Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

FDIC Takes over Silicon Valley Bank

fdic.gov

Post reply on HN
Print view View original

941–950 of 1001 posts

Re: FDIC Takes over Silicon Valley Bank

#941

Post by sacnoradhq »

Friends of mine who were acquired by VMware used SVB 2010-2015 because their investors preferred it.

20/20 hindsight: they were too niche and not diversified. It would've been a slam-dunk to send out flyers to local property owners in the South Bay Area and Santa Cruz Mountains.

For my consulting LLC, I went with Comerica because I figured SVB had the issues of being like a credit union but without CU behind it.

If I were in a founder's shoes today, I would stick to a credit union because they're potentially more flexible and it promotes a local co-op rather than a corporation out to monetize customers with an unknown risk profile.

Re: FDIC Takes over Silicon Valley Bank

#942

Post by sacnoradhq »

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!…

Lincoln Savings and Loan, LTCM, Bear Stearns, and now: SVB.

Re: FDIC Takes over Silicon Valley Bank

#943

Post by shjake »

alfalfasprout wrote: post #685
opportune wrote: post #648

Earlier quoted context omitted.

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.

Here's the more mindblowing thing... not only are those MBS and treasuries completely liquid... they're correlated to interest rates! The fed has been forecasting interest rate hikes every single quarter. Every. Single. Quarter. They had plenty of time to roll over these investments at a slight loss. Heck, even reducing their exposure 50% would have been enough to not end up in this mess. Instead, they waited until i…

> 50bps

It would be very damaging for their credibility if they hiked by 50bps after already doing 25. Of course it depends on what’s the CPI next week but if it’s good/as-expected 50bps would be very surprising

Re: FDIC Takes over Silicon Valley Bank

#944

Post by bhawks »

woeirua wrote: post #933
bhawks wrote: post #884

Earlier quoted context omitted.

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…

If the startup has no operating cash the equity collateral has a known value of 0.

Buying SVBs loans make no sense unless SVBs customer liabilities (eg tech deposits) are guaranteed.

I think we will see fed and regulators coordinate a shotgun wedding between SVB and one or several TBTF banks to stem contagion by Monday if not sooner. If not - tech (and the wider market) will be in existential crisis.

Re: FDIC Takes over Silicon Valley Bank

#945

Post by hgomersall »

elgertam wrote: post #915
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)

> (Yes, this is a gross over-simplification) This isn't really an over-simplification as it is wrong. When someone deposits $1m in the bank, the bank's assets increase by $1m in cash, while liabilities also increase by $1m and owners' equity is unaffected. The problem is that for interest-bearing deposit accounts, those liabilities increase over time, which decreases owners' equity in the absence of a sufficiently ap…

Just to add to this excellent answer, because I don't think it's clear to most people: if the deposit is not created by that bank, the assets the bank takes on are the balancing side of the original deposit (so a loan at another correspondent bank or, if the spending was from the government, an asset at the central bank). Clearing might simplify the net situation, but fundamentally the asset the bank takes on matches the original asset that created the money.

Re: FDIC Takes over Silicon Valley Bank

#946

Post by trifurcate »

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…

You need to realize that essentially bond pricing reflects the present value of all cash flows you expect from the bond. For long term bonds especially, this makes it a particularly risky book, because you are very sensitive to interest rate changes.

If the interest rate goes up while you are holding your low interest bonds, that means that your future cash flow from the bond (the repayment) is literally worth less than what it was. Your bond payments have a lower real value due to the higher interest rate of the surrounding environment and the increasing price levels, despite being the same nominal amount. That's why the bond's price plummets in the market, which is why this is a solvency crisis: because the assets really are not good for the liabilities at present value, which is the only kind of valuation that makes sense here.

Re: FDIC Takes over Silicon Valley Bank

#947

Post by seanhunter »

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…

1. This doesn't actually mean anything. It's true by your definition.

2. There is noone running the graph

3. This is true of all econonomic activity in a free market economic model. The assumption underlying market capitalism is that on net rational actors will only perform transactions which add value to them. Therefore the profit of the system is proportional to transactions over time which is proportional to the edges of the "financial transaction" graph. Debt is not required for this observation to be true - it's intrinsic to the model or the transactions won't occur.

4. There is no "they" other than "all the participants in the financial system". On net everyone participating in the financial system is doing so for their own benefit and therefore are invested in keeping the system running.

Re: FDIC Takes over Silicon Valley Bank

#948

Post by FiberBundle »

danielmarkbruce wrote: post #750
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…

Of course the VCs who told their portfolio companies to pull the money were doing the right thing, by the people they are obliged to do the right thing by. They want to protect their companies and their investors. They'd be mad not to, and they are legally obliged in many cases. I think you'll find a lot of the people complaining are people who got hit and are bitter about it. e.g. some CFO's seem to be complaining a…

No, it actually was incredibly stupid and short-sighted by VCs. Here's Matt Levine on that point [1]:

> Also, I am sorry to be rude, but there is another reason that it is maybe not great to be the Bank of Startups, which is that nobody on Earth is more of a herd animal than Silicon Valley venture capitalists. What you want, as a bank, is a certain amount of diversity among your depositors. If some depositors get spooked and take their money out, and other depositors evaluate your balance sheet and decide things are fine and keep their money in, and lots more depositors keep their money in because they simply don’t pay attention to banking news, then you have a shot at muddling through your problems.

But if all of your depositors are startups with the same handful of venture capitalists on their boards, and all those venture capitalists are competing with each other to Add Value and Be Influencers and Do The Current Thing by calling all their portfolio companies to say “hey, did you hear, everyone’s taking money out of Silicon Valley Bank, you should too,” then all of your depositors will take their money out at the same time. In fact, Bloomberg reported yesterday:

Unease is spreading across the financial world as concerns about the stability of Silicon Valley Bank prompt prominent venture capitalists including Peter Thiel’s Founders Fund to advise startups to withdraw their money. …

Founders Fund asked its portfolio companies to move their money out of SVB, according to a person familiar with the matter who asked not to be identified discussing private information. Coatue Management, Union Square Ventures and Founder Collective also advised startups to pull cash, people with knowledge of the matter said. Canaan, another major VC firm, told firms it invested in to remove funds on an as-needed basis, according to another person.

SVB Financial Group Chief Executive Officer Greg Becker held a conference call on Thursday advising clients of SVB-owned Silicon Valley Bank to “stay calm” amid concern about the bank’s financial position, according to a person familiar with the matter.

Becker held the roughly 10-minute call with investors at about 11:30 a.m. San Francisco time. He asked the bank’s clients, including venture capital investors, to support the bank the way it has supported its customers over the past 40 years, the person said.

Nah, man, you don’t get to be a successful venture capitalist by taking a long view or investing in relationships or being contrarian. I’m sorry, I’m sorry, this is unfair. Of course they were right — Silicon Valley Bank did collapse, and if you got your money out early that was good for you — but that is largely self-fulfilling; if all the VCs hadn’t decided all at once to pull their money, SVB probably would not have collapsed.[6]

[