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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#861

Post by paulddraper »

Eumenes wrote: post #693
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 team making these poor choices at SVB should be criminally charged ... The tax payer shouldn't have to bail out banks.

> should be criminally charged

For what crime?

If someone unintentionally but ineptly writes code that crashes Amazon on Black Friday, did they commit a crime?

Re: FDIC Takes over Silicon Valley Bank

#862

Post by chii »

rib3ye wrote: post #808
kypro wrote: post #671

Earlier quoted context omitted.

> - 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 dolla…

> SVB being a bank was basically forced by regulation to buy long-dated bonds for yield. Is this true?

nope, there's no mandate to buy for yield - they do it to make money.

Re: FDIC Takes over Silicon Valley Bank

#863

Post by stephenhuey »

renewiltord wrote: post #342
stephenhuey wrote: post #225

Earlier quoted context omitted.

Disrupt disrupt disrupt! Those old stodgy banks just slow us down with their old-fashioned risk-averse ways! The cool kids can do it better! If I had a nickel for every time I heard this from actual friends in the past couple decades, or for when I said it myself a few times... :)

HN really is like a ChatGPT version of itself. SVB is a 40 year old bank, bro. They are the old stodgy bank. The Meows and Mercurys are all still around. Their problem was that their risk management didn't keep up with the changing times (rapid interest rate changes). Please go on and tell us more HN tropey things like "oh they shouldn't have sold customer data!" or more things that could be an autogenerated robot co…

Your comment is delightfully insightful! I waited too long and cannot edit my comment to say I learned a lot from you and others here today. :P

Re: FDIC Takes over Silicon Valley Bank

#864

Post by fintechjock »

dang wrote: post #589

Related ongoing thread: The Demise of Silicon Valley Bank - https://news.ycombinator.com/item?id=35098607 - March 2023 (64 comments) The previous major threads appear to be these (did I miss any?): SVB in talks to sell itself after attempts to raise capital fail - https://news.ycombinator.com/item?id=35094466 - March 2023 (270 comments) Ask HN: How is the SVB situation affecting your startup? - https://news.ycombinat…

You’re doing some really great work through all of this

Re: FDIC Takes over Silicon Valley Bank

#865

Post by paulddraper »

eli wrote: post #659
borski wrote: post #84

Earlier quoted context omitted.

> And any accounts over $250K, poof. That's not quite true; the FDIC will pay uninsured depositors an advance dividend within the next week.

And they'll probably get 90%+ back eventually. The bank's money isn't gone it just isn't liquid.

It could definitely be less than 90%. But yeah, it's not just poof gone.

Re: FDIC Takes over Silicon Valley Bank

#866

Post by diogenescynic »

joosters wrote: post #480
duxup wrote: post #435

Earlier quoted context omitted.

I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…

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)

No, the $1M deposit is an asset and liability (which offset each other). SVB then invested those assets in bonds/securities/T-bills but then had to sell them at a 20% loss because they needed funds for liquidity—-so now they don’t have as many assets as they do liabilities and hence are taken over by FDIC.

Re: FDIC Takes over Silicon Valley Bank

#867

Post by sneak »

ecshafer wrote: post #860

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.

As I understand it, it was a matter of personal connection. Also, if most/all of your vendors and customers are there, payments settle faster (historically).

Re: FDIC Takes over Silicon Valley Bank

#868

Post by hot_gril »

rafaelero wrote: post #632
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…

> What I don't understand is why do banks work this way? People don't want to lose their money to inflation, so banks are implicitly required to make up for that. Also, it's just too tempting for them not to use the money that is collecting dust. Hopefully people will emerge from this with a better understanding of Bitcoin's advantage to normal fiat system, which is something that is severely lacking in discussions I…

Except the bank interest still doesn't beat inflation, let alone the rate of M2 increase. Chase offers 0.1% on savings accounts right now, which would be pointless to me.

It's more difficult just to hold onto wealth than most people see. It'd be nice if everyone holding the currency weren't implicitly taxed through dilution, forcing them to passively invest, creating bubbles... and still being taxed on the so-called gains. These passive investments are more about stashing wealth in something with a limited supply (stocks etc) than about the actual business they're investing in, making them not all that different from the concept of a broadly-adopted cryptocurrency. Difference is they have to keep fleeing from one "save haven" to another as the money moves and the bubbles pop.

Re: FDIC Takes over Silicon Valley Bank

#869

Post by sneak »

jaxomlotus wrote: post #794

We bank with SVB and our funds are now frozen. This is going to be an incredibly painful weekend of waiting for news. For anyone else impacted, wishing you the best - stay strong.

Two is one and one is none. I am an individual person with no payroll to run and I bank in three US retail banks because they fail closed so often (most frequently from card use while traveling, but also for myriad other reasons).

Re: FDIC Takes over Silicon Valley Bank

#870

Post by chii »

berkeleyjunk wrote: post #579
andromeduck wrote: post #441

Earlier quoted context omitted.

Why even chase 1.5%.

They got too much in deposits very quickly and could not originate loans at the same speed. If they kept the money uninvested their operating costs would have eaten up their principal (even if they had to pay 0% in interest to their customers)

but operating costs don't rise linearly with deposits (i imagine it rises sub-linearly, at most), esp. if they can choose to pay 0% interest for deposits.

It really is just a matter of money making. They didn't want to accept the low yield, but certain safety, and accepted a higher yield, but with risk. It caught up to them.

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