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Emergency bridge loan for SVB customers

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Re: Emergency bridge loan for SVB customers

#81

Post by pseudo0 »

NovemberWhiskey wrote: post #70
ivalm wrote: post #14

Earlier quoted context omitted.

No, SVB was solvent as long as their assets didn’t have to marked to market, once there was a bank run they became insolvent. If the SVB assets are liquidated they will not cover the deposits.

It’s more complicated than that: debt assets can be classified in a number of different ways i.e. hold-to-maturity, available-for-sale or trading. Hold-to-maturity assets are not required to mark to market, for example.

Why do we let banks play these sorts of shell games? If they are holding an asset worth $0.80, I don't see why we allow them to claim it is worth $1.00 because that is what they paid for it.

Re: Emergency bridge loan for SVB customers

#82

Post by twblalock »

readthenotes1 wrote: post #48
twblalock wrote: post #36

Earlier quoted context omitted.

Right but that's why loans make sense. We know the assets are good quality but it will take time to liquidate them. Companies that can't wait for that to happen will benefit from taking a loan to buy themselves time.

Yes it's a good quality but have they been marked to market recently? Mortgages at 3% aren't worth near as much as they used to be. Ditto treasuries at 1%. If they bought them near the peak value what they can actually sell the income streams for is going to be a lot less than what they paid.

Yeah but they will get some money for them. Plus there might be some other options. The FDIC is going to try whatever they can, and it's only been a day.

In the meantime, impacted account holders can get their IOUs and borrow money to make payroll.

Re: Emergency bridge loan for SVB customers

#83

Post by short_sells_poo »

NovemberWhiskey wrote: post #70
ivalm wrote: post #14

Earlier quoted context omitted.

No, SVB was solvent as long as their assets didn’t have to marked to market, once there was a bank run they became insolvent. If the SVB assets are liquidated they will not cover the deposits.

It’s more complicated than that: debt assets can be classified in a number of different ways i.e. hold-to-maturity, available-for-sale or trading. Hold-to-maturity assets are not required to mark to market, for example.

> Hold-to-maturity assets are not required to mark to market, for example.

This is irrelevant in a scenario where every client wants to withdraw their money, because the only way SVB can fulfill that is by selling their HTM assets at the current market price, which will be at a heft discount compared to where they bought them.

Re: Emergency bridge loan for SVB customers

#84

Post by fnordpiglet »

eek2121 wrote: post #47
gpm wrote: post #11

Earlier quoted context omitted.

Yes, but the assets of the balance sheet exceed the liabilities by a reasonable percentage. The vast majority of what will be paid out won't be from the FDIC's funds, it will be from those assets.

Uh, no? Do you know how they got into this mess to begin with? They were over-exposed to US treasuries. Let's talk about that for a moment: 1) When yields go up, treasury prices fall. 2) When yields go down, treasury prices rise. 3) The only way you get the basis cost for a treasury back is if you hold to maturity. When a bank run happens, you (if you are bank) need cash. Lots of it. If you own assets, you have to se…

This is materially false. The issue was with their MBS holdings in their HTM book. Treasuries are so liquid institutions never hold them like that. MBS are not.

Re: Emergency bridge loan for SVB customers

#85

Post by bdonlan »

stu2b50 wrote: post #41
yieldcrv wrote: post #19

Earlier quoted context omitted.

where do you think Stripe Capital banks They threw all their Atlas customers into SVB, according to Atlas customers

I think they bank with Celtic Bank. I think this because it says on the Stripe Capital product page on the bottom: https://stripe.com/capital/platforms > Loans are issued by Celtic Bank, a Utah-Chartered Industrial Bank Member FDIC. All loans subject to credit approval.

The issuing bank for loans isn't necessarily where the company keeps the majority of their assets.

Re: Emergency bridge loan for SVB customers

#86

Post by jkaplowitz »

ummonk wrote: post #52
ivalm wrote: post #14

Earlier quoted context omitted.

No, SVB was solvent as long as their assets didn’t have to marked to market, once there was a bank run they became insolvent. If the SVB assets are liquidated they will not cover the deposits.

They were still solvent despite the mark to market losses - they just couldn't meet reserve requirements (and planned to raise money through a stock sale to that effect) after the assets were marked to market. Meeting reserve requirements is a much higher bar than simply having assets worth more than liabilities.

