SVB: Biggest bank failure since '08

I used to date someone who worked at SVB, although she may have retired by now.
 
jesse said:
Assuming you aren't employed by someone who had the majority of their assets sitting in a SVB account, not likely too much. However, that will be a pretty large number of people. As an example, Roku just announced they have $487M worth of uninsured deposits sitting in SVB.
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I hope Roku survives this, because I enjoy their services.
 
Palmpilot said:
I hope Roku survives this, because I enjoy their services.
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You name a tech company and there is a pretty good chance they had substantial assets in SVB. Some more customers of theirs: Airbnb, Fitbit, Coinbase, LinkedIn, Pinterest, Slack, Square, Uber, Twitch, Dropbox, Robinhood, etc etc etc.

Everyone was trying to pull all their money out over last day or two, so hard to say at this point who succeeded and who didn’t. Going to be a lot of headlines next week.
 
The thing, though, is I don't see these as tech companies in the traditional sense. They're internet based businesses, to me, kind of like dot com 2. Airbnb isn't tech. It's real estate. Pinterest, Linkedin aren't tech, they're social media. Uber is web based car service. None of these things are particularly complicated from a tech perspective, and they shouldn't be proprietary...they should be commodities. Brick and mortar, even chains, there's a big investment in tangible assets.

We'd be better off if there were a half-dozen to a dozen different versions of each one of them.

Even Amazon, I think, has realized that their strength isn't in tech anymore, as much as it is in distribution and shipping, at least on the consumer side. They have the advantage of learning from their commercial tech side that it's a commodity market. Cloud computing? Amazon, Microsoft, Google. It's a competitive market. They ALL do a good job, and they're all pretty easy to work with. Because there are three of them, and they actually compete with each other.

So I kinda see it as consumer hyped up tech as being the thing, from my very limited viewpoint, and think it'll just be a little correction in that. I hope.
 
As I understand it it was not a total collapse in the sense of there is no more money and everyone is totally wiped out...there are still assets remaining that cover deposits, just not all liquid and the Feds stepped in to stop a complete run which would have been a total meltdown and spun the entire economy down as well.

Bigger risk IMO is not mopping up the SVB mess but any other spook sending something else into a tailspin since rational thinking is not known to be a financial sector strength.
 
I think the real risk is in giving this bank a free pass and using US taxpayer money to make clients whole. They have to follow the receivership process and get paid based on the assets that are available, when they are available. Given SIVB's alleged propensity for coming up with innovative financial products to, shall we say, "accommodate" their unique techy client base that might take a while to unwind. That's the cost of doing business with a bad financial institution.

Once banks or their customers, especially corporate clients with big balances, get wind of the idea that no matter what happens they'll be covered by Uncle Sam and their fellow americans -- then a whole boatload of disastrous financial institutions will proliferate. Why would you ever invest at 0.8% interest in Chase/BankOfAmerica/Citi/WellsFargo when you can make 2.33% at SIVB? Or why would you be willing to work with a bank with higher underwriting standards when you can get by with an institution that'll let you skate by with less as long as you park your money with them?

I do feel bad for the little guys who truly thought that a bank was just a place that puts your money in a safe and prints you an ATM card, but if banks are to be taken as serious institutions then bank quality has to matter. The first $250k requires no research. It's covered. You're good. But if you're going to deposit more than that, sometimes millions or tens of millions more -- then yeah your research has to matter. And I for one don't want someone like Roku with their ridiculous $400+ million dollar cash mismanagement to be taken out of my taxes just so their CFO and others can be spared the burden of having to do due diligence about financial partners (while earning above market interest).
 
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The following is supposed to be a good plan, but you have to ask, 'so it's ok if the stock tanks AFTER you sell the shares?'

"Ideally, the stock sale [to raise funds] would have been completed by before the market opened on Thursday, to avoid the sale being jeopardized by any declines in SVB's shares once news of the sale got out. But the sources said that was not an option given the tight schedule."
 
My concern is not so much the failure of SVB, but the spike in CDS's on other major banks, as well as the Soveriegn credit of the US. This is where the big boys play, and the risk premium is going to be a whole lot more right soon. This is what drove the collapse of the MBS during the real estate crash. CDS premium came due, and nobody knew what the collateral was worth.

For myself, I'm glad the Fed acted quickly. Maybe they learned something after all.
 
Palmpilot said:
CDS?

MBS?
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Credit Default Swaps, or the counterparty agreements two institutions make that a 3rd may or may not default. Mortgage Backed Securities, the phony mortgage securities that banks bought and held as collateral. As the value of the MBS's tanked, the CDS pricing soared, the counterparty on the short end couldn't pay the risk premiums and became insolvent, or fell below capital requirements, and banks acted as guarantors to make up the difference.
Remember Citi teetering on the edge? That's why.

