Since I began covering regional banks at a major hedge fund 6+ years ago, SIVB was always considered a bank with substantially more concentration risk. For a bank that's translated to generally "riskier". And if you prize stability that's not amazing. Now you're right, it wasn't seen as being a reckless bank by any means, just one with a niche (tech/healthcare) that was both its growth story and its serious potential exposure. This is risk that they acknowledged in their reports using language like "we're different from other banking companies and have unique risks".
So do those guys have any criminal exposure due to their negligence?@dmspilot @jesse
I'm sorry but I'm going to have to disagree here.
Also, my little infographic was not about SVB or Signature specifically, but meant to be silly in capturing different missteps banks can make. I know that credit is not what brought down SVB.
@jesse - Since I began covering regional banks at a major hedge fund 6+ years ago, SIVB was always considered a bank with substantially more concentration risk. For a bank that's translated to generally "riskier". And if you prize stability that's not amazing. Now you're right, it wasn't seen as being a reckless bank by any means, just one with a niche (tech/healthcare) that was both its growth story and its serious potential exposure. This is risk that they acknowledged in their reports using language like "we're different from other banking companies and have unique risks".
They did, definitely, pay above average interest compared to the major money center banks. And they did provide more flexible financing terms for clients that other companies did not offer. They were not popular with Silicon Valley and cold-blooded, calculated venture capitalists just because they were the neighborhood bank with a branch down the street and a friendly smile -- they offered products other banks wouldn't.
Where they actually screwed the pooch HARD is in growing extraordinarily quickly and placing that money in securities that had substantial interest rate risk. Other banks, well run ones, manage duration tightly. These guys did not. They didn't get crushed by credit or by some hard to compute derivatives exposure -- they blew up because they failed to pay attention to their duration gap -- ignoring it to pick up extra points on yield. It's hard to forgive because there is nothing more fundamental to a banks risk management than interest rate risk; even Mr JP Morgan from turn of the last century knew that. The CEO, CFO and head of risk should have had those DV01 numbers memorized on a daily basis. The fact that they ignored it until it ballooned up into a massive problem and only dealt with it in a panic is not indicative of a well-run, properly risk-managed bank.
@dmspilot - Ha, of course regarding the fractional reserve. That is how our banking system works. I think you're right about the bank run and any bank, on paper, being susceptible to it (even Top Tier Bank pictured above). But I think that's ignoring the fact that SVB, Signature, etc had given people a substantial reason to fear for the bank's health thus precipitating a run. Their collapse didn't happen in a vacuum and it wasn't a spontaneous social media induced meltdown targeting an unwitting company. If anything it was Moody's giving them a call last week that lit the fuse. In SVB's case, yeah, when you suffer a massive markdown in your assets and give people reason to believe you might not be entirely solvent, then you're giving people a good reason to run it. The key is to not give people a really good reason to doubt your survival. If you do then yeah, all bets are off for good reason.
No, safe to say their equity holders are wiped out. The one good takeaway from today.No one is talking about bailing out investors in SIVB, as far as I know.
Just sounds like exceptionally poor judgement, not criminal. At least to me... But I'm not an attorneySo do those guys have any criminal exposure due to their negligence?
Your entire business was to analyze prospective investments. Roku's business model was not analyzing banks to deposit cash at.
Roku has a CFO. An experienced, *very highly paid* CFO, I might add. And he also has a full team behind him to evaluate all types of financial risks like these.
Separately, the unreasonably high concentration of VC firms at SVB were also beyond equipped to do that due diligence, especially since risk and reward on financial assets is their entire business model.
And Signature Bank, too. Is there an anti-Cramer ETF one could buy?and .....Jim Cramer was pumping this bank stock weeks ago.
But you're talking about it like a hedge fund would, which is as an investor. Not a depositor. Your entire business was to analyze prospective investments. Roku's business model was not analyzing banks to deposit cash at. So I think the two things are rather different. No one is talking about bailing out investors in SIVB, as far as I know.
Hold that thought.....Market likes the plan. Dow, S&P and NASDAQ Sunday night futures are way up.
There are times when insisting on punishing those we deem to be guilty can amount to cutting off our nose to spite our face.
As I understand it, FDIC is insurance that banks pay into. I saw this morning that there will be a special assessment on the banks that pay into FDIC to cover accounts that had more than $250k in them for SVB and Signature (the bank in NY)AFAIK FDIC’s only source for covering $250K insurance and other bailout is printing money, am I right?
