For some context, it seems that this is the first bank failure since some time (Oct 2020) [0]
[0] https://www.fdic.gov/resources/resolutions/bank-failures/fai...
FDIC Takes over Silicon Valley Bank
291–300 of 1001 posts
Re: FDIC Takes over Silicon Valley Bank
#292Re: FDIC Takes over Silicon Valley Bank
#293Earlier 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
9 times out of 10 bankruptcy is a cashflow mismatch - this is going to be quite painful for a lot of things.
Re: FDIC Takes over Silicon Valley Bank
#294The regulations that allow a bank to hold long-term fixed-rate bonds backing variable-rate liabilities (since deposit rates float) seems broken. It's straightforward to reckon their exposure to interest rates: they had $90B in 10-year fixed rate bonds, so they lose $9 billion per % of interest increase. They must have known that a 4% increase in interest rates would put them underwater, but they did it (and were allo…
There's nothing wrong with your first sentence really. Banks can (and should) hedge these risks using swaps and other products. Someone really messed up here.
All banks run on exchanging short term liabilities for long-term assets. No bank is big enough that it can survive a large enough run.
The whole point of capitalization stress-tests is to determine that banks can withstand a certain amount of withdrawals.
It of course is going to be much much more likely on a bank that only has 3% FDIC - I have no desire to "run" on my bank because I am below the $250k limit, and even if the accounts were frozen for a week it wouldn't be that worrisome.
But if I were a startup with $100m at SVP, I would have been freaking out earlier this week.
Re: FDIC Takes over Silicon Valley Bank
#295LMAO. Can't even believe how many people were confidently asserting that nothing was wrong yesterday. If you had more than $250k in SVB yesterday you probably just took a huge haircut. Hundreds of startups will become illiquid as a result of SVB's collapse, and there will be major layoffs here in the next 90 days as founders realize that they lost their funds and cannot raise in the current VC environment.
> Hundreds of startups will become illiquid as a result of SVB's collapse, I know SVB was like a "high tech bank" that partnered with things like Stripe Atlas, but is there any reason that startups were using it for their regular operating funds? Other than the name, was there something that actually made this bank particularly suitable for them?
They were proactive in incubators and allowed new companies to open accounts and make large deposits right away, when many mainstream banks wouldn’t or were too slow. I’m guessing plenty of startups stuck with them through inertia at least.
Re: FDIC Takes over Silicon Valley Bank
#296Those mortgage backed securities will get you every time
Re: FDIC Takes over Silicon Valley Bank
#297What's the best brief summary of what has happened so far?
During the last couple years, SVB got a ton of deposits, and they didn't have matching loan demand. So they invested the money in bonds. Unfortunately they make a bet that interest rates would stay low, and bought longer duration (~10 year) bonds. Interest rates have gone up, so the bonds they bought have lost value. They tried this week to fix that by selling part of the portfolio and raising capital, but did it in…
So they did exactly the same thing that FTX did - gambled with clients' money and lost.
Re: FDIC Takes over Silicon Valley Bank
#298I worry about all the valley based companies that held their payroll and operating expenses with SVB. It's going to take awhile (potentially years) to deal with FDIC an clawing back what's left of funds. I.E. what about huge infrastructure related companies like Gusto, Brex, Xero? This is very concerning.
Re: FDIC Takes over Silicon Valley Bank
#299I suspect all depositors will be made whole. The bank had a liquidity crisis; it had reserves in excess of its liabilities. Every bank borrows short term (you can walk up and withdraw your money at any time) but lends long (e.g. mortgages, though SVB writes few of those). The recent management grabbed some very long federal bonds; as rates have risen the resale value of those long term assets (paying a lower interest…
Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "take a haircut," for the reason you mentioned, plus a few others. Additionally:
1. Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. It's totally possible (and regularly done) to spread out cash among several financial institutions to protect against this very issue.
2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k.
3. If spreading out your 6- or 7-figure assets to multiple institutions is too much of a burden, literally every business bank has special accounts or add-on features that either raise the FDIC default limit of 250k, or supplement it with external insurance. Again, if any startup's financial handlers didn't recommend this: fire them because they entirely failed to do their job.
Re: FDIC Takes over Silicon Valley Bank
#300Earlier quoted context omitted.
> And any accounts over $250K, poof. That's not quite true; the FDIC will pay uninsured depositors an advance dividend within the next week.
My finance-foo is quite weak, what does advance dividend mean in this context?
From an FDIC guide [1] I found:
"advance dividend: A payment made to an uninsured depositor after a bank or thrift failure. The amount of the advance dividend represents the FDIC’s conservative estimate of the ultimate value of the receivership. Cash dividends equivalent to the board-approved advance dividend percentage (of total outstanding deposit claims) are paid to uninsured depositors, thereby giving them an immediate return of a portion of their uninsured deposit. Sometimes when it is projected that all depositor claims will be paid in full an advance dividend will be provided to unsecured creditors."
[1] https://www.fdic.gov/bank/historical/reshandbook/glossary.pd...