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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#491

Post by gerad »

JumpinJack_Cash wrote: post #425
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!…

> > 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%. But why didn't they just hold money at the Fed given that they are a bank and they can? It's literally splitting hairs between what the Fed Fund Rate is and what they got on their MBS. Explainer post says end of 2021 they made that trade, in March the Fed raised the Fed Fund Rate to 0.20%, and by April it was 0.77%. Had they waited j…

If they could have forecasted the future at that point, they could have made even more money than that!

Re: FDIC Takes over Silicon Valley Bank

#493

Post by navane »

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…

with interest being zero as it was the past couple of years, can the bank not just sit on that money and literally do nothing? What operational expenses do they have?

Re: FDIC Takes over Silicon Valley Bank

#494

Post by makestuff »

voisin wrote: post #469
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!…

> - 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%. This is a pretty insane bet. Why didn’t they ladder the maturities to have a lower average duration and less risk?

My pessimistic view is that bonuses were paid out on invested cash not on cash just sitting there. So they had to buy something to get a fat bonus.

Re: FDIC Takes over Silicon Valley Bank

#495

Post by mempko »

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…

Banks don't lend out deposits. They don't take deposits and lend out 90% or so. Fractional reserve banking is a model of how banking works but it's a wrong model. In reality banks make loans (which create deposits). They try to attract deposits from other banks because they need enough bank reserves to cover liquidity issues (like customers transferring money to other banks). When a bank transfers deposits to another bank, they must transfer reserves too. There is really a 2 tiered money system in the US. There are bank reserves (which you and I can't have) and deposits (which you and I do have).

How banks actually work was described well by the Bank of England. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

Re: FDIC Takes over Silicon Valley Bank

#496

Post by yieldcrv »

0x457 wrote: post #432
morpheuskafka wrote: post #218

Earlier quoted context omitted.

> 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?

Try to walk to BofA as an entity that didn't exist yesterday and see how that goes.

Its not that bad.

But it works better at a criminal bank. Particularly one that might open a bunch of extra accounts for you when you aren't looking. Obviously that means opening the first account won't be the problem either.

Get a big criminal bank and they won't freeze your account for dumb reasons. Or smart reasons.

So just follow the settlements with the federal government, its advertising.

Re: FDIC Takes over Silicon Valley Bank

#497

Post by rrmm »

zenmacro wrote: post #163

Wow, the government acted incredibly swiftly and decisively to crush the possibility of a general bank panic. The current US banking system is very different from the 2008 system.

From what I recall of the last set of bank failures this is pretty much the FDIC's SOP. They swoop in on Friday with little notice, close the bank, work through the weekend and open up for business on Monday. It apparently made for some interesting work environments.

Re: FDIC Takes over Silicon Valley Bank

#498

Post by nairboon »

onlyrealcuzzo wrote: post #279
stephenhuey wrote: post #225

Earlier 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... :)

But SVB wasn't even doing anything sketchy or disruptive, right?

Wouldn't say not sketchy, they traded interest rate risk and didn't hedge properly.

Re: FDIC Takes over Silicon Valley Bank

#499

Post by bombcar »

mixdup wrote: post #450
bombcar wrote: post #176

Earlier quoted context omitted.

The thing that's strange is FDIC took control and setup a receiving bank for liquidation. That's not normal; FDIC works quite hard to find a bank willing to take over - usually they can work out what the "cost" is to take over, and FDIC pays the receiving bank that amount to "eat" the dying one. If they don't announce they have a bank to assume SVP by Monday, it's quite abnormal.

Exactly. The fact they didn't have a bank lined up points very heavily to the fact that they are not going to be made completely whole. In the past, the FDIC has found a buyer and as part of that process guarantees some amount of the losses. IE: Savior Bank buys Failed Bank for pennies on the dollar, or even for a negative amount. They get all deposits, insured or not, and all assets--meaning loans. Then, the FDIC gu…

That's a really good point, FDIC usually swoops in Friday night; and this was closed on a Friday during business hours, that's actually insane; they couldn't hold on 8-10 more hours, the run must have been really bad.

Even WAMU (a huge FDIC action) was done after banking hours closed on the west coast. https://en.wikipedia.org/wiki/Washington_Mutual

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