SVB: Biggest bank failure since '08

Enron failed and we got SOX and the cost of compliance for publicly traded companies skyrocketed. In 2008, banks were was too big to fail, followed by Dodd Frank for “big banks” but regional and smaller banks were left out.

Now the smaller banks are going have to be regulated like the big 4 are and there will be a cost of compliance passed on to the customer. That cost is not trivial unless your customer base is so large that spreading the pain is possible.

The law of unintended consequences is always lurking.
 
charheep said:
Biden said the executives will be fired.

View attachment 115754
Click to expand...

I think firing the executives responsible is probably a fine plan, but POTUS shouldn't think he can make specific hiring and firing decisions for a private company.
Maybe FDIC can, I don't know what their rules of engagement are when they have to step in to bail out depositors.
 
GaryM said:
I think firing the executives responsible is probably a fine plan, but POTUS shouldn't think he can make specific hiring and firing decisions for a private company.
Maybe FDIC can, I don't know what their rules of engagement are when they have to step in to bail out depositors.
Click to expand...
That tweet does not say that he is personally making the hiring and firing decisions.
 
GaryM said:
I think firing the executives responsible is probably a fine plan, but POTUS shouldn't think he can make specific hiring and firing decisions for a private company.
Maybe FDIC can, I don't know what their rules of engagement are when they have to step in to bail out depositors.
Click to expand...
It's technically not a private company though. That aside, I dont disagree with your statement. I think he's just speaking in a broad sense, not as though he's personally the one who's going to terminate the employees.
 
Looks like FDIC is going to try to auction SVB off again; apparently the only bidder over the weekend was rejected by FDIC.
 
TCABM said:
Looks like FDIC is going to try to auction SVB off again; apparently the only bidder over the weekend was rejected by FDIC.
Click to expand...

If they can find a buyer it will greatly reduce the amount of funds FDIC has to pay out directly and have minimal impact on insurance costs by banks. Everyone complaining that their tax dollars will be used even indirectly is jumping the gun.

If they can't find one buyer, I don't see why they couldn't split it up and sell pieces of it.

Bob Noel said:
"The FDIC limits need to be adjusted,"

why?

What is stopping you or anyone else from using a bank that has additional insurance?
Click to expand...

The purpose of the FDIC is not to protect individual depositors, it is to protect the faith in the banking system. And a fractional reserve banking system really does run on faith. Whether a bank is solvent or insolvent is a self-fulfilling prophecy that depends on public perception.
 
dmspilot said:
If they can find a buyer it will greatly reduce the amount of funds FDIC has to pay out directly and have minimal impact on insurance costs by banks.….
Click to expand...
I’m aware.

dmspilot said:
…If they can't find one buyer, I don't see why they couldn't split it up and sell pieces of it….
Click to expand...
Now that “systemically important” has been attached to SVB, FDIC can offer better terms around loss sharing, which was not available prior to the close of the weekend auction. I sense the systemically important designation has as much to do with getting highest dollar for the assets (and subsequently for the depositors) as quickly as possible as is does in trying to restore faith in banking.

There’s a bigger problem brewing between the government and the public, but this is not the place for that discussion except to say neither NASDAQ nor NYSE traders bought the party line from banks and regulators today. My take was both exchanges essentially responded with a put up or shut up move.
 
TCABM said:
Looks like FDIC is going to try to auction SVB off again; apparently the only bidder over the weekend was rejected by FDIC.
Click to expand...

Gotta wonder if that only bidder was Garry Tan who yelled "Fire!" pretty early in this unraveling. :D
 
RyanB said:
...I think he's just speaking in a broad sense, not as though he's personally the one who's going to terminate the employees.
Click to expand...
And that's consistent with the use of passive voice, i.e., "will be fired," which does not specify who made that decision.
 
So, is it time to start burying money in my back yard?
 
Jim K said:
So, is it time to start burying money in my back yard?
Click to expand...
Was there ever a time not to? But not paper, metals, silver or copper, gold is to impractical to use for trade.
 
