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FDIC Takes over Silicon Valley Bank

fdic.gov

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Re: FDIC Takes over Silicon Valley Bank

#481

Post by martythemaniak »

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…

Yeah, it seems companies should be mostly fine. Like you had 10 million in cash yesterday, but now you get 10m in 10y TBills, which you have to sell for $9m to get your cash back. It sucks but it shouldn't change the trajectory of your startup.

Re: FDIC Takes over Silicon Valley Bank

#482

Post by chasd00 »

morpheuskafka wrote: post #218
woeirua wrote: post #52

LMAO. 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?

High interest rate and naive customers who think they’re the smartest guys in the room.

Re: FDIC Takes over Silicon Valley Bank

#483

Post by [deleted] »

davidw wrote: post #415
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!…

> 10+ year duration, with a weighted average yield of 1.56%. > the value of SVB’s MBS plummeted. How much 'plummeting' did they do in numerical terms? Something with those kinds of yields doesn't sound like it ought to be a super risky asset. The mortgage lending market tightened up a lot after the great recession...right?

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#484

Post by nine_zeros »

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…

> What I don't understand is why do banks work this way?

This is such a great question. It has depth and nuance. If I understand it correctly, it comes from a place of wanting stability. Why wouldn't anyone design a banking system that is fully backed and stable? Who the hell wants these violent booms and busts? This looks like something that can be kept stable right from the get go.

I hear you. The main reason I can think of is that "banking is crookery".

The old goldsmiths were crooks who understood fractional reserve. Imagine if we were to ban the current system and asked banks to hold every deposit 1:1, they could - for a small fee. But that will mushroom a black market of lending for interest. All the banking crooks will have no choice but to go to the black market. This will cause the black market to grow faster than stable banking, which will lead to more unregulated chaos.

The only alternative I can think of is equity-based islamic finance style banks. While these banks have interest in varying forms, they don't have as much asset risk because the interest rate is largely meaningless because lending/borrowing is not the main way to earn money.

Re: FDIC Takes over Silicon Valley Bank

#487

Post by yr1337 »

themitigating wrote: post #446
mangosteenjuice wrote: post #93

Earlier quoted context omitted.

A good lesson for everyone who forgot the last cycle. Slowly, then all at once.

Do you think it's strange people are excited for the economy to fail?

When you see how much of a massive everything-bubble we were (are?) in, I can see where people are coming from on this one. Time to get some sanity back into this economy, and the people who will hurt the most are those who also benefited the most in the past 3 years (crypto-bros, useless startups with dumb valuations, etc.)

Re: FDIC Takes over Silicon Valley Bank

#488

Post by xhrpost »

tlb wrote: post #263
bagacrap wrote: post #168

Earlier quoted context omitted.

they don't lose anything if they're not forced to liquidate those bonds but can hold them to maturity. It seems like the real problem here is a lack of diversity in liabilities (all tech/biotech startups).

That's not true. When interest rates go up, they have to pay the higher rates on customer deposits, but they're not getting any more from their bonds. Perhaps they can spread the losses over 10 years, but the losses are the same.

I don't think they "have" to pay the higher interest. Wouldn't they ultimately get that interest from parking money at the Fed over night? A bank isn't going to pay interest on money that results in a net loss, either they get it from the Fed or they are making private loans at a higher rate. Otherwise there would be no incentive to increase deposits as each would result in lost profits.

Re: FDIC Takes over Silicon Valley Bank

#489

Post by missedthecue »

joosters wrote: post #480
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…

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)

And to make matters more confusing, deposits are called assets on the balance sheet!
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