FDIC Takes over Silicon Valley Bank • Hacker News Board

Re: FDIC Takes over Silicon Valley Bank

#471

Post by adgjlsfhk1 » Fri, Mar 10, 2023, 6:32 PM UTC

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…

The problem with this take is fractional reserve is really good for the economy because it expands the money supply. The problem with a bank that holds 100% of the money is that it has to charge it's customers to use it, so they won't get customers.

Re: FDIC Takes over Silicon Valley Bank

#472

Post by kccqzy » Fri, Mar 10, 2023, 6:32 PM UTC

duxup wrote: post #435

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!…

I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…

Actually if you think about the balance sheet for banks "too much money" is a problem for them because deposits are liabilities not assets. The money belongs to customers not the bank. The bank must pay back the customers on demand.

That said, I think historically many banks can easily avoid the "too much money" problem by setting the interest they pay on deposits to be low, and maybe even negative.

Re: FDIC Takes over Silicon Valley Bank

#473

Post by DiscourseFan » Fri, Mar 10, 2023, 6:32 PM UTC

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!…

I don't get it. I'm no expert in finance but even I knew the fed wasn't going to stop raising interest rates because I had the common sense to know the fed would fail to trigger a recession by doing so.

Re: FDIC Takes over Silicon Valley Bank

#474

Post by dllthomas » Fri, Mar 10, 2023, 6:33 PM UTC

CamelCaseName wrote: post #42

karpierz wrote: post #9

Earlier quoted context omitted.

The difference is that SVB's depositors will see most of their money back, which is the point of the FDIC taking over.

Only 2.7% of SVB's deposits will be covered by FDIC.

I thought it was 2.7% of accounts are fully covered by FDIC? That's only going to be 2.7% of deposits by coincidence, and what it means for the others depends on just how dramatically over the limit they are... unless I miss something (which is plenty possible).

Re: FDIC Takes over Silicon Valley Bank

#475

Post by ajhurliman » Fri, Mar 10, 2023, 6:33 PM UTC

dragonwriter wrote: post #319

ajhurliman wrote: post #314

Earlier quoted context omitted.

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.

The accounts are still insured even if the insurance doesn’t cover 100% of the deposits

Re: FDIC Takes over Silicon Valley Bank

#476

Post by _yb2s » Fri, Mar 10, 2023, 6:33 PM UTC

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…

The ability to 'borrow' someone else's money to do something valuable with it opens huge opportunities. This model is what fueled the massive economic growth of the last few hundred years, made the industrial revolution possible, and made home ownership possible for non-aristocracy.

Re: FDIC Takes over Silicon Valley Bank

#477

Post by timdaub » Fri, Mar 10, 2023, 6:34 PM UTC

chernevik wrote: post #418

I don't understand why anyone would park any sum larger than, say, $5mm in a bank deposit for more than a minute. It isn't hard to dump those funds into a money market fund backed by short-term commercial paper or even short-term Treasury bills. Or to just buy the Treasury bills outright. Such holdings are quite liquid and can be absolutely secure. Use the bank account for clearing, keep a couple million in it and se…

Would love to understand if this is actually good financial advice here. My bank plays broker for all the assets I own and tbills are part of that.

FDIC wrote:

> As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.

So to me that sounds like those „risk-free“ assets will get liquidated too.

I‘d love to hear an actual professional confirm/deny this. Because if it‘s true, then the real risk-free assets are gold, in your teeth, real-estate and BTC.

Re: FDIC Takes over Silicon Valley Bank

#478

Post by pirate787 » Fri, Mar 10, 2023, 6:35 PM UTC

gnopgnip wrote: post #456

FormerBandmate wrote: post #66

Earlier quoted context omitted.

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

Have there been any cases in modern times, in the last 25 year or so where depositors lost money because they had more than the fdic covered ?

50 cents on the dollar at IndyMac in 2008

https://www.depositaccounts.com/blog/indymac-depositors-are-...

Re: FDIC Takes over Silicon Valley Bank

#479

Post by duxup » Fri, Mar 10, 2023, 6:36 PM UTC

kccqzy wrote: post #472

duxup wrote: post #435

Earlier quoted context omitted.

I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…

Actually if you think about the balance sheet for banks "too much money" is a problem for them because deposits are liabilities not assets. The money belongs to customers not the bank. The bank must pay back the customers on demand. That said, I think historically many banks can easily avoid the "too much money" problem by setting the interest they pay on deposits to be low, and maybe even negative.

Agreed. Also too much money is hardly an automatic existential crisis. They can do what I described, get bought, merge, etc.

Of course if you dump it all into unwise investments, that’s a problem.

Re: FDIC Takes over Silicon Valley Bank

#480

Post by joosters » Fri, Mar 10, 2023, 6:36 PM UTC

duxup wrote: post #435

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!…

I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…

At first glance, bank balance sheets are unintuitive and feel 'the wrong way round'. When someone deposits $1m at a bank, the bank doesn't have $1m more assets, it has $1m more liabilities.

(Yes, this is a gross over-simplification)