In case anyone is curious how the government makes critical decisions like whether or not to assist depositors in times of need, please watch this documentary by South Park of the Treasury's/Fed's decision making process:
 
ArrowFlyer86 said:
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.
Those guys were going to be employed for 45 days at most anyways :). Now, if Biden announced that every director in the bank was going to have to pony up the last 10 years of SBC and cash salary, then I'd say OK, we're getting somewhere.
Click to expand...

Prescient. And discoverable.

The bank was without a risk officer for the majority of last year, after Laura Izurieta stepped down from the role in April and her successor wasn’t announced until January. Ms. Izurieta’s departure was first disclosed by the bank last week.
 
Bob Noel said:
"The FDIC limits need to be adjusted,"

why?

What is stopping you or anyone else from using a bank that has additional insurance?
Click to expand...

Because stability of the banking system and the country money / monetary policy is key to success?
 
Wife: Hey how’s your day today?

SVB CEO/CFO: Meh, I lost a few billion dollars of clients money today.

Wife: Woah, don’t drop the soap.

SVB CEO/CFO: Naw, Biden already tweeted that I’ll just be fired. Still got my severance package! And I sold my shares in the bank a couple weeks ago. We are good, now should we get the Gulfstream G700 or wait for the G800?
 
mandm said:
It’s not printing money, there is an insurance fund that all FDIC banks pay into, it has roughly 128 billion dollars in it to cover incidents like this.

I think SVB just lost several billion which results to a few percent, so even if funds were lost it would be minimal to large tech companies. Access to funds was resumed, the bank didn’t plan for the withdraws, given banks can invest deposits in long term investments, profits are paid out to highly paid C level staff, investment banker bonuses and stock dividends, there isn’t too much extra cash laying around to cover mess ups since they already paid it out. That is wrong…

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.

The FDIC limits need to be adjusted, for businesses and for people. I just cannot imagine a retired person dealing with this nonsense. Businesses need protections to pay their bills and salaries. Government totally screwed this up and the investing of deposits is ridiculous, should be safe keeping. Establish products and funds with the higher rates that present risk, then depositors can make their own decision if they want to risk it. Money in a checking or savings account should be there for safekeeping end of story. If banks have less to pay their staff bonuses as a result, sounds reasonable…

To the poster who said they were almost unemployed, calm down, nothing was announced and in previous times the government always bailed out the bad players to save the people. Bank deposits must be felt safe by the consumer, no way around that. Also, haven’t you ever had a relationship argument? You’re taught to calm down and not make rash decisions, your message made it seem like you already closed shop and cut your losses, not even allowing the weekend to pass.

Given we know the government always bails out the banks, the companies did not make a poor decision using SVB. And you cannot expect companies to open up 1000 bank accounts to split 250k in each, not practical. FDIC needs to adapt a new plan.
Click to expand...

If banks do not "invest" the deposits, then how do they make money to pay interest on the deposits and to pay the salaries of staff, and everything else?

What you are proposing would cost people a lot of money, you would have to pay a fee to deposit your money and leave it in the bank, and you are also expecting the government to be clairvoyant. There is a phrase, regulations are written in blood. As in, the regulations are written in the blood of previous collapses.

SVB was perfectly fine, and had the capital and assets to survive if the executives had not been dumb. They were trying to hard to be honest and transparent, which made too many customers nervous and customers pulled out 42B USD (yes that is forty two billion dollars) onThursday alone. That is over 25% of the capital assets under management at the bank. No bank could survive that.

Tim
 
Palmpilot said:
It seems to me that it's right and proper for the FDIC insurance premiums to be paid by the depositors whose funds are being protected by that insurance. Is that not what's happening?
Click to expand...

Yes, but never let facts interfere with preconceived notions.

Tim
 
GaryM said:
I think firing the executives responsible is probably a fine plan, but POTUS shouldn't think he can make specific hiring and firing decisions for a private company.
Maybe FDIC can, I don't know what their rules of engagement are when they have to step in to bail out depositors.
Click to expand...