What reserve requirements? The last US reserve requirements were eliminated 3 years ago.

Re: Emergency bridge loan for SVB customers

#87

Post by anonymouskimmer »

majormajor wrote: post #37
SirensOfTitan wrote: post #30

Earlier quoted context omitted.

I think you massively underestimate how hard it is to coordinate under these kinds of conditions. Plenty of startups are going to be unable to make payroll, which can pierce the corporate veil in CA, it's not a situation where cooperation is the first thought.

If you were interviewing for a mid-level software engineering job you might suggest "that seems like a single point of failure that could result in a big failure, let's think about how we can add redundancy." Seems like you haven't needed to think about systems design as a VC! "Yeah go to the same place as everyone else I invest in, what could possibly go wrong?!"

The redundancy is knowing that FDIC liquidation can handle the problem soon enough.

Do mid-level software engineers typically diversify across every single point of failure? Architectures? Programming languages? Compilers? Too much diversification itself can be a point of failure.

As long as you have a sufficiently robust insurance backup (the FDIC) choosing a robust single point of failure seems like an okay idea for business operations (it's not like it's literal life support). The people at the FDIC aren't machines; they can do what's necessary to fulfill their function in a timely manner.

Re: Emergency bridge loan for SVB customers

#88

Post by JumpCrisscross »

462436347 wrote: post #79
JumpCrisscross wrote: post #62

Earlier quoted context omitted.

> when they should have instead cooperatively organized an LTCM-style consortium bailout for it I was on the phone with portfolio companies, friends and clients yesterday ensuring they pulled their funds to a back-up bank account. SVB was a national bank. It's not a charity, or even a local bank serving a niche community. It was a big bank, and a badly-run one at that. Nothing they do isn't done by others. I believe…

> SVB was a national bank It was more of a regional bank, specifically one servicing SV, with at most sporadic branches elsewhere, usually just one in a given state in its largest major city (e.g., one in NY: in NYC; one in D.C.; one in Colorado: in Denver). In many states they have no branches (e.g., Florida): https://www.svb.com/locations > Nothing they do isn't done by others Then why did so many startups and VCs…

> was more of a regional bank, specifically one servicing SV, with at most sporadic branches elsewhere

Top 20 by assets and with a branch in New York. That’s a national bank.

> why did so many startups and VCs bank with them?

They were first and did what they did well. That doesn’t make them preciously unique.

> would personally be hesitant to use this terminology for others, unless they're actually doing something truly impactful and impressive, like curing some horrible disease, going to Mars, or at least actually in the military on some mission

Over a bank?

Re: Emergency bridge loan for SVB customers

#89

Post by cyberlurker »

462436347 wrote: post #79
JumpCrisscross wrote: post #62

Earlier quoted context omitted.

> when they should have instead cooperatively organized an LTCM-style consortium bailout for it I was on the phone with portfolio companies, friends and clients yesterday ensuring they pulled their funds to a back-up bank account. SVB was a national bank. It's not a charity, or even a local bank serving a niche community. It was a big bank, and a badly-run one at that. Nothing they do isn't done by others. I believe…

> SVB was a national bank It was more of a regional bank, specifically one servicing SV, with at most sporadic branches elsewhere, usually just one in a given state in its largest major city (e.g., one in NY: in NYC; one in D.C.; one in Colorado: in Denver). In many states they have no branches (e.g., Florida): https://www.svb.com/locations > Nothing they do isn't done by others Then why did so many startups and VCs…

[flagged]

Re: Emergency bridge loan for SVB customers

#90

Post by paxys »

nostrebored wrote: post #6
gpm wrote: post #3

Honestly this makes a ton of sense. The FDIC will be returning most (or all) of the deposits in SVB, so the debt is reasonably safe (at least as far as debt that startups take on ever is). Whoever is funding this is probably not taking on all too much liability, and if they're heavily invested in the startup ecosystem could easily be making enough back from this indirectly to make it worthwhile. For brex this has to…

97% of deposits in SVB exceeded the FDIC threshold. The question is, by how much on average? The amount of risk here is significant. I think this is a desperate play by a company in a struggling industry.

The money hasn't gone anywhere. It will be returned, whether today or a month from now.
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