SVB: Biggest bank failure since '08

My concern is that this collapse could reach further than initially expected. The multitude of tech startups that banked with SVB may be unable to pay employees in the coming days and these venture investors may struggle to raise funds. Now that Yellen says a bailout is off the table, it’ll be interesting to see how markets react this week if they don’t get a buyer to assume their obligations.
 
RyanB said:
My concern is that this collapse could reach further than initially expected. The multitude of tech startups that banked with SVB may be unable to pay employees in the coming days and these venture investors may struggle to raise funds. Now that Yellen says a bailout is off the table, it’ll be interesting to see how markets react this week if they don’t get a buyer to assume their obligations.
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I was a customer of a bank that failed, access to funds resumed within a day, albeit I didn’t have much there. I don’t believe they say everyone’s account is now 250k and kept the surplus, there’s a calculation and decision made, I’m sure most clients will keep most of their deposits. If anything is lost, let’s say a few percent, the FDIC can decide if they will cover that or not, in that case I’m sure they will decide what funds are accessible now (let’s say 80-90%) and the remainder is on hold until it’s figured out.

Still not a great system or situation to be in, but the access to needed money is the primary focus.
 
TCABM said:
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.
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Actually, the federal agencies have been cut and cut. Often it no longer is a matter of cutting the fat off, but we have cut significantly into the meat and bone of the agencies. The way to solve it, change the mission, or the scope or provide more money.

Tim
 
TCABM said:
Bank runs are psychological; except for the fact SVB’s deposits were tied up in securities (Treasuries) instead of loans,
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I see this as being a big difference. You can sell Treasuries for cash albeit at a loss. Loans, not so much so.
 
RyanB said:
My concern is that this collapse could reach further than initially expected. The multitude of tech startups that banked with SVB may be unable to pay employees in the coming days and these venture investors may struggle to raise funds. Now that Yellen says a bailout is off the table, it’ll be interesting to see how markets react this week if they don’t get a buyer to assume their obligations.
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I'm ready....I got my shorts in and am ready for the great collapse. ;)

The market prolly ralleys on Monday.... :D
 
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Everskyward said:
I see this as being a big difference. You can sell Treasuries for cash albeit at a loss. Loans, not so much so.
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Actually the secondary market for loans is strong and working. It was actually the secondary market for loans which caused the subprime meltdown in 2007/2008.
Back then, the standards for how to market loans was basically non-existent. So, when the collapse started, a lot of people who had bought the CDOs (as loans were/are called) suddenly realized that they had no idea what they owned or were owed or what risks they had. Since them, from what I read (I am NOT in that industry), the information on the CDOs is significantly better, loan standards are significantly stronger. As a result, most articles I have read do not anticipate the same style of crash. And so far, the CDO market seems to be stable.

Tim
 
Palmpilot said:
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.”...
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They could have, like most well-run banks, hedged the long bonds against interest rate risk with swaps. They didn't. Clearly incompetent risk management.
 
We need to not only be OK with corporations taking the hit from their own mistakes, we need to embrace it. It's part of the natural Darwinism of corporations. FDIC's purpose is to protect individual people, and ensure trust in the banking industry by citizens. If a bank fails and it takes out some other corporations along the way, then the fix for that is either or both of: stronger regulation of banks, better due diligence of banks by corporations.

Corporations exist to take risk and make money. The first is required for the second to work right. Without that, we end up with corporations that are as inefficient as governments are. Bloated and poor performing. Corporations have no inherent rights, and should have no expectation of being protected from anything except unfair competition, and protections of smaller corporations from larger ones. They should exist as long as they're run well, with no expectation that this will be forever.

We have a mechanism to deal with the distributions of assets of a failed corporation, bankruptcy; a mechanism to deal with the fallout to those employed by a failed company, unemployment insurance; and a mechanism to deal with individual assets lost in failed regulated banks, FDIC. If we have companies that are "too big to fail", that represent a national risk, they need to be split up into little pieces that aren't until that risk goes away. Not relegate them to the status of nationally supported, unless we truly want to nationalize them. That last one should be incredibly rare, and the only example that comes to mind that has ever made sense is perhaps Amtrak.
 
tspear said:
Peak, you are joking right?

Tim
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Boomers were people born from 1946 to 1964. The youngest are age 58 and the oldest age 77, average age 66-67 in 2022. The same age as full social security benefit.
 
I’m technically at the tail end of the boomers but certainly don’t feel like I’ma part of that group. Hell I was a child during the summer of love lol.

I’m more of a gen X.
 
Bill said:
Where is George Bailey when you need him?
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You, you said that they -- What'd you say a minute ago? That they had to wait and save their money before they thought of a cryptotech business? Wait for what? Wait for people to realize the whole things a sham and the bottom falls out? You know how long it takes a working man to raise $12 million dollars? Just remember that this rabble you're talking about is doing most of the grifting off the taxpayers back do all the political bribing and hyping in this country. Well, is it too much to ask for them to have thirty thousand square feet and a private jet? Anyhow, the politicians I bought didn't think so. They'll die richer than the people who pay the bulk of the taxes in this country.