Btw, look at the pricing of the US defaulting on it's debt. Political games are expensive.
https://www.axios.com/2023/03/10/the-us-default-trade-returns
 
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Bank of England is going to shutter SVBs UK subsidiary. We shall see what happens with the branches in Germany, Canada, and the Caymans.
 
jesse said:
5.) For some incredibly stupid reason, SVB decided to go spend this extra 80B on 10/20/30 year treasury bonds (this is where things went horribly wrong)
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Presumably they still have this 80B, or the government does. Can't this now be used to reimburse the depositors?
 
Everskyward said:
Presumably they still have this 80B, or the government does. Can't this now be used to reimburse the depositors?
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Why would you presume that? SVB was knowingly using short term deposits to purchase long term assets. When the depositors came for their money, SVB found out it had to sell these long term investments at a loss in order to cover the deposits. When that news became public, the $42B run on SVB ensued, resulting in the collapse and FDIC taking over the bank.

As FDIC scours the balance sheet this weekend, depositors with insured deposits will be made whole first and then everybody else gets a crack via something known as a receivership certificate, which are fulfilled after the failed bank’s assets are liquidated. Those notes get paid out according to law and may not make the uninsured depositors whole.

USD Coin has $3+B of reserves that allows the crypto stable coin to be pegged to the dollar tied up at SVB which will break the peg.
 
TCABM said:
Why would you presume that? SVB was knowingly using short term deposits to purchase long term assets. When the depositors came for their money, SVB found out it had to sell these long term investments at a loss in order to cover the deposits. When that news became public, the $42B run on SVB ensued, resulting in the collapse and FDIC taking over the bank.

As FDIC scours the balance sheet this weekend, depositors with insured deposits will be made whole first and then everybody else gets a crack via something known as a receivership certificate, which are fulfilled after the failed bank’s assets are liquidated. Those notes get paid out according to law and may not make the uninsured depositors whole.

USD Coin has $3+B of reserves that allows the crypto stable coin to be pegged to the dollar tied up at SVB which will break the peg.
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Didn't realize they had already sold those treasuries.
 
That’s ridiculous that banks can invest deposits, regulations yet not regulating nor protecting. Deposits should not be invested nor placed at risk and if so, there need to be penalties established, and known, not just at the top but several levels down so that people have some skin in the game to act right.

Not the first time this happened but it’s unacceptable. Government always in every faucet but not protecting the people.
 
Martin__ said:
They must invest deposits. Only way to pay for tellers, ATMs and all other expenses running a bank + trying to make a profit. That's what banks do, invest deposits.
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They can make money off spreads on CDs, mortgages, investments, stock buy/sell. Not my problem they are greedy to earn more and risk deposits as a result.
 
True, but banking is primarily about converting liabilities (deposits) into assets (investments) and pocketing the spread there. Obviously risky for the creditors (customers) at times.
 
mandm said:
That’s ridiculous that banks can invest deposits, regulations yet not regulating nor protecting. Deposits should not be invested nor placed at risk and if so, there need to be penalties established, and known, not just at the top but several levels down so that people have some skin in the game to act right.

Not the first time this happened but it’s unacceptable. Government always in every faucet but not protecting the people.
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Where do you think the banks get the money to lend to people?
 
Bob Noel said:
Where do you think the banks get the money to lend to people?
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Banks should borrow money from the Fed for investments such as mortgages and keep the spread. Using deposits is really unfair. Banks earn a lot of profit not to mention the high C level salaries, to be risking deposits.
 
And now comes Venture Capital lobbying for a bailout.
mandm said:
That’s ridiculous that banks can invest deposits, regulations yet not regulating nor protecting. Deposits should not be invested nor placed at risk and if so, there need to be penalties established, and known, not just at the top but several levels down so that people have some skin in the game to act right.

Not the first time this happened but it’s unacceptable. Government always in every faucet but not protecting the people.
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Read this and weep.

https://www.levernews.com/svb-chief-pressed-lawmakers-to-weaken-bank-risk-regs/
 
Martin__ said:
True, but banking is primarily about converting liabilities (deposits) into assets (investments) and pocketing the spread there. Obviously risky for the creditors (customers) at times.
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Quite frankly Banking seems primarily to be about collecting fees, but that's another discussion.
 
Chip Sylverne said:
And now comes Venture Capital lobbying for a bailout.


Read this and weep.

https://www.levernews.com/svb-chief-pressed-lawmakers-to-weaken-bank-risk-regs/
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Privatize the gains and socialize the losses; it’s been wallstreet’s MO for decades. During the rich, fat times they’ll ramble on about how their rugged individualism and superior intellect got them rich and dismiss anyone poorer than themselves as dumb and lazy. When their own stupidity comes back to bite them, and more importantly the innocent bystanders who are collateral damage, they come running to those poor, dumb, and lazy taxpayers to bail them out. Rinse and repeat.
 
