this is terrible. Many people will lose their jobs... due to liquidity issues at their companies :(
FDIC Takes over Silicon Valley Bank
541–550 of 1001 posts
Re: FDIC Takes over Silicon Valley Bank
#542Now we just need an "incredible journey" blog post from SVB spinning this acquisition as a great win for both customers and investors.
ChatGPT is happy to oblige: Silicon Valley Bank, founded in 1983, has had a long and incredible journey leading up to its acquisition by the FDIC in 2023. As a bank that specializes in working with the technology and innovation industries, it has been at the forefront of many of the industry's most significant developments. The bank started its journey as a small community bank in Santa Clara, California. At that tim…
> Bill Biggerstaff.
He lived truly to his name! Founded a bank that processed bills with a big number of staff.
Re: FDIC Takes over Silicon Valley Bank
#543I 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…
The conundrum with underwater bonds/mbs is that you can make depositors whole, or give depositors money back now, but not necessarily both.
If I had $1m in my account and it was invested 100% in MBS around in 2021, it could take 10 years to actually get the whole $1m back, and only be worth like $800k now. I have effectively lost that 20% because you could just give me $800k now and I could put it in a MBS myself to get the same results.
Re: FDIC Takes over Silicon Valley Bank
#544That's wild. I wonder if it's good news for neobanks like Mercury and Brex who will see an influx of new customers, or on the contrary, startups will seek old, boring, safe banks instead of niche boutiques with lots of exposure to industry risk.
I think it's the latter. If anything, this will negatively impact Mercury and Brex in the long run as companies will favor safety above all else.
Re: FDIC Takes over Silicon Valley Bank
#545Earlier 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)
Too much money is only a problem if you are greedy for returns, like all the investors who lost money when yields were unsustainably low the last few years. They could have deposited it with the Fed and have been totally fine.
Individual investors don't even have that option and also have inflation to deal with. Banks don't.
Re: FDIC Takes over Silicon Valley Bank
#546Earlier 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)
A $1M deposit adds to both assets and liabilities.
In double entry accounting, you mark any changes with both a debit and a credit. This allows you to see not only why one account changes (a single entry), but also the cause of that change (the second entry).
Re: FDIC Takes over Silicon Valley Bank
#547Earlier 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)
I think it should be both: The $1m that was deposited is an asset, the customer's ability to withdraw $1m is a liability.
Re: FDIC Takes over Silicon Valley Bank
#548Why 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?
I asked ChatGPT now about the federal reserve loans alternative:
Why would FDIC take over an unliquid bank instead of the bank just loaning money by the Federal Reserve?
The Federal Deposit Insurance Corporation (FDIC) is a US government agency responsible for protecting depositors and maintaining stability in the banking system. When an unliquid bank fails, the FDIC may step in to take over the bank and manage its operations.
One reason the FDIC may take over an unliquid bank instead of the bank just loaning money from the Federal Reserve is that the bank may be insolvent, meaning it does not have enough assets to cover its liabilities. In this case, simply borrowing from the Federal Reserve would not solve the underlying financial problems of the bank.
Taking over the bank allows the FDIC to manage its operations and assets, and potentially sell off its assets to recover some of the losses for depositors and creditors. This process is known as "resolution" and is intended to minimize the impact of a bank failure on the broader financial system.
Additionally, if the FDIC determines that the bank is not viable in the long term, it may choose to liquidate the bank, selling off its assets and using the proceeds to pay off depositors and creditors.
Overall, the decision to take over an unliquid bank instead of simply loaning money from the Federal Reserve depends on the specific circumstances of the bank and the broader financial system.
Re: FDIC Takes over Silicon Valley Bank
#549An 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!…
> As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) Do we now have people making decisions on stuff like this who are too young or clueless to remember what happened with the 2004-2007 mortgage backed security bubble that popped in the 2008-2009 financial crisis? Seriously? Did nobody learn the lessons on this? Countrywide and other originators of MBS and CDOs?
> Did nobody learn the lessons on this?
I'm not sure you learned the lessons. Other than MBS being coincidentally involved, this has literally nothing to do with 2008.
Re: FDIC Takes over Silicon Valley Bank
#550An 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!…
> As a result, they purchased a large amount (over $80bn!) in mortgage backed securities (MBS) Do we now have people making decisions on stuff like this who are too young or clueless to remember what happened with the 2004-2007 mortgage backed security bubble that popped in the 2008-2009 financial crisis? Seriously? Did nobody learn the lessons on this? Countrywide and other originators of MBS and CDOs?
Do you think MBS are always and forever a bad investment because of a bubble 15 years ago?
The MBS wasn't even the problem here. If they had 10Y corporate bonds or Treasury notes paying the same rate, they would have had the same problem.