I was wondering how us tax payers would end up paying into the crypto ponzi scheme.
FDIC Takes over Silicon Valley Bank
251–260 of 1001 posts
Re: FDIC Takes over Silicon Valley Bank
#252Earlier quoted context omitted.
>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.
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 wee…
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.
Re: FDIC Takes over Silicon Valley Bank
#253Re: FDIC Takes over Silicon Valley Bank
#254Earlier quoted context omitted.
Its so funny until you realize your seed-round investment in a friends company used SVB. Gonna be quite a show, this.
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
Presumably VCs have only a tiny fraction of their fund as available as cash, so I guess it won’t be too brutal.
Re: FDIC Takes over Silicon Valley Bank
#255Earlier quoted context omitted.
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 set…
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.
When and where does the next shoe drop this time then?
Re: FDIC Takes over Silicon Valley Bank
#256Will startups have problems paying salaries now?
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.
Re: FDIC Takes over Silicon Valley Bank
#257What's the best brief summary of what has happened so far?
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.
Re: FDIC Takes over Silicon Valley Bank
#258For 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.
Re: FDIC Takes over Silicon Valley Bank
#259Oldie 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...
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
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 > 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%.
Re: FDIC Takes over Silicon Valley Bank
#260Oh 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
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.
Many people will not come out of this stronger.