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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#401

Post by lkbm »

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…

He meant solvency issue. Someone else called this out downthread and he confirmed. Definitely felt like it should've been corrected more prominently, though.

Re: FDIC Takes over Silicon Valley Bank

#402

Post by ncallaway »

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…

> Then the bank could make money by providing services to their customers.

Which services? And those services would need to be something that I can only provide by being your depositor (otherwise I'll get beaten by someone who provides those services without the added burden of holding and securing your physical money.

You've basically designed a system that increases the costs of being a bank, and eliminates the main source of profit, and hand-waived over how to close that gap.

I suspect it's simply unprofitable to run a bank in the model you've provided. I suspect the only way to make that system work is by saying "banking is a public good, it's OK if it runs at a loss" and making it a gov't provided service. I don't really see a path to private banks existing in the model you outlined.

Re: FDIC Takes over Silicon Valley Bank

#403

Post by hindsightbias »

FormerBandmate wrote: post #66
mkmk wrote: post #2

Oldie 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

SBF was a piker.

Re: FDIC Takes over Silicon Valley Bank

#404

Post by dopeboy »

cissou wrote: post #311

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.

In my circle of founders, it appears JPMC is winning out. We are currently on Brex via lending club and monitoring the situation closely.

Re: FDIC Takes over Silicon Valley Bank

#405

Post by sambull »

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.

It's possible they'll socialize the losses on that for profit risk taking

Re: FDIC Takes over Silicon Valley Bank

#406

Post by gumby »

dahdum wrote: post #324
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…

DFPI specifically called them insolvent in their release today, does that change your opinion on depositors being made whole? https://dfpi.ca.gov/2023/03/10/california-financial-regulato...

See my reply to kmod for further explanation on my statement.

Re: FDIC Takes over Silicon Valley Bank

#407

Post by themitigating »

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...

Why does it seem the perception of the tech industry is that products are just useless devices (like what you mentioned) or scams, that its employees are lazy and entitled, and basically it's all just a giant bubble of alof elites.

The same traits are present with every industry. How many BS oil fields are funded but turn out to be over hyper. What about real estate scams?

Right wing media has done a great job of changing the conversation from big oil to big tech and many people here are helping, maybe with geniue intention, but foxnews or whatever is attacking tech because it's mostly liberals not because they are concerned with the industry's practices

Re: FDIC Takes over Silicon Valley Bank

#409

Post by pbourke »

yeahsure22 wrote: post #32
game_the0ry wrote: post #11

2008 bear sterns vibes. The fed's move in interests rates was bound to break something. This is the first big name and, while banks are taken over by the FDIC often and it never makes the news, this one will be especially interesting bc it is Silicon Valley Bank. Naturally, people and the media will associate with the rest of silicon valley, bringing extra scrutiny to every brand name tech company, especially the one…

It’s not interesting because of its name, it’s the 18th largest bank in the US. A domino that big usually doesn’t fall alone. Also, FDIC hasn’t taken over a bank since 2020. This isn’t exactly a common occurrence.

It’s also the second largest U.S. bank failure. WaMu was considerably larger when adjusted for inflation - $300B in 2008 dollars (> $400B in 2023) vs SVB at $200B in 2023 dollars.

Re: FDIC Takes over Silicon Valley Bank

#410

Post by andrepd »

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... :)

If only banks were risk-averse x) Unfortunately they are risk-happy when they know bankruptcy means a taxpayer rescue.
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