Wow, this guy called it in January... https://twitter.com/RagingVentures/status/161582608803847373...
wow very solid. you could have found SVB in screen just by the LTD ration and HTM percentages and zoomed in from there.
FDIC Takes over Silicon Valley Bank
611–620 of 1001 posts
Re: FDIC Takes over Silicon Valley Bank
#612An 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!…
Investing in the exact same kind of unsafe assets that brought the 2007 crisis, as well as assets that cause house prices to stay unaffordably high. Yep, all of SV is truly made of bumbling idiots. That whole solution is truly hilarious and watching all these clowns lose their money is going to be fun.
The execs have been pulling $3-10M/yr compensation and will walk away wealthy, legally in the clear, and probably into similar roles and comp elsewhere (or simply retired). They aren't bumbling idiots, though if they were, they'd be hella crafty ones.
I don't think the depositors, investors, or VC's that pushed for SVB were idiots. SVB was a good bank, with a good reputation, and good services that got mismanaged into oblivion.
Re: FDIC Takes over Silicon Valley Bank
#613Earlier quoted context omitted.
Investing in the exact same kind of unsafe assets that brought the 2007 crisis, as well as assets that cause house prices to stay unaffordably high. Yep, all of SV is truly made of bumbling idiots. That whole solution is truly hilarious and watching all these clowns lose their money is going to be fun.
Actually not. The kind of asset they invested in does not really matter. If they invested in super safe government bonds at exact same issue . It is the rapidly rising interest rates that did them in. If they were smarter they could have done a rolling ladder of short maturities but probably someone there was lazy.
They could have stopped offering the very high savings yields that attracted that capital, but profits and exec comp would have dipped. So...this instead.
Re: FDIC Takes over Silicon Valley Bank
#614Wow, 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.
your last sentence is demonstrably false!
Re: FDIC Takes over Silicon Valley Bank
#615I wonder if this has any effect on the deposit sweeping programs run by firms like robinhood, betterment and wealthfront. They promise 4%+ yields with freedom to take out your cash any time. A quick look at their partner program banks suggests they more or less transfer the deposits to the same set of banks.
Re: FDIC Takes over Silicon Valley Bank
#616I 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…
> 3. If spreading out your 6- or 7-figure assets to multiple institutions is too much of a burden, literally every business bank has special accounts or add-on features that either raise the FDIC default limit of 250k, or supplement it with external insurance. Again, if any startup's financial handlers didn't recommend this: fire them because they entirely failed to do their job.
Contractual obligations often prevent this, btw. Many SVB customers had loans with SVB, which prevented them from using other banks.
Re: FDIC Takes over Silicon Valley Bank
#617Earlier quoted context omitted.
The difference is that SVB's depositors will see most of their money back, which is the point of the FDIC taking over.
I wouldn't be too sure about that. 93% of SVB deposits are uninsured.
the assets the bank held are worth some % less than the amount they took in deposits but its not 90% less, its something like 20%. so on average, people will get something like 80% of their money back. I dont think the asset price declines were catastrophic.
Re: FDIC Takes over Silicon Valley Bank
#618Earlier quoted context omitted.
"This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually." But that's exactly the problem. With higher interest rates, those deposits will be looking for a higher deposit rate. With their assets tied up in low-paying long-term bonds, SVB will not be able to pay that higher rate. It would only work out "eventually", if the depositors wou…
All liquidity issues are solvency issues when marked to market.
That's true in a tautological way, but there really is a difference between liquidity and solvency.
If a firm's assets will eventually mature and be worth more than the current liabilities, then a private rescuer can make a lot of money by bailing them out. If the assets will never recover or pay out, then someone will be holding the bag.
Re: FDIC Takes over Silicon Valley Bank
#619If someone has both a loan from and an account with Silicon Valley Bank, can they skip paying the difference of the amount they are compensated and their account balance towards the loan?
Re: FDIC Takes over Silicon Valley Bank
#620What a debacle. Some gallows humor from twitter: "Imagine raising $100m for your AI enabled dog washing app - and your bank sets it on fire before you can". Original: https://twitter.com/88888sAccount/status/1634028258500169731...
Maybe it's time to get rid of fractional reserve banking and change it to full reserve banking. We really don't need a bunch of fake money flying around. It's time to have every dollar in the wild be a real dollar.
Full-reserve banking doesn't eliminate risk, it pushes it elsewhere. The nice thing about fractional reserve (yes, there are nice things about it!) is that it allows people to have a savings without completely paralyzing the money supply. Money that is "saved" can still be used for productive purposes. Yes, this introduces risk (of the sort that the FDIC is intended to ameliorate), but the alternative is to either discourage savings entirely in favor of active investments (which are themselves mostly subject to the same sort of risks as savings accounts of today), or otherwise encourage savings but let the economy be strangled by a lack of funds (which becomes a vicious cycle).
Certainly we can argue about the precise percentage of the fractional reserve, but keep in mind that "100%" is not a panacea.