The bank went into receivership Friday morning. Effectively the shareholders no longer have a stake, and the bank is "owned" by the FDIC.
President Biden just effectively set a policy that FDIC will fire the executives when they take over a bank. From what I have read, this was sort of an unwritten rule previously, but there will have to be some nuances on the transfer of power/security and other items.

Tim
 
tspear said:
The bank went into receivership Friday morning. Effectively the shareholders no longer have a stake, and the bank is "owned" by the FDIC.
President Biden just effectively set a policy that FDIC will fire the executives when they take over a bank. From what I have read, this was sort of an unwritten rule previously, but there will have to be some nuances on the transfer of power/security and other items.

Tim
Click to expand...

You’re fired!
Sounds like Biden is copying words from his predecessor.
 
tspear said:
If banks do not "invest" the deposits, then how do they make money to pay interest on the deposits and to pay the salaries of staff, and everything else?

What you are proposing would cost people a lot of money, you would have to pay a fee to deposit your money and leave it in the bank, and you are also expecting the government to be clairvoyant. There is a phrase, regulations are written in blood. As in, the regulations are written in the blood of previous collapses.

SVB was perfectly fine, and had the capital and assets to survive if the executives had not been dumb. They were trying to hard to be honest and transparent, which made too many customers nervous and customers pulled out 42B USD (yes that is forty two billion dollars) onThursday alone. That is over 25% of the capital assets under management at the bank. No bank could survive that.

Tim
Click to expand...

Bank money is BIG money, you mean they’d have to work for their money by persuading clients to invest? Point is, the consumer should have a choice to be risk free or at risk.
 
mandm said:
Bank money is BIG money, you mean they’d have to work for their money by persuading clients to invest? Point is, the consumer should have a choice to be risk free or at risk.
Click to expand...

No, running a bank takes money. Where does this money come from?
There are three models I am aware of:
1. Fractional reserve, which is what is used in the USA. In this case, depositors get a small amount of interest to allow the bank to use the money to make investments. Regulations and insurance prevent the majority of abuses, but not all. And banks still fail. If no bank fails, then the regulations are too tight.
2. Older model, bank provides services for a fee, in which case they charge you money to deposit and move money around. The old Western Union model.
3. Keep you cash under the mattress, and never utilize a bank.

Pick a model. Nothing is perfect; both have a cost. Since Western Union has gone BK, I do not believe there are any institutions left which practice the second model.

Tim
 
tspear said:
No, running a bank takes money. Where does this money come from?
There are three models I am aware of:
1. Fractional reserve, which is what is used in the USA. In this case, depositors get a small amount of interest to allow the bank to use the money to make investments.
Click to expand...

I don't think that model has existed for at least 15 years and $18 Trillion...
 
idahoflier said:
I don't think that model has existed for at least 15 years and $18 Trillion...
Click to expand...

Do not confuse commercial banks and the Federal Reserve.
In fact; historically, banks do better when interest rates are in the upper single digits. When money becomes very cheap, companies issue bonds in which traditional banks lose a lot of loan origination business, IPOs become popular, equity plays for M&A all occur. All of these types of services reduce demands for traditional retail banking, which is generally not good for banks.

Same goes on the home owner/consumer side of the industry, since banks make money servicing and originating loans and the points made are a percentage of the interest rate charged, they have better margins when interest rates are higher. There is a practical point, which my econ classes of a long time ago, and what I have read in the past year or two show that as the interest rate approaches two digits the rate becomes so punishing that volume goes down, and bank profits decline due to a reduction in business. Memory says the best rates are from 6 to 8% for bank profits, but do NOT quote me on that. It has been too long since I really looked into this stuff.

