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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#661

Post by opportune »

eftychis wrote: post #647
opportune wrote: post #638

Earlier quoted context omitted.

The maturity value of a bond/mbs is not really the true value at a given time between it being issued and maturing. You can treat it that way as a person holding the bond if you pinky-promise to yourself to not sell until maturity, but since banks need to periodically sell these to let customers get their deposits, that fiction doesn’t work for them. These things trade on the open market and adjust to interest rate c…

The regulation to my knowledge does require marking to maturity. Yes as I have commented elsewhere in this post, all banks do this. SVB had the unique situation of being the canary in the mine, as they had to get a lot of MBS during low interest rates of 2021/2020. Your question is the jackpot one, yes: how many other banks are following closely by. If the Fed continues or increases the rate hike I would be surprised…

Sure that is the regulation, but just because it’s a regulation doesn’t mean it’s all you should do for risk management, it’s just the bare minimum.

If the present value of a bank’s assets are lower than the present value of deposits, that is insolvency: calling it illiquidity just because the bank doesn’t want to sell its actually-liquid underwater assets right now is a cop-out.

Re: FDIC Takes over Silicon Valley Bank

#662

Post by adrr »

tinco wrote: post #261
UnpossibleJim wrote: post #53

Earlier quoted context omitted.

So, first off, I am not very literate when it comes to the comings and goings of banking procedures, so forgive me if this is a dumb question. Would an incident like this make other banks shore up their defenses about this sort of thing happening to them, or will more banks fall due to market conditions in general?

Well a defense might be to increase their liquidity by selling those treasury bills, which would drive their price even lower, making other banks also be illiquid on paper. So yeah I imagine all the banks nervously looking at eachother. Who is going to pussy out the first and cause them all to tumble over.

Fed could buy it and set a price floor on it.

Re: FDIC Takes over Silicon Valley Bank

#663

Post by manquer »

hn_throwaway_99 wrote: post #507

Question regarding SIVB shares. So now that the bank is in receivership, are all of those shares worthless (I'm assuming they are)? Looking at a graph of SIVB share price, this definitely seems like yet another blow to efficient market hypothesis. Many of SIVB's woes have been known for months. While it's obviously difficult to predict a bank run, to see a stock go from a share price of ~270 to 0 in 2 days, with many…

Shareholders are last in the line of creditors, shares will be worthless only if bank is insolvent not illiquid as it currently is.

While it may emerge that bank is indeed insolvent after the accounting that is not yet the case , so the value is only unknown not necessarily zero.

Also the market value includes the estimated risk which is very higher when there is lack of clear information and uncertainty.

After the dust settles , risk is becomes better understood with more information then shares can be better priced

Alternatively the assets are fully liquidated with which all depositors and bond holders are made whole anywhere between $45B and zero would be left

Re: FDIC Takes over Silicon Valley Bank

#664

Post by zdbrandon »

tempsy wrote: post #591
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.

As someone who was considering using one of those "banks" in the coming months, this whole ordeal makes me want to stick with Chase, Wells Fargo, etc. Stripe integrations be damned.

Re: FDIC Takes over Silicon Valley Bank

#667

Post by adrr »

PragmaticPulp wrote: post #411
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…

> 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. Now imagine you've finally settled on a cost structure that can pay all of your insurance,…

Also where would the capital come from to give out loans?

Re: FDIC Takes over Silicon Valley Bank

#668

Post by adrr »

calgarymicro wrote: post #467
Edmond wrote: post #238

Please reboot Silly-con Valley...I mean the show. With everything that has happened with crypto and the current mayhem I think two solid additional seasons can be made.

Silicon Valley actually already had an ill-fated crypto scheme arc - remember PiedPiperCoin?

It didn't have NFTs or failed exchanges.

Re: FDIC Takes over Silicon Valley Bank

#669

Post by manquer »

jossclimb wrote: post #526
severingties wrote: post #256

Earlier quoted context omitted.

If the company's payroll is under the $250K FDIC insured amount, they can make payroll on Monday. If the company's payroll is like $1 million a month, maybe not.

I can't see many startups having that sort of salary bill, unless they are a small seed with just a few founders working on a small wage as a sacrifice for their own investment. A lot of these startups would have hired during the frothy 2021 early 2022 phase when $250k might just cover a single employee.

250k for a single employee’s mid month payroll ! That is $7.5m / year in only cash compensation!! that would be unheard of for startups who only bank at SVB, even only few blue chip CEOs will draw that much cash .

Realistically 250k for 2 weeks pay probably can cover between 30-60 employees, if founders and some key senior folks can willing and are able afford to defer maybe stretch to 75.

Re: FDIC Takes over Silicon Valley Bank

#670

Post by hef19898 »

tempsy wrote: post #591
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.

Or just some, as it turned out, valid business advice. That being said, I would never let my investors choose my banks (as in more than one bank) holding my company's cash. And I definetly wouldn't use some not-to-big-to-fail, not international bank to hold my multi-millions in VC money, which is the only yhing keeping my company a float.
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