depositor then is a creditor to SVB - they have an | unsecured load to SVB of that amount. But after SVB gets | taken over by the feds, they have to stand in line with | the other creditors and get what they get. They aren't | guaranteed to be made whole. | briandear wrote: | The another, more reputable source says exactly what I | said. | | "The deposit itself is a liability owed by the bank to | the depositor. Bank deposits refer to this liability | rather than to the actual funds that have been deposited. | When someone opens a bank account and makes a cash | deposit, he surrenders the legal title to the cash, and | it becomes an asset of the bank. In turn, the account is | a liability to the bank." | | The ACCOUNT is the liability, the CASH is the asset. | mytailorisrich wrote: | Not sure about banking rules but in general accounting | terms: The deposited amount is an asset (the bank has got | the cash) and a liability (the bank owes that amount to | the person who made the deposit) and neutral on the | balance sheet. | | Edit: Seems that this is what's explained in the | investopedia article you linked to: | | " _When someone opens a bank account and makes a cash | deposit, he surrenders the legal title to the cash, and | it becomes an asset of the bank. In turn, the account is | a liability to the bank._ " | ejstronge wrote: | Yes, but the OP comment conflated assets (cash and | securities as you mention) with FDIC insurance which only | concerns liabilities due to depositors who qualify for | FDIC insurance. | [deleted] | mhuffman wrote: | For a bank deposits are liabilities and loans are assets. | | edit: Judging by a quick downvote trigger-finger, there | seems to be some folks having trouble believing this; check | this out from the source: | https://www.federalreserve.gov/releases/h8/current/ ... | look at the category names of where deposits and loans are | listed. | bob1029 wrote: | The semantics of this are very cumbersome. | | The deposit itself is not a liability. The deposit | _account_ is. There are many ways to get money into a | DDA. The bank will never give you your original paper | currency back. | mhuffman wrote: | I agree with everything you say, but at a high level they | "owe" you the money that you deposited. Which is a | liability. They (generally) are not allowed to just go | spend your money on anything they like (in the same way | you could if you got a business loan, which is an asset | and a liability), but it is prescribed how they can | create assets with the deposits. | [deleted] | bell-cot wrote: | Clearer to read it in the article: | | > As of December 31, 2022, Silicon Valley Bank had | approximately $209.0 billion in total assets and about $175.4 | billion in total deposits. At the time of closing, the amount | of deposits in excess of the insurance limits was | undetermined. The amount of uninsured deposits will be | determined once the FDIC obtains additional information from | the bank and customers. | UnpossibleJim wrote: | So, first off, I am not very literate when it comes to the | comings and goings of banking procedures, so forgive me if this | is a dumb question. | | Would an incident like this make other banks shore up their | defenses about this sort of thing happening to them, or will | more banks fall due to market conditions in general? | e-clinton wrote: | Both would be my guess. I'm expecting more smaller banks to | fall. | tinco wrote: | Well a defense might be to increase their liquidity by | selling those treasury bills, which would drive their price | even lower, making other banks also be illiquid on paper. | | So yeah I imagine all the banks nervously looking at | eachother. Who is going to pussy out the first and cause them | all to tumble over. | adrr wrote: | Fed could buy it and set a price floor on it. | [deleted] | SkyMarshal wrote: | _> Svb Is First FDIC-Insured Institution to Fail This Year_ | | Was Silvergate bank not FDIC-Insured? | bombcar wrote: | Silvergate is apparently doing a controlled liquidation of | itself, this is an FDIC-forced liquidation. | Eumenes wrote: | Why did startups use SVB over larger commercial banks? Every | place I've worked has used them for some reason. I don't get it. | nemothekid wrote: | Before the rise of mercury/column/stripe they were also way | more amicable to get access to certain banking products. I | remember at one point a company I worked for wanted to start | doing ACH payments out of their account. Wells Fargo had some | incredibly hoops we had to go through whereas SVB was just like | "we would give you access, but you need to make us your primary | bank". | xt00 wrote: | common wisdom held that it made it easier for investors to get | you money -- especially from the usual sand hill road folks.. | Eumenes wrote: | I could understand like, getting the funds deposited to SVB, | then managing your corporate funds in a larger more regulated | bank | Ancalagon wrote: | Yikes what a sucker punch to tech in a downed market. This sucks | dcow wrote: | It seems like anybody can find any way to light standing cash on | fire. Not just crypto poster children. So... | garbagecoder wrote: | Crypto is the 2008ish version of 2000. | [deleted] | xnx wrote: | A lot of talk about the $250K FDIC insurance limit in this | thread. It took me a long time to learn that you can have up to | $1.25 million insured at an institution if you designate multiple | beneficiaries: https://www.fdic.gov/resources/deposit- | insurance/brochures/d... | zamnos wrote: | If that's of interest to you, you might also want to look up | "FDIC sweep" or "insured cash sweep". Basically your bank makes | accounts at other banks, and each sub-account only has up to | $250k in it, so you're totally covered. | | https://en.wikipedia.org/wiki/Certificate_of_Deposit_Account... | hn_throwaway_99 wrote: | Question regarding SIVB shares. So now that the bank is in | receivership, are all of those shares worthless (I'm assuming | they are)? | | Looking at a graph of SIVB share price, this definitely seems | like yet another blow to efficient market hypothesis. Many of | SIVB's woes have been known for months. While it's obviously | difficult to predict a bank run, to see a stock go from a share | price of ~270 to 0 in 2 days, with many billions in equity value | wiped out, is astounding. | manquer wrote: | Shareholders are last in the line of creditors, shares will be | worthless only if bank is insolvent not illiquid as it | currently is. | | While it may emerge that bank is indeed insolvent after the | accounting that is not yet the case , so the value is only | unknown not necessarily zero. | | Also the market value includes the estimated risk which is very | higher when there is lack of clear information and uncertainty. | | After the dust settles , risk is becomes better understood with | more information then shares can be better priced | | Alternatively the assets are fully liquidated with which all | depositors and bond holders are made whole anywhere between | $45B and zero would be left | Animats wrote: | The FDIC hasn't taken over the SVB web site yet.[1] | | _" Through our relationships with more than 50% (approximate) of | all venture backed companies in the US, and with funds and | corporations across the globe, SVB Capital's family of investment | solutions give you unmatched access to this unique asset class."_ | | Their online operations have to be drastically changed. Did their | ATM cards stop working yet? | | The FDIC usually takes over banks at the close of business on a | Friday, using the weekend to audit and reorganize. That this | happened at the end of Thursday hints that the situation was bad, | so bad that another day of withdrawals would have been too much. | | [1] https://www.svb.com/ | [deleted] ___________________________________________________________________ (page generated 2023-03-10 23:00 UTC)