That's wild. I wonder if it's good news for neobanks like Mercury and Brex who will see an influx of new customers, or on the contrary, startups will seek old, boring, safe banks instead of niche boutiques with lots of exposure to industry risk.
FDIC Takes over Silicon Valley Bank
311–320 of 1001 posts
Re: FDIC Takes over Silicon Valley Bank
#312Earlier 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?
Early repayment of some percentage of the uninsured deposits, prior to full liquidation and/or acquisition. Depositors have first access to funds either way.
Re: FDIC Takes over Silicon Valley Bank
#313What a debacle. Some gallows humor from twitter: "Imagine raising $100m for your AI enabled dog washing app - and your bank sets it on fire before you can". Original: https://twitter.com/88888sAccount/status/1634028258500169731...
Disrupt disrupt disrupt! Those old stodgy banks just slow us down with their old-fashioned risk-averse ways! The cool kids can do it better! If I had a nickel for every time I heard this from actual friends in the past couple decades, or for when I said it myself a few times... :)
In fairness, it wasn't the risk-taking that did them in... it was the fact that they went all-in on 10-yr bonds at low interest rates and didn't adequately account for duration risk.
Re: FDIC Takes over Silicon Valley Bank
#314[flagged]
Fixes what? An insolvent bank got was taken over by a national authority, all of the deposits were insured, account holders don’t even notice anything happened unless they’re following the news, the banking system doesn’t even skip a beat.
This sounds like everything went according to the highly regulated plan.
Re: FDIC Takes over Silicon Valley Bank
#315LMAO. 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.
But why would the startups become illiquid? Do they get the investments from the banks or do they park the investment money in this bank? And why this bank, when there are many more risk averse institutions out there?
Bridge loans, DES, convertible notes, etc..., I'm sure their were loan "products" for startups similar to helocs (likely what put them in the hole). The appetite for crypto/fintech startups was huge during the pandemic and likely pressured them to get creative on products and overleveraged. It's all unwinding now.
Unfortunately, harder now for startups, mind that all those startup dreams from laid off FANG staff just got their rug pulled.
Re: FDIC Takes over Silicon Valley Bank
#316Earlier quoted context omitted.
Probably a dumb question, but what determines if a deposit is insured or not at an FDIC insured bank?
Investment products are not FDIC insured; Accounts over 250k are not FDIC insured; In this case, that's probably the bulk of 'uninsured' - large accounts, or creatively sold investment products.
Investment products can (and often are) FINRA and SIPC insured - but this is NOT an insurance against loss (FDIC doesn't insure your interest, just the principal which changes each time interest is paid, the moment FDIC steps in your interest-earning can go to zero) - it is insurance that you actually own what the investment says it is.
So if you buy stock via Vanguard, and Vanguard mismanages itself into death, you still own the stock and eventually it'll be at another broker.
Re: FDIC Takes over Silicon Valley Bank
#317The 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.
A swap has two sides. Someone still holds the bag, so what you're saying here doesn't make sense. What SVB was doing is typical; regular banks don't hedge anything. You can see everything in a Bloomberg terminal
Re: FDIC Takes over Silicon Valley Bank
#318I 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…
> I suspect all depositors will be made whole. Agreed. The FDIC report shows $209b in assets and $175b in deposits. Even if they took the full $15b estimated loss to liquidate their HTM bond portfolio, they'd have $20b to spare before not being able to cover deposits. Am I misunderstanding?
The assets may not be valued anywhere near market prices given the recent run up in interest rates. They don’t have to reprice the asset if they intend to hold it to maturity in the face of fluctuating rates.
Re: FDIC Takes over Silicon Valley Bank
#319[flagged]
Fixes what? An insolvent bank got was taken over by a national authority, all of the deposits were insured, account holders don’t even notice anything happened unless they’re following the news, the banking system doesn’t even skip a beat. This sounds like everything went according to the highly regulated plan.
> all of the deposits were insured
There's no official accounting yet, but most accounts seem to estimate that a very large fraction are not, because of FDIC insurance limits.
Re: FDIC Takes over Silicon Valley Bank
#320Earlier quoted context omitted.
Disrupt disrupt disrupt! Those old stodgy banks just slow us down with their old-fashioned risk-averse ways! The cool kids can do it better! If I had a nickel for every time I heard this from actual friends in the past couple decades, or for when I said it myself a few times... :)
In fairness, it wasn't the risk-taking that did them in... it was the fact that they went all-in on 10-yr bonds at low interest rates and didn't adequately account for duration risk.
Forgive me but I think this may be a contradiction. “didn’t adequately account for duration risk” == “risk taking that did them in”