Well, you are right, they are equal because they are both fractional reserve banks, and both members of the Federal Reserve System. A run could happen on literally any bank, even the top one in your infographic. It doesn't matter how well managed it is. And I'm assuming you're trying to characterize SVB as a risky poorly run bank but it was not, at least not to that extent. They needed a couple billion in capital and partly thanks to social media a mass panic ensued resulting in almost every depositor trying to pull their collective hundreds of billions simultaneously.
AFAIK FDIC’s only source for covering $250K insurance and other bailout is printing money, am I right?
But you're talking about it like a hedge fund would, which is as an investor. Not a depositor. Your entire business was to analyze prospective investments. Roku's business model was not analyzing banks to deposit cash at. So I think the two things are rather different. No one is talking about bailing out investors in SIVB, as far as I know.
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.
Question about FDIC: are you insured up to 250k/depositor/bank or is it just owe depositer period?
Actually yes, I believe it just went live. Google "SJIM" tickerAnd Signature Bank, too. Is there an anti-Cramer ETF one could buy?
https://twitter.com/KanekoaTheGreat/status/1635063605245931522
Sending the U.S. and the world into a depression would be an example, IMO. Whether that's a realistic concern or not, I have no idea.I suppose it depends on what the punishment is and whether or not punishment is a viable deterrent.
But I'm having difficulty coming up with meaningful examples where your claim would be true.
I'm frankly surprised that the FDIC hasn't been using it's lever of increasing the % of deposits banks must hold as a way to shrink the money supply in addition to what they're doing with the fed funds rate. It would both reduce lending and create more resiliancy in the banking system. Especially as the discussion looks like we will hit a harder landing, it's a really easy "knob" for the FDIC to turn to reduce the money supply and also make banks more solid (though it does reduce short term profit of banks).
Sending the U.S. and the world into a depression would be an example, IMO. Whether that's a realistic concern or not, I have no idea.
I've heard response time has a strong, inverse correlation with your donation levels in the last election cycleI sent an email to my Congress critter for bail out. No word back yet, but soon I am sure.
"Short Jim." That's hilarious!Actually yes, I believe it just went live. Google "SJIM" ticker
My point exactly.pretty ridiculous punishment that isn't targeted at those responsible. Kind of like burning your apartment down to punish your kid for scribbing on the wall.
Haha and probably brought to you by the same people who created the Short Kathie Wood (ARKK Innovation) ETF! (ticker=SARK versus the real one is ARKK)"Short Jim." That's hilarious!
By the way, for those who are concerned about rewarding the un-deserving, I think I read somewhere that the banks' stock and bond holders are not being bailed out, just the depositors.
Yet...By the way, for those who are concerned about rewarding the un-deserving, I think I read somewhere that the banks' stock and bond holders are not being bailed out, just the depositors.
Do you know if the bank executives will be able to keep their jobs?That is correct. Only the depositors are being bailed out; and only from the perspective that the FDIC is going beyond the insurance limit.
Bank stock and bond holders might get something (not likely) if FDIC manages to sell all the assets and cover all depositor liabilities.
The moral hazard a number of complained about with this bailout is a false equivalency to the 2008 bailout. In 2008 the majority of the stock/bond holders were made whole. The "promise" made was that going forward, the stock/bond holders would not be bailed out by the government again. Bank executives have a fiduciary responsibility to the stock and bond holders. They have zero fiduciary duty to the deposit holders (you can argue that there is a moral imperative). The stock and bond holders are effectively being wiped out.
Tim
Thanks for the clarification Tim, I was too lazy to go look up and now remember that coming from the Fed, though I think the FDIC inspectors have some accountability to inspect for it (I happen to know one personally). Regardless of them not failing to meet the regulatory requirement, I'm arguing for the Fed to raise the requirement (gently) to take some air out of the system and improve the foundations of the banks, though their shareholders will hate it.FDIC does not control the reserve capital requirements. That is set by the US treasury. In any case, SVB did not have a capital requirement failure. They had a cash flow issue (really the gap between purchased capital assets and maturity dates was a fundamental problem and was alluded too earlier in the thread).
Tim
AFAIK FDIC’s only source for covering $250K insurance and other bailout is printing money, am I right?
Biden is on TV saying the taxpayer isn’t paying for this, what a lie, we do pay for it in our fees and now the fund is reduced to cover tech companies with billions in cash vs the retiree who might need it later on.
Which, when you think about it is kind of funny to make it sound like "they're being dealt with" because the banks were no longer going to be banks.