This country needs this one-horse institution, if it only means they don't have to come up with a legitimate business plan to convince a mainstream bank.
 
Albany Tom said:
We need to not only be OK with corporations taking the hit from their own mistakes, we need to embrace it. It's part of the natural Darwinism of corporations. FDIC's purpose is to protect individual people, and ensure trust in the banking industry by citizens. If a bank fails and it takes out some other corporations along the way, then the fix for that is either or both of: stronger regulation of banks, better due diligence of banks by corporations.

Corporations exist to take risk and make money. The first is required for the second to work right. Without that, we end up with corporations that are as inefficient as governments are. Bloated and poor performing. Corporations have no inherent rights, and should have no expectation of being protected from anything except unfair competition, and protections of smaller corporations from larger ones. They should exist as long as they're run well, with no expectation that this will be forever.

We have a mechanism to deal with the distributions of assets of a failed corporation, bankruptcy; a mechanism to deal with the fallout to those employed by a failed company, unemployment insurance; and a mechanism to deal with individual assets lost in failed regulated banks, FDIC. If we have companies that are "too big to fail", that represent a national risk, they need to be split up into little pieces that aren't until that risk goes away. Not relegate them to the status of nationally supported, unless we truly want to nationalize them. That last one should be incredibly rare, and the only example that comes to mind that has ever made sense is perhaps Amtrak.
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Au Contrarie. Corporations do have ‘inherent rights.’ That’s what 5 out of 9 of the supreme cats with the long robes and the big wooden hammers said. Citizens United, 2010. There was a previous decision back in the 1800’s that said the same thing. Can’t find it right now, don’t want to spend the time searching. Maybe someone knows it off the top of their head.
 
Bill said:
I’m technically at the tail end of the boomers but certainly don’t feel like I’ma part of that group. Hell I was a child during the summer of love lol.

I’m more of a gen X.
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Oh, so you’re just going pick your own generational orientation just like that…:stirpot:
 
Bill said:
Where is George Bailey when you need him?
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Actually, people forget that every time the Building and Loan ran short of money, it was Mary not George who got it bailed out.
 
TCABM said:
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.
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Also the Ohio train wreck.
 
luvflyin said:
Au Contrarie. Corporations do have ‘inherent rights.’ That’s what 5 out of 9 of the supreme cats with the long robes and the big wooden hammers said. Citizens United, 2010. There was a previous decision back in the 1800’s that said the same thing. Can’t find it right now, don’t want to spend the time searching. Maybe someone knows it off the top of their head.
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Rights are self-evident, in my opinion. The court gets a lot of things wrong. Dred Scott being a notable example that most would agree is incorrect. We let corporations lobby and many have really great marketing programs, but no one owes them anything. They have no soul, no sense of ethics, no feelings. They're an artificial construct. People set the tone for the country, not courts, not companies.
 
I thought I was a boomer because I went to school with boomers, but in recent decades I found out that I was born a year too early to be in that group. :dunno:
 
For those wanting to see what happened in the last big mortgage crisis and be entertained in the process, watch the movie The Big Short. Of course it centers around the big traders making huge gains in the chaos, but that’s expected.

This week’s market will be either be somewhat sedated if calm prevails in the bank sector or it will get a little chaotic as unnecessary panic surfaces (mainly from media gloom and doom). I’m betting on mostly calm after the morning crazy hours. One thing is certain, this type of event can be the catalyst for worse things to happen. It will be an interesting year in the financial markets as strategies to deal with all the mess of inflation, national debt, and the economy (all intertwined) are playing out.

Yes, banks take deposits and invest them for a spread between interest income and interest expenses. They buy treasury bills, bonds, and notes, among other things, as part of the process. If they didn’t do this we wouldn’t be able to utilize a bank because fees would be exorbitant.

If you have most of your cash or savings nest egg in one local or regional bank, it’s a good time to learn how healthy it is. As in digging into boring financial statements and comparing to other banks. Don’t just take the surface words provided to appease the masses. It’s amazing how polished an executive can deliver a message when things are tarnished, and in some ways that’s one of their major talents.
 
Palmpilot said:
"More than three hundred venture capital firms have signed a joint statement vowing to do business again with Silicon Valley Bank if it is 'purchased and appropriately capitalized,' after the financial institution failed on Friday."

https://www.cnbc.com/2023/03/12/hundreds-of-vcs-vow-to-work-with-svb-again-if-new-owner-found.html
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There-in lies the problem.

These firms pretty much just wrote a note saying: "if you can go back to the status quo and give us our old bank back, but make it a little safer so that I personally am not in this disadvantaged position again, then I'm all about it -- I would love to pretend this whole thing didn't happen". It is rare that you would see such a clear-cut case of advocating for moral hazard. If the government backstopped something like this and made those investors whole at the expense of the gov't/FDIC then there would be zero incentive to ever do business with a well run bank. You'll just go to any place that makes your life the easiest or pays the most in interest/gives you the best lending terms, and that's almost ALWAYS synonymous with "the most risky". That risk has to be borne by somebody and it shouldn't be the public.

