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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#531

Post by occamrazor »

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)

They have both 1m of assets more than before, _and_ 1m of liabilities.

Re: FDIC Takes over Silicon Valley Bank

#532

Post by goodoldneon »

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…

Why is "too much money" a thing? If a bank only wants $100 million in deposits, but customers deposit $150 million, why can't the bank set the extra $50 million to the side and pretend like it doesn't exist until customers want to withdraw it?

Re: FDIC Takes over Silicon Valley Bank

#533

Post by hervature »

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…

I will first try to explain with simplified numbers and then do the equivalent calculation somewhere else.

Let's assume you buy a $100 bond with 0% rate for 10 years. For simplicity, let's assume it's a riskless bond. Now, let's suppose those same bonds now pay 5% a month later. Well, the smart thing to do would be to sell your 1-month old bond and buy the new one. Of course, everyone is doing the same thing so the price has to drop until the bonds are equivalent. You would get $100/1.05^10 = $61.39. Of course, the old bond still pays 0% but now, on paper, the price of the bond should grow 5% every year as we get closer to maturation.

Going to the real world, it would be something like 4.5% (current Fed rate - expected to be higher) minus 1.5% (the MBS rate they have) is 3% difference and so $100/1.03^10 = $74.41. Now, you said 10+ and so doing the same thing with 15 years is $64.19. This is also not including the fact that MBS is strictly worse than treasuries in terms of riskiness and so it's easy to imagine 50% off.

Re: FDIC Takes over Silicon Valley Bank

#535

Post by Kye »

ellisv wrote: post #271
mikece wrote: post #194

Earlier quoted context omitted.

From the looks of the news stories, it looks like the FDIC isn't as efficient in taking over a bank as it used to be: https://nypost.com/2023/03/10/nypd-called-to-silicon-valley-...

I wonder if the FDIC is just as efficient but this situation is different.

Possibly a forced rush job after that comment about solvency. I think the FDIC usually prefers to do secret operations under the cover of night to avoid problems. With everyone's eyes on the bank, that wouldn't be an option.

Re: FDIC Takes over Silicon Valley Bank

#536

Post by ptaffs »

navane wrote: post #493
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…

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?

rent and maintenance if they have branch property, salaries and benefits for staff at least. Banks have a lot of regulation and audit requirements which take work.

Re: FDIC Takes over Silicon Valley Bank

#537

Post by havkom »

vagab0nd wrote: post #492

Why can't this bank borrow from the Fed overnight lending market to fulfill the withdraws?

I have no idea but maybe they are not solvent anymore (negative equity, even if small)? (I guess Fed will not loan to insolvent banks, but I do not know if that is the case?)

If so, would be interested to know if anyone knowledgeable in accounting rules could speculate a bit here what has happened - has any event forced a revaluation of assets on the books due to accounting rules for example?

Re: FDIC Takes over Silicon Valley Bank

#538

Post by dragonwriter »

323 wrote: post #524
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 had the vague impression that after the 2007 crisis, banks holding retail deposit accounts were not allowed to invest in stuff like MBS, only investment banks (without retail accounts) were.

> I had the vague impression that after the 2007 crisis, banks holding retail deposit accounts were not allowed to invest in stuff like MBS, only investment banks (without retail accounts) were.

You are confusing the Great Recession with the Great Depression.

The 2007 crisis and subsequent Great Recession was contributed to by the 1999 repeal of that rule, adopted in response to the Great Depression; there were several efforts to restore it after the Great Recession, but none succeeded.

Re: FDIC Takes over Silicon Valley Bank

#540

Post by postalrat »

andromeduck wrote: post #441
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!…

Why even chase 1.5%.

If you could make 1.5% off other people's money how much would you "invest"?
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