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FDIC Takes over Silicon Valley Bank

fdic.gov

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Re: FDIC Takes over Silicon Valley Bank

#511

Post by nilsbunger »

rsync wrote: post #445
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%." I'd like to learn more about the dramatic drop in MBS - elsewhere, downthread, it is asserted that they have dropped 30-50% ? I understand the inverse relationship between bond price and yield ... ... but I am surprised that an asset yielding ~1.5% drops 30% in value when treasuries of similar duration rise to 3-4%. Are there other fac…

It's pretty straightforward -- if you have asset yielding 1.5% forever, you can make it an asset yielding 3% by cutting its price in half.

In this case it's a little more complicated since you also get the principal back in pieces, but you can calculate the price today to create the equivalent of a 3% yield instead of 1.5%, and you'll get a significant price reduction.

Re: FDIC Takes over Silicon Valley Bank

#513

Post by jasmer »

The whole f*ing point of banks is to hold your money.

WTF is Silicon Valley if they can't make a bank that is just supposed to sit there and not do much - not collapse.

I loathe to say this but maybe the CrytoBros need to come back?

Bank collapses should happen as often as regular buildings collapse for no apparent reason.

It's a bad look if there is less trust in regular banking.

Re: FDIC Takes over Silicon Valley Bank

#514

Post by [deleted] »

DiscourseFan wrote: post #473
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.

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#515

Post by kragen »

eclipsetheworld wrote: post #322
tlb wrote: post #109

The regulations that allow a bank to hold long-term fixed-rate bonds backing variable-rate liabilities (since deposit rates float) seems broken. It's straightforward to reckon their exposure to interest rates: they had $90B in 10-year fixed rate bonds, so they lose $9 billion per % of interest increase. They must have known that a 4% increase in interest rates would put them underwater, but they did it (and were allo…

I'm wondering the same thing. The current rise in interest rates must have been a scenario that the bank considered. How can we still have a system that allows situations like this to happen? Other than negligence or malpractice, I cannot fathom a reasonable explanation as to how this happened / was allowed to happen (again).

this is the system working as designed

zero risk is not a thing

Re: FDIC Takes over Silicon Valley Bank

#516

Post by riazrizvi »

DiscourseFan wrote: post #473
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.

When I set my ‘Hindsight Goggles’ to 100, I too saw that the Fed would keep raising interest after the initial rounds, because unemployment would stay low despite massive layoffs, somehow, and that prices would keep rising. And I am an expert in finance.

Re: FDIC Takes over Silicon Valley Bank

#517

Post by dragonwriter »

cableshaft wrote: post #470
mywittyname wrote: post #358

Earlier quoted context omitted.

Edit - this has been the first fdic takeover since 2020, so no, it does not happen often. This chart of historic bank failures paints a different picture: https://www.fdic.gov/bank/historical/bank/

Almost all of those are during The Great Recession or the aftermath of it, so I think it's not that crazy of a claim to make. Also means we may be about to start seeing a lot more of them again, assuming we're getting closer to the next big recession.

> Also means we may be about to start seeing a lot more of them again, assuming we're getting closer to the next big recession.

That's a giant assumption.

Re: FDIC Takes over Silicon Valley Bank

#518

Post by ashwagary »

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?

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

People knew free money was dangerous, planned for a return to sanity (QT) in 2018-2019, and were financially punished for acting responsibly by believing the Fed would follow its roadmap.

They may get their day in the sun now and I cant blame them for being happy at the first signs of a temporary return to reality.

Re: FDIC Takes over Silicon Valley Bank

#519

Post by dahfizz »

Someone1234 wrote: post #428
davidw wrote: post #415

Earlier quoted context omitted.

> 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?

That has to be an inflation adjusted yield, right? Why would anyone do anything remotely risky for such terrible returns? You can almost find government bonds with similar average yields.

>You can almost find government bonds with similar average yields.

Not a few years ago. T-Bills were paying like 0.1% in 2021[1]

[1] https://home.treasury.gov/resource-center/data-chart-center/...

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