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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#591

Post by tempsy »

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!…

honestly disgusted by the blatant PR moves by YC and Founders Fund yesterday in leaking their “advice” to their founders to get out of SVB

Very blatant weaponization of FUD to drum up deposits for their investments in Brex, Ramp, and Mercury.

Re: FDIC Takes over Silicon Valley Bank

#592

Post by walrus01 »

dahfizz wrote: post #550
walrus01 wrote: post #468

Earlier quoted context omitted.

> 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.

To be clear, I think MBS are morally wrong in how they're implemented in the market, yes.

A bubble 15 years ago? We're in a massive housing price increase bubble now.

Buying $80bn of MBS in the middle of a well-known housing price bubble is catastrophically stupid.

Re: FDIC Takes over Silicon Valley Bank

#593

Post by zamnos »

capableweb wrote: post #187
DLarsen wrote: post #140

I think I'm going to start asking potential employers where they do their banking.

I don't think it should be like this, but most surely your profile will be flagged as "suspicious" if you ask such questions.

Asking them to name the bank is a bit of a weird one, only because the answer can't be SVB anymore, and I'm not sure what OP would do with that information. (So it's FRB, then what? Unless you have inside info that they're about to fail, and you're interviewing this week, I don't see how their banking partner's material) But if a startup you're interviewing at won't answer what their runway is, or the rest of the reverse interview business questions, then that's a red flag and you should run far, far away from them.

* Are you profitable?

* If not, how long is your runway?

* Where does the funding come from and who influences the high level plan/direction?

* How do you make money?

* What's preventing you from making more money?

* What is the company's growth plan for the next 1 year? 5 years?

* What are the big challenges you see coming up?

* What have you identified as your competitive advantage?

https://github.com/viraptor/reverse-interview

Re: FDIC Takes over Silicon Valley Bank

#594

Post by [deleted] »

dmoy wrote: post #259
FormerBandmate wrote: post #66

Earlier quoted context omitted.

This case is unique because of the sheer volume of non-FDIC insured deposits. Substantial risk of depositors not being made whole for a while, they’ll probably get all their money but it will still be bad

It's a little unique because it's a top 20 bank failing. As far as I can tell, it's not super unique in terms of % of fdic insured deposits. As a whole it's like > they’ll probably get all their money but it will still be bad They may not. Even for banks where most assets are FDIC insured, you'll see that not 100% of deposits are returned. Selecting a random recent one: https://closedbanks.fdic.gov/dividends/bankfind…

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#595

Post by jellicle »

goodoldneon wrote: post #532
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…

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?

Well, yes, if your bank is receiving too many deposits and you didn't want to be vulnerable to a SVB-style failure, then you could:

- set your rate of paid interest on demand deposits quite low - what's going to happen, some people will pull their deposits? That's fine, that's what you want.

- re-deposit those excess deposits at other banks, taking only their meager interest payments on demand deposits

The math here works fine. As long as there's some difference between the rate you're paying on deposits and what you're getting, no matter how small, you're fine. And if you need cash quickly, hey, those are DEMAND deposits at other banks, you should be able to withdraw them immediately. You can spread the risk of a run on your bank around to every other bank.

Re: FDIC Takes over Silicon Valley Bank

#596

Post by kgwgk »

bityard wrote: post #299
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…

Agreed. Lots of people here in the comments are making assumptions about a system they don't understand. Depositors with > $250k aren't necessarily going to "take a haircut," for the reason you mentioned, plus a few others. Additionally: 1. Any financial advisor who recommended to these startups that they should keep >250k in a regular bank account should be fired. It's totally possible (and regularly done) to spread…

> 2. Any regular account with two or more signers (very typical for a business account) is insured up to 500k.

Is it typical for business accounts to be owned by someone other than the business?

Re: FDIC Takes over Silicon Valley Bank

#597

Post by [deleted] »

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…

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#598

Post by thetrb »

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…

People expect interest when they park a large amount of money in a bank. Where should that interest come from when the money just sits there? The bank will have to invest is somewhere (ideally somewhere very safe like in Government bonds) where they can then collect interest.

So it looks like in this case SVB chose MBS with a pretty low interest rate and long maturity, which they now have to sell due to the bank run you mentioned.

Re: FDIC Takes over Silicon Valley Bank

#599

Post by nabla9 »

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)

So true.

Money for banks is what raw material is for manufacturing. What they are doing is risk management (analyzing risk, packaging risk, selling it, buying it).

Re: FDIC Takes over Silicon Valley Bank

#600

Post by KptMarchewa »

boosting6889 wrote: post #504
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!…

[flagged]

Because, as described in the link, the gap between deposits and liabilities is likely to be over 25B.
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