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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#671

Post by kypro »

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!…

> - The issue is that as the Fed raised interest rates in 2022 and continued to do so through 2023, the value of SVB’s MBS plummeted. This is because investors can now purchase long-duration "risk-free" bonds from the Fed at a 2.5x higher yield.

Let's be clear, the issue wasn't that the Fed raised rates to a historically average level, it was that they were manipulating the bond market in 2021 with trillions of dollars of QE.

Over the last few years the Fed has basically done a pump and dump on the bond market, and SVB being a bank was basically forced by regulation to buy long-dated bonds for yield.

I've seen a lot of people speak critically of SVB and I get it, but I think people should take a minute to ask why the hell bonds were yielding such a low amount in 2021. I just wonder how much longer we're going to blame, banks, crypto investors, bond investors, equity investors, home buyers, etc for what's happening to the value of their assets. When central bankers make government bonds trade like meme stocks this is what happens. Perhaps if we didn't do that, SVB and many others wouldn't be in this position.

Re: FDIC Takes over Silicon Valley Bank

#672

Post by kgwgk »

bombcar wrote: post #176
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…

The thing that's strange is FDIC took control and setup a receiving bank for liquidation. That's not normal; FDIC works quite hard to find a bank willing to take over - usually they can work out what the "cost" is to take over, and FDIC pays the receiving bank that amount to "eat" the dying one. If they don't announce they have a bank to assume SVP by Monday, it's quite abnormal.

The size of this failed bank is quite abnormal. The business of this failed bank is quite abnormal. The surprising thing may be that the find anyone willing to take it out of their hands - let alone by Monday.

Re: FDIC Takes over Silicon Valley Bank

#674

Post by rqtwteye »

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!…

"to generate the yield they wanted to see on this capital."

Sticking to unrealistic goals seems to to be the downfall of a lot of financial institutions (and probably a lot of other companies). Same happened with Deutsche Bank in the 2000s. The CEO declared that they wanted to achieve higher ROI and to achieve this they had to start doing ever riskier stuff until it blew up in their faces (and the taxpayer generously bailed them out so they could keep their big bonuses).

Re: FDIC Takes over Silicon Valley Bank

#675

Post by tempsy »

hef19898 wrote: post #670
tempsy wrote: post #591

Earlier quoted context omitted.

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.

Giving the advice is not what I’m referring to. I’m referring to intentionally leaking the advice to the press so they run the story about how Peter Thiel is warning everyone which accelerated the outflow.

Re: FDIC Takes over Silicon Valley Bank

#677

Post by hef19898 »

zdbrandon wrote: post #664
tempsy wrote: post #591

Earlier quoted context omitted.

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.

If you are outside of B2B, you do not need Stripe. You need a solid business bank, ideally multiple ones.

And if B2B is relevant, well, have an accoubt, or multiple, at a bank with Stripe integration to handle customer payments anf refunds. And keep everything else at different banks.

Re: FDIC Takes over Silicon Valley Bank

#678

Post by [deleted] »

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.

[deleted]

Re: FDIC Takes over Silicon Valley Bank

#679

Post by RC_ITR »

nr378 wrote: post #639
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…

SVB held $21bn of 'available for sale' bonds and $91bn of 'held to maturity' bonds on its balance sheet, that were actually only worth $19bn an $76bn respectively on a mark-to-market basis, which means a total unrecognised hole its in balance sheet of $17bn. SVB's total equity was only $16bn[1][2] That means it didn't have a liquidity crisis, and it didn't have reserves in excess of it's liabilities, it had a solvenc…

People keep talking about how 'this is a solvency crisis because if SVB had to sell everything today, they wouldn't cover liabilities' when that is the definition of a liquidity crisis.

EDIT: To be clear, think of it this way. I have a piece of paper saying you'll give me $100 in 1 year plus 1% interest that I bought for $98.

No-one buys that piece of paper for $98 today, because they can get the same deal with better interest. But that doesn't change the fact that I will get $100 for it.

If deposits hadn't shrunk, $100 would go to SVB in 1 year and everything would be fine, it's the fact that they have to sell it so far ahead of maturity that's the problem, we just didn't notice this phenomenon in the past few decades b/c rates fell and prices went up.

This is not because SVB has a particularly risky book (we're talking treasuries here), it's because they didn't account for declining deposits (itself a very stupid, but unique bad decision unrelated to their risk tolerance).

Re: FDIC Takes over Silicon Valley Bank

#680

Post by xapata »

hef19898 wrote: post #172
johnbellone wrote: post #91

Earlier quoted context omitted.

The same people that were saying that yesterday were removing their deposits. They just wanted to be there first.

There are three ways to succeed in this business: Be first, be smarter or cheat. And I don't cheat. Margin Call is such a timeless, great movie!

But to be first, you must be smarter. Or cheat.
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