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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#771

Post by s1artibartfast »

walrus01 wrote: post #723
weego wrote: post #601

Earlier quoted context omitted.

When the fuck are retail banks going to be ring-fenced away from being able to trade in MBS. They're consistently cancerous to our banking systems.

This is a symptom of the problem of middle class single family home residential real estate being treated as an unreasonably-price-increasing bubble inflated investment and not a place for people to live in. The irrational exuberance in price increases in this segment of the market over the past 4-5 years is not sustainable. It is not logical, sane or normal for houses that were valued at $150k five years ago to now…

It's logical or sane if you think capital investment options in New areas is going to dry up and existing assets are the best opportunity for preserving or growing your money.

How much would you spend on the house if you're only alternative is to watch your capital disappear

Re: FDIC Takes over Silicon Valley Bank

#772

Post by worik »

opportune wrote: post #648
twelve40 wrote: post #635

So it seems like they mismanaged their assets and their liabilities, taking on a lot of expensive deposits while investing at low yield. What I don't get is all this pro-SVB, anti-VC sentiment, how "some VC's yelled fire in a crowded theater" and caused the poor bank to collapse. Isn't it just common sense though, to protect your money? The bank fucked up by doing risky reckless things, it got exacerbated because the…

This, these bonds/mbs are liquid instruments, they just lost value at market prices. When I make a deposit in a bank I am not purchasing a CD - I expect full liquidity. If the bank invested my deposit in something that lost money but should be worth my deposit amount in X years that is purely the bank’s fault, not my fault.

> This, these bonds/mbs are liquid instruments

It is all relative, not all relevant

Anything is liquid if you will lower the price enough

Re: FDIC Takes over Silicon Valley Bank

#773

Post by ecf »

nickrubin wrote: post #715

Garry Tan: "30% of YC companies exposed through SVB can’t make payroll in the next 30 days. If you or your company are affected, I recommend that you reach out to your local congressman to get this on their radar TODAY." https://twitter.com/garrytan/status/1634286688922132481

So is this going to be a “privatized profits, socialized losses” type scenario? Are taxpayers going to be bailing out this bank and the companies that use them?

Re: FDIC Takes over Silicon Valley Bank

#775

Post by kelnos »

twelve40 wrote: post #686
gregruss wrote: post #682

Earlier quoted context omitted.

If you don't understand the sentiment, I recommend that you read about what happens in a "run on the bank". Too many large withdrawals at the same time results in a liquidity crisis. No bank in the country has enough reserves to pay all of its customer accounts at the same time; it's part of our system of fractional reserve banking. A massive spike in withdrawals forces a bank to sell long term securities in a disadv…

So my personal takeaway: pick a bank that is too big to fail, because if it happened to a bigger, non-niche bank they probably would have used the taxpayers' money to bail it out. PS. the sentiment still makes no sense, SVB customers did not sign up for the bank to gamble with their money and they have a full moral right to do whatever it takes to get their working capital back the second they start to sense any trou…

I was talking to some friends in finance about this, and unfortunately most of SVB's customers couldn't just pick another bank. Allowing a company to open a business account requires a bank to do a lot of know-your-customer stuff, as well as taking on a bunch of money-laundering and criminal-enterprise risk (that is, there are laws that punish banks if they hold funds that are used for criminal activities, especially terrorism-related activities).

Many banks, even the big ones like Bank of America, Wells Fargo, and Chase, do not want to do this for random new small companies with no history and unknown founders. SVB was -- I believe -- founded in part to fill this gap.

Beyond that, there are also come contractual relationships between some VCs and SVB that require some VC portfolio companies to hold their deposits (at least some amount of them) with SVB. (I don't entirely understand this point, but even if I'm getting it wrong, the previous point is enough.)

Re: FDIC Takes over Silicon Valley Bank

#776

Post by bjornsing »

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…

> It's not like those government bonds won't pay out...eventually.

Does that really matter though? Anyone can buy and hold to maturity. The market price indicates that that's not good business.

Re: FDIC Takes over Silicon Valley Bank

#777

Post by dools »

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!…

What’s interesting is that this bank failure as well as the failure of a neo bank Xinja in Australia despite taking in deposits both illustrate that it is not the case that banks make money by “lending out deposits” but rather by issuing loans and then attracting enough deposits to make their lending operations profitable.

Re: FDIC Takes over Silicon Valley Bank

#779

Post by snuxoll »

boosting6889 wrote: post #508
rsync wrote: post #445

Earlier quoted context omitted.

"97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%." I'd like to learn more about the dramatic drop in MBS - elsewhere, downthread, it is asserted that they have dropped 30-50% ? I understand the inverse relationship between bond price and yield ... ... but I am surprised that an asset yielding ~1.5% drops 30% in value when treasuries of similar duration rise to 3-4%. Are there other fac…

There’s a misconception that bonds are safe investments. They are not. You’re just trading one kind of risk for another. You can do the math, compare 4% and 1.5% compounding for 10 years and that’s why no one wants the bonds yielding 1.5%. Dumping 90%+ of your liquid funds into a single thing other than cash is completely insane especially when it’s not yours.

Treasury bonds are "safe" in the sense that you will (because the US Government will not default on her debt) get your money back. The caveat is you will get your money back at maturity; if you need it before then, well, market value adjusts based on current yields.

If you're investing in bonds without building a ladder you're honestly doing it wrong. With the past 15 years of easy money and low yields it might have seemed pointless given rates barely moved, but completely giving up on any ability to capitalize on higher yields if rates move up is just poor investing :/

Re: FDIC Takes over Silicon Valley Bank

#780

Post by stuxnet79 »

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,…

I see the point you are trying to make here but your argument isn't very convincing. You are completely ignoring the impact regulatory oversight would have. If fractional reserve banking was banned outright due to the risks it poses, then the situation you just described would never emerge.

As time goes on it's becoming more obvious that the current status quo is unstable. Our financial institutions regularly engage in ponzi like activities and we've become accustomed to near catastrophic collapse at the end of every business cycle.

If we are going to stick to fractional reserve banking then we need to come up with better reasons why otherwise I feel like the entire system needs to be reevaluated.

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