Tim
 
mandm said:
… Point is, the consumer should have a choice to be risk free or at risk.
Click to expand...
There is risk in every bank. How it’s managed is what matters. The same thing could happen to BofA. Oh, wait, it already has; from Jan 16, 2009
Government officials feared BofA's fragility could ripple through the already weak economy if action weren't taken. Bank of America's shares fell 18% to $8.32 Thursday and are down 42% since Jan. 1.​

https://abcnews.go.com/amp/Business/story?id=6661052&page=1
 
Some of the post here really have me scratching my head.

Fractional reserve banking existed before government regulation. You are talking centuries of history. This fundamental customs predates existence of the USA. And now suddenly some of the masses realizes “oh” and get worked up.
 
TCABM said:
...BofA. Oh, wait, it already has; from Jan 16, 2009...
Click to expand...
My recollection is, besides Lehman, the Fed was concerned about one other bank. To make sure no one could figure out which bank that was, they made all the big banks take TARP. Was it later revealed that BofA was the 2nd bank of concern?
 
Mahneuvers said:
My recollection is, besides Lehman, the Fed was concerned about one other bank. To make sure no one could figure out which bank that was, they made all the big banks take TARP. Was it later revealed that BofA was the 2nd bank of concern?
Click to expand...
Are you thinking of Merrill Lynch? BofA was fairly forced to take them over, but there were a litany of problems in 08-09, but I’ll let you draw your own conclusion.
https://www.cnbc.com/amp/2022/12/27/how-bofa-came-back-from-the-brink-of-collapse.html
 
mandm said:
Because stability of the banking system and the country money / monetary policy is key to success?
Click to expand...

I'll ask it a different way. For those that think the FDIC limits need to be increased, do you understand that banks can have other insurance for the depositors? Why should the FDIC be the only insurance?
 
TCABM said:
...litany of problems in 08-09, I’ll let you draw your own conclusion...
Click to expand...
Yep. It shouldn't have been, but that fiasco was the first time it really sunk in for me how people attribute blame consistent with their political orientation. The gov't and the banks were both culpable and who received the lion share of the blame seemed always consistent with politics.
 
Last edited:
Bob Noel said:
I'll ask it a different way. For those that think the FDIC limits need to be increased, do you understand that banks can have other insurance for the depositors? Why should the FDIC be the only insurance?
Click to expand...

I think the limits should be increased, a lot. 250K is pretty good for individual coverage, but meaningless really for a lot of companies.
Yes, there is other insurance. I have previously purchased it for a company I co-founded.

Tim
 
Mahneuvers said:
My recollection is, besides Lehman, the Fed was concerned about one other bank. To make sure no one could figure out which bank that was, they made all the big banks take TARP. Was it later revealed that BofA was the 2nd bank of concern?
Click to expand...

Citi, because of it's exposure to credit default counterparty risk. Remember Chuck " as long as the music is playing you gotta dance" Prince? Not a bank, but AIG too for the same reason, which was a real problem.
 
tspear said:
I think the limits should be increased, a lot. 250K is pretty good for individual coverage, but meaningless really for a lot of companies.
Yes, there is other insurance. I have previously purchased it for a company I co-founded.

Tim
Click to expand...

If you want your deposits covered in full, go to a bank that has the extra insurance. The bank I use has DIF to cover deposits over the FDIC limit.

If banks see large business accounts going to other banks that provide full insurance, do you think that maybe they'll also provide it?

IOW - maybe let the market decide.
 
Bob Noel said:
IOW - maybe let the market decide.
Click to expand...

The banking industry is a government-sanctioned ponzi scheme which would be illegal in any other industry. But you think it should be a free market. The contradiction is apparently lost on some.
 
Bob Noel said:
If you want your deposits covered in full, go to a bank that has the extra insurance. The bank I use has DIF to cover deposits over the FDIC limit.

If banks see large business accounts going to other banks that provide full insurance, do you think that maybe they'll also provide it?

IOW - maybe let the market decide.
Click to expand...

DIF was created by the state of Massachusetts and is only available there. In fact it predates the FDIC and served as the inspiration for it. Free market forces have nothing to do with it.
 
You must log in or register to reply here.
Back
Top