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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#851

Post by jcmontx »

robertwt7 wrote: post #847
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!…

Please correct me if i'm wrong since i'm not a finance guy, apart from the loss of $1.8bn and the delta of the interest - growth from their assets. Isn't everyone still going to get their money back - the percentage of the loss that SVB has which should be less than 5-9%? Sure FDIC has to liquidate all the money from the assets and it takes time. But at least the impact is not going to be as hard as losing all the mo…

Not if they’re forced to sell at a low. I don’t know how big are the losses though.

Re: FDIC Takes over Silicon Valley Bank

#852

Post by silisili »

RC_ITR wrote: post #679
nr378 wrote: post #639

Earlier quoted context omitted.

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 bette…

Over what time scale delineates the two? If they were say, 1000 year bonds, would you feel the same?

I don't know the answer, but I see both sides. As of today, their liabilities exceed their assets worth, so it does feel like solvency fits.

Re: FDIC Takes over Silicon Valley Bank

#853

Post by zerbinxx »

suresk wrote: post #413
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…

1:1 banking essentially guarantees long-term loss of principal for depositors, albeit slowly. The main "service" a bank would provide in that scenario is holding onto your money for you and instead of paying interest on it, charging you a few percent per year to hold onto it for you. Also, in your model, where does money for loans come from? How are borrowing costs impacted by a major source of funds for loans going…

Ironically, returns on bank savings accounts have been so low for so long that my present APR of like 1% is functionally the same as if they just held onto the money for me. That would probably do a great deal to explain why no one uses savings accounts anymore

Re: FDIC Takes over Silicon Valley Bank

#855

Post by nemo44x »

ahmedbaracat wrote: post #805
rqtwteye wrote: post #674

Earlier quoted context omitted.

"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…

Exactly that. I am wondering why the “pressure” to generate more yield or any yield at all. It is counterintuitive to me to view the startups deposits as investments and not as saved money to be used later, hence no need for a risky or any yield (even if part of the savings will be washed by inflation year over year)

Why would a bank take your money and go to the trouble of managing it if they didn’t plan on using it for something? The purpose of a bank is to lend money. They need deposits to do that.

In this case you’re sort of right in that they found have hedged a bit more by diversifying into more shorter term assets.

Hindsight and all.

Re: FDIC Takes over Silicon Valley Bank

#856

Post by mirthflat83 »

eclipticplane wrote: post #849
kmlx wrote: post #215

Silicon Valley Bank UK confirms it’s a standalone independent UK regulated bank. London, 10 March, 2023: Silicon Valley Bank UK, the financial partner of the innovation economy, today moved to confirm to its UK clients, partners and external stakeholders its financial position as a standalone independent banking institution that is regulated and governed by the PRA in the UK. Silicon Valley Bank UK has been an indepe…

This press release didn't age well. https://www.bloomberg.com/news/articles/2023-03-10/svb-s-uk-...

Lmao, just like FTX

Re: FDIC Takes over Silicon Valley Bank

#857

Post by cormacrelf »

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…

To be clear, if you have 10 million cash, and you need >250k to make payroll a couple of times while your banks assets are sold off and you get the rest of your cash back (or 95%, or whatever), there is no need to spread that 10 mil over 40 different banks. That would be very inconvenient. Just to set it up so you have enough insurance to help you survive a short while. You can put 9.75M in one account and 250k in another bank.

Re: FDIC Takes over Silicon Valley Bank

#858

Post by andrepd »

NovemberWhiskey wrote: post #609
joosters wrote: post #480

Earlier quoted context omitted.

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)

To my mind, although it's in-principle equivalent, the clearer way to think about this is that banks borrow money from depositors and lend that money via loans or investments. The primary business of a bank is borrowing short and lending long - where short and long refer to the holding time: i.e. taking demand or short-duration term deposits and making mortgage, car and other types of loans. If you do this badly, you…

> banks borrow money from depositors and lend that money via loans or investments.

Do they? Reserve requirements are almost non-existent. A better way to put it is that banks pretty much have a state-granted privilege for creating money and in the form of loans.

Re: FDIC Takes over Silicon Valley Bank

#859

Post by leoh »

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!…

Good grief. Simplifying this to “they took on tons of deposits and felt the need to make risky unchartered investments to retain their existing level of returns” is just so stupidly greedy. JFC, I think here of a ship with a heavy keel; only for the captain to order cargo many multiples the weight of the keel to sit above deck.

Why can’t so many folks who are doing well enough just act with basic common sense and integrity these days?

Re: FDIC Takes over Silicon Valley Bank

#860

Post by ecshafer »

I am naive in this area. But what I don't really understand is.. why are all of these start ups using Silicon Valley Bank? It's a relatively small regional bank, that happens to have a ton of cash. Why aren't start ups using Bank of America, Wells Fargo, etc. It's odd to me that >90% of a sector uses this one regional bank.
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