Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

FDIC Takes over Silicon Valley Bank

fdic.gov

Post reply on HN
Print view View original

391–400 of 1001 posts

Re: FDIC Takes over Silicon Valley Bank

#391

Post by cjbgkagh »

zackmorris wrote: post #301

Looks like the FDIC coverage limit was raised to $250,000 in 2008 and made permanent in 2010, before that it was $100,000 since 1980. https://americandeposits.com/history-and-timeline-of-changes... Plugging that into any online inflation calculator, $1 in 2010 is $1.33 in 2023. So FDIC insurance should really cover $333,000, and people could lose $83,000 or more due to coverage not being raised. This is one of 1000 e…

'Bracket creep' almost never works in your favor and that is by design. The government knows perfectly well how to peg things to inflation.

Re: FDIC Takes over Silicon Valley Bank

#392

Post by bombcar »

kuczmama wrote: post #361

What I don't understand is why do banks work this way? Imagine you were designing the bank from scratch having no knowledge of the current banking system. How would you do it? The most obvious thing would be if a customer deposits money, you would hold 100% of the money 1 to 1 exactly how they deposited it. Then the bank could make money by providing services to their customers. If I had to bet, most people who have…

There are banks that do offer the 1:1 ratio you want; they charge you a quite hefty fee to do this.

But from time immemorial banks work by taking money from you (short term) and selling it to someone else (long term). Originally the banks were "protected" by being able to claw back the long term at anytime; but that caused even worse problems.

FDIC provides a way for "common people" to be protected from this; the other option would involve something like the USPS offering cash-only banking for people.

Re: FDIC Takes over Silicon Valley Bank

#394

Post by Zealotux »

Edmond wrote: post #238

Please reboot Silly-con Valley...I mean the show. With everything that has happened with crypto and the current mayhem I think two solid additional seasons can be made.

I loved that show, such fun to watch! They definitely could make a lot with the crypto-nonsense indeed.

Re: FDIC Takes over Silicon Valley Bank

#395

Post by martinshen »

sroussey wrote: post #272
ren_engineer wrote: post #248

Earlier quoted context omitted.

will companies with money in SVB even be able to make payroll? Seems like this could cause huge issues in the short term and long term

Pipe, Clearco, Founderpath, etc, are going to have a busy month. Likely many companies won’t be able to do mid-month payroll. Someone will setup a market for the FDIC warrant on uninsured deposits, but that will take time.

Who do you think backs those Clearco loans?

Re: FDIC Takes over Silicon Valley Bank

#396

Post by kragen »

prasadjoglekar wrote: post #174
vineyardmike wrote: post #127

Earlier quoted context omitted.

> If you had more than $250k in SVB yesterday you probably just took a huge haircut. You may not lose money. The money isn’t gone yet. The restructuring may save the money. There’s a playbook for this sort of thing.

You most definitely will. SVB already fire-sold 21Bn in MBS and took a 1.8Bn loss on that. Someone is eating that loss.... Separately, this is going to cause a lot of finance vultures to look at other banks who also have MBS portfolios on their books. The show's only beginning.

US$1.8B is 1% of SVB's deposits; a 1% haircut wouldn't be that bad

i suspect the real number will be closer to 40% than 1%

Re: FDIC Takes over Silicon Valley Bank

#397

Post by gumby »

kmod wrote: post #348
gumby wrote: post #161

I 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…

These statements seem pretty contradictory: - "it had reserves in excess of its liabilities" - "They can't unwind that position and cover all possible demands" I'm guessing that you're thinking of some sort of valuation of their assets that says something like "well they're really worth more than they're currently valued at", which is a common claim on this story but it's a pretty bold one?

That's a good question. The key is where I wrote that it was a liquidity crisis.

An analogy: you (hypothetically) keep your money in some 6-month CDs, with about a month's worth of expenses in your savings account in case something unexpected comes up. Then you lose your job and by the end of the month you haven't found a new job. You could liquidate your CDs, but the early-liquidation penalty might mean you still won't have enough to pay your bills. If only you could wait for maturity.

So yes, at mark-to-market firesale prices that means SVB can't pay out in full today to every account holder and so FDIC has to step in. But FDIC (who has a very large balance sheet) also seizes those assets. They give the accounts to another bank. Then FDIC can unwind those seized assets in whatever timely fashion it wants.

There's a second factor: in a secular banking crisis they may pay out only the guarantee (currently $250K; for a while (during the GFC IIRC) it was temporarily $500K. But we are not in a secular banking crisis; not only has the Fed completely restructured bank reserve requirements in response to the GFC but SVB is a single, small bank, not even a regional one, with a run-of-the-mill crisis. This is the kind of failure that you put all the new hires on because they can learn without any up-to-the-minute crisis stress. This is what they learned during onboarding :-). In such a situation it's better to pay out move than the $250K, probably several million, to prevent any "contagion" (since SVB has "Silicon Valley" in its name).

I have no special knowledge of FDIC's internal thinking: they could make them whole now, or make up to $250K whole now and pay out some later, or yes, they could force a few people to take a haircut. Those (small number of) panicing VCs would be better off calling their senators than their portfolio companies.

PS: BTW hypothetical you has more options than those above: you could take out credit card debt, perhaps tap a HELOC you might already have in place, etc. SVB had similar options: they did have a $15B fire sale and got an investment from General Atlantic. It wasn't enough.

Re: FDIC Takes over Silicon Valley Bank

#398

Post by fidgewidge »

treis wrote: post #62
mbStavola wrote: post #7

It's kind of amazing how much optimism there was just an hour ago regarding SVB's position.

What are you talking about? Pretty much everyone I've seen has called this a bank run and said to get your money out since SVB announced they were trying to raise money. Techcrunch called the announcement shooting yourself in the foot.

Read the other threads. https://news.ycombinator.com/item?id=35088919

"SVB is our bank, I got in touch with a member of the senior team there and got the following message to share. (My own interpretation is I'm comfortable and I'm not planning to pursue it further at the moment)"

Re: FDIC Takes over Silicon Valley Bank

#399

Post by spaceman_2020 »

stephenhuey wrote: post #225
testfoobar wrote: post #43

What 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 all fairness, those stodgy old banks have been bailed out multiple times in the past.

Re: FDIC Takes over Silicon Valley Bank

#400

Post by danpalmer »

BlandDuck wrote: post #389
somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

"This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually." But that's exactly the problem. With higher interest rates, those deposits will be looking for a higher deposit rate. With their assets tied up in low-paying long-term bonds, SVB will not be able to pay that higher rate. It would only work out "eventually", if the depositors wou…

It's never a liquidity issue as long as no one tests the liquidity!
Post reply on HN