Chip Sylverne said:
My concern is not so much the failure of SVB, but the spike in CDS's on other major banks, as well as the Soveriegn credit of the US. This is where the big boys play, and the risk premium is going to be a whole lot more right soon. This is what drove the collapse of the MBS during the real estate crash. CDS premium came due, and nobody knew what the collateral was worth.

For myself, I'm glad the Fed acted quickly. Maybe they learned something after all.
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It almost worked.....they just weren't fast enough to re-jigger the bonds.... before the run on the bank.
 
Everskyward said:
Didn't realize they had already sold those treasuries.
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Most banks lend out 80-90% of all deposits. Those are covered by loan payments. Nothing real different from an auto loan. You make a deposit, the bank lends that out as a car loan. You expect you can go to the ATM and get money if your account balance is positive though. This happens because banks keep a small reserve of deposits in cash to cover usual patters of behavior for withdrawals and other such payments to depositors and investors. When there’s a panic, and orders of magnitude more deposits are being withdrawn than expected, the bank can’t just immediately recall all those loans on the books.

Bank runs are psychological; except for the fact SVB’s deposits were tied up in securities (Treasuries) instead of loans, this one is not much different than the run on Bailey Building & Loan in It’s a Wonderful Life. Garry Tan, one of the most listened to people in the startup world publicly told startups to withdraw their deposits from SVB. That statement fueled the run.
 
I have an extremely small account at another bank in Silicon Valley, a bank that has the word "Tech" in their name. Just got a letter from them saying they're stable, etc., and not to worry. My brother would have gotten the same letter. I forwarded mine to him pointing out that SVB had sent a similar letter to their customers the week before they failed (according to the WSJ). :):rolleyes:
 
This is behind a paywall, but I have pasted the introductory portion below.

https://www.wsj.com/articles/where-were-the-regulators-as-svb-crashed-35827e1a

Where Were the Regulators as SVB Crashed?
Silicon Valley Bank grew too fast using borrowed money—and the risks were lurking in plain sight

Silicon Valley Bank’s failure boils down to a simple misstep: It grew too fast using borrowed short-term money from depositors who could ask to be repaid at any time, and invested it in long-term assets that it was unable, or unwilling, to sell.

When interest rates rose quickly, it was saddled with losses that ultimately forced it to try to raise fresh capital, spooking depositors who yanked their funds in two days. The question following the bank’s takeover Friday: How could regulators have allowed it to grow so quickly and take on so much interest-rate risk?

And it wasn’t the only problem bank last week. Just days before SVB collapsed, Silvergate Capital Corp., one of the crypto industry’s biggest banks, said it would shut down.

“The aftermath of these two cases is evidence of a significant supervisory problem,” said Karen Petrou, managing partner of Federal Financial Analytics, a regulatory advisory firm for the banking industry. “That’s why we have fleets of bank examiners, and that’s what they’re supposed to be doing.”...
 
Palmpilot said:
…
“The aftermath of these two cases is evidence of a significant supervisory problem,” said Karen Petrou, managing partner of Federal Financial Analytics, a regulatory advisory firm for the banking industry. “That’s why we have fleets of bank examiners, and that’s what they’re supposed to be doing.”...
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Saw that yesterday…the same question arises with 737Max, the CAF midair in September, and a host of other agencies with regulatory oversight. Without going in to politics, if those responsible for oversight are incompetent at, or incapable of, performing their duties, that’s a huge risk problem.
 
hindsight2020 said:
you guys are just now finding out about regulatory capture? lol bless y'alls hearts... :D
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The real regulatory capture will be if FDIC decides to treat all depositors at SVB as insured depositors as has been done in the past.

The bank had very few personal depositors with less than $250K. Most of the bank’s purpose was to facilitate risky investments that targeted a high failure rate segment of a specialty market, well out of FDIC scope.
 
The bi-directional flow personnel flow between the gov't and the industries they regulate is, IMO, a big problem. Then, when something like SVB happens, many cry out for more regulations which require people to write, monitor and then adhere to, the beast grows, and the cycle continues.
 
Depends on how you define peak. The general consensus is that the Boom runs rom 1946 to 1964. The peak was at 1948 but the median is far shifted to the right from that. Also note, that the Social Security retirement age has moved from 65 to 66 1/2 for those born later in the boom, so the median retirement is probably still a couple of years off.
 
Interestingly, Silvergate (which not FDIC covered) will liquidate and pay back all the creditors and depositors off in the liquidation without any governmental assistance. The only losers are those who invested in Silvergate securities directly.
 
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