It's just abundantly clear those firms who signed that doc have not learned the lesson: the bank was NOT run well, was NOT a good financial partner, did NOT make good investing decisions and had AWFUL risk management. They do NOT deserve a second chance and the VCs should NOT be talking about how they'd be excited to re-engage with SIVB. They should be banding together writing notes about how they want to move their money to a safe bank, they feel misled by SIVB mgmt and that they're launching lawsuits against the banks former management team. That would send a much better message that they've learned their lesson about financial due diligence than asking for a mulligan with the same bank.
 
Everskyward said:
I see this as being a big difference. You can sell Treasuries for cash albeit at a loss. Loans, not so much so.
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That’s exactly what SVB did. They took deposits (for 4 decades) from a client base that usually needed all the deposit back in short order and used those deposits to buy 10-30yr Treasuries, which like a Savings Bond are a loan to the government, instead. When the depositors came calling, their money was tied up in long term notes, so SCB sold the Treasuries at a loss to pay them.

Unfathomable that a bank specializing is this business would do something like that. A
 
mandm said:
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.
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<sigh>

If banks can't use the deposits (e.g., offer car loans, etc), then why would banks offer accounts?
 
Bob Noel said:
<sigh>

If banks can't use the deposits (e.g., offer car loans, etc), then why would banks offer accounts?
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You're thinking of this place all wrong. As if I had the money back in a safe. You're money's not here. You're money's in Joe's house... right next to yours, and in all those NFT monkeys that Bill bought, and Randy's Etherium coins.
 
Big businesses are people too!
 
All institutions are run by people, and are therefore fallible.
 
Question about FDIC: are you insured up to 250k/depositor/bank or is it just owe depositer period?

In other words, if I had $250k in bank A and $250k in bank B would FDIC pay me $500k in total or am I only covered for $250k across however many banks I might have money in?

Probably a moot point as if I had that much liquid cash around I’d likely invest it somewhere pretty quick anyway, just curious.
 
ArrowFlyer86 said:
There-in lies the problem.

These firms pretty much just wrote a note saying: "if you can go back to the status quo and give us our old bank back, but make it a little safer so that I personally am not in this disadvantaged position again, then I'm all about it -- I would love to pretend this whole thing didn't happen". It is rare that you would see such a clear-cut case of advocating for moral hazard. If the government backstopped something like this and made those investors whole at the expense of the gov't/FDIC then there would be zero incentive to ever do business with a well run bank. You'll just go to any place that makes your life the easiest or pays the most in interest/gives you the best lending terms, and that's almost ALWAYS synonymous with "the most risky". That risk has to be borne by somebody and it shouldn't be the public.

It's just abundantly clear those firms who signed that doc have not learned the lesson: the bank was NOT run well, was NOT a good financial partner, did NOT make good investing decisions and had AWFUL risk management. They do NOT deserve a second chance and the VCs should NOT be talking about how they'd be excited to re-engage with SIVB. They should be banding together writing notes about how they want to move their money to a safe bank, they feel misled by SIVB mgmt and that they're launching lawsuits against the banks former management team. That would send a much better message that they've learned their lesson about financial due diligence than asking for a mulligan with the same bank.
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I took it as more of a statement that if the problems that caused the failure in the first place are properly dealt with, then the effort will be rewarded.
 
cowman said:
if I had $250k in bank A and $250k in bank B would FDIC pay me $500k
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Yes, you are covered separately at each bank. Also you can add a beneficiary or beneficiaries to each account get up to $1 million coverage at one bank. Google FDIC insurance and they tell you how to do it.
 
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TCABM said:
That’s exactly what SVB did. They took deposits (for 4 decades) from a client base that usually needed all the deposit back in short order and used those deposits to buy 10-30yr Treasuries, which like a Savings Bond are a loan to the government, instead. When the depositors came calling, their money was tied up in long term notes, so SCB sold the Treasuries at a loss to pay them.

Unfathomable that a bank specializing is this business would do something like that. A
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I’ll be waiting to see how the top of the food chain, you know, the C*O types and directors et al fare in this before I think it unfathomable. Betcha some of them didn’t lose a penny and many probably will have made money on the fiasco.
 
flyingron said:
You're thinking of this place all wrong. As if I had the money back in a safe. You're money's not here. You're money's in Joe's house... right next to yours, and in all those NFT monkeys that Bill bought, and Randy's Etherium coins.
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Actually, I have a pretty good idea where a bank has money.

I have absolutely no idea why your post had anything to do with what I wrote.
 
Bob Noel said:
Actually, I have a pretty good idea where a bank has money.

I have absolutely no idea why your post had anything to do with what I wrote.
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More parody of It's a Wonderful Life. Sorry.
 
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