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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#931

Post by zenlikethat »

JumpinJack_Cash wrote: post #425
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!…

> > 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%. But why didn't they just hold money at the Fed given that they are a bank and they can? It's literally splitting hairs between what the Fed Fund Rate is and what they got on their MBS. Explainer post says end of 2021 they made that trade, in March the Fed raised the Fed Fund Rate to 0.20%, and by April it was 0.77%. Had they waited j…

Because people can’t see the future and you’re talking do we forgo $1b a year or not in that spread. It wasn’t the MBS that got them into trouble, they were supposed to hold those to maturity. It was something else they did that led to that forced liquidation

Re: FDIC Takes over Silicon Valley Bank

#932

Post by kmod »

gregruss wrote: post #682
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…

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…

It sounds like you're saying "if you don't sell you can't lose money"

Re: FDIC Takes over Silicon Valley Bank

#933

Post by woeirua »

bhawks wrote: post #884
woeirua wrote: post #881

For those saying that depositors will probably only take a small haircut, it’s all going to come down to the recoverable value of SVBs outstanding loans. 40% of their assets were loans made to startups, their founders, etc. The value of those loans is inextricably tied to those startups accessing their funds at SVB. Even _if_ depositors are made whole those loans could still be called in and wreck a lot of startups.

I would be very surprised that SVB would be able to write terms into their loans that gave them the option to demand immediate loan repayment (these would be puts not calls). Those terms would have to come with much lower interest rates for borrowers and in a low interest environment I don't think it'd make sense. They may try to sell their loan books to another bank in order to meet withdrawal- which may be very cha…

I agree that its unlikely that SVB can call in the loans at any moment.

The bigger issue is that the loans that they made are not properly collateralized because SVB accepted startup equity as the collateral. After all, startups and their founders typically don't have a ton of assets to offer up as collateral on loans at the beginning. If the startups are unable to operate because they no longer have access to their funds, then the value of that collateral is unknowable and the borrower has limited (if any) ability to make regular payments. That would mean that any institution interested in purchasing the loans from SVB would have to go through on a case-by-case basis to assess the true risk associated with each loan. IMO, that makes it very unlikely that we'll see a major institution step in over the weekend. Over time, perhaps those loans will eventually make it to stronger banks, but it will take time, that many startups don't have.

Re: FDIC Takes over Silicon Valley Bank

#935

Post by syntheweave »

javajosh wrote: post #699
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)

Not an expert, but was having some thoughts. Let debt be a graph where the nodes are people (with ledgers) and the edges are all of the form "alice rents $x from bob for y% APR". Actions that resolve/relax graph are payments of the form "alice pays bob $z", that lead to all balances being 0. Let the edges decay to null when balance is 0, such that a 'resolved graph' is simply a list of nodes with no edges, meaning 'n…

Yep, this is indeed what is going on, and relates to concepts like "capitalism motivating nationalism, imperialism and colonialism" - it's the large scale expansion of the debt graph. It's something you can pull off profitably temporarily by coordinating your nation towards a stronger state bureaucracy, aggressive trade policies, industrialization, and destabilization or dehumanization of rivals. When we speak of "this is good for the nation", what's really at stake, materially speaking, is this kind of Machiavellian machination of debt, tempered only by whether it can be justified in terms of national myth, dominant ideology, party politics, etc.

It produces a grand, generational historical narrative, but it's also a form of pyramid scheme and guaranteed to run out of runway at some point when the graph, rather than expanding, finds ways to get by with different trade flows that ignore the center - and each time that happens, you get a massive economic crisis, elites vying for power and drumming up scapegoats to avoid heat, but also waves of material change(different lifestyles and work arrangements).

So there is downside to debt in that it can reinforce hierarchies, but also upsides in that the network itself is acting to transfer useful information about material needs. All things that, having becoming so much more digitally connected in the last 30 years, we can probably revise again to become more abstracted.

Re: FDIC Takes over Silicon Valley Bank

#936

Post by plandis »

fairity wrote: post #373

The bigger story here will probably be the follow-on effects, assuming it takes a long time for uninsured deposits to be recouped. I wonder how many businesses will be forced into a fire sale due to inability to raise cash to cover short-term liabilities. I'm sure some private equity firms' mouths are watering right now.

My wife is a fan of these emotional baby toys called Slumberkins and she noticed that they appear to have this problem: https://www.instagram.com/p/CpopLR2OxRU

Re: FDIC Takes over Silicon Valley Bank

#937

Post by HDThoreaun »

bluetwo wrote: post #704
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!…

There are some big parts to this story we don't know. Yes, they sold the treasuries and took a bath. But if that was their best option, it speaks very poorly to the other "assets" they held on their balance sheet. We may find out in the coming days that they had a big position in Silvergate, which went bankrupt yesterday, and they had to mark their position to zero, creating the need for liquidity.

Something like 60% of their assets were these bonds in December. They very well may have seen the other 40% withdrawn already by startups that can't raise anymore leaving them with this pile of 10 year 1.5% bonds.

Re: FDIC Takes over Silicon Valley Bank

#938

Post by HDThoreaun »

zenlikethat wrote: post #924
ahmedbaracat wrote: post #806

Earlier quoted context omitted.

This logic is counterintuitive to me “As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital.”. Startups are not depositing the money in SVB to invest it, they are storing it for future use. Why the pressure to generate yield and grow the loan book “fast enough”? https://twitter.com/AhmadBaracat/status/1634293096639787008?...

Because if you lose 7% of capital on $180 billion in real terms that’s an awkward conversation with your boss?

Bank accounts were paying .1% interest at this time. SVB could've bought 1 year bonds and made .5-1% easily. That's a billion dollars...

Re: FDIC Takes over Silicon Valley Bank

#939

Post by HDThoreaun »

andromeduck wrote: post #441
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!…

Why even chase 1.5%.

1% of 100 billion dollars is a billion dollars. They would rather have 1.5 billion than .5 billion.

Re: FDIC Takes over Silicon Valley Bank

#940

Post by melvinmelih »

Edmond wrote: post #238

Please reboot Silly-con Valley...I mean the show. With everything that has happened with crypto and the current mayhem I think two solid additional seasons can be made.

It’s not as funny when the real world is crazier than the parody show. See also what happened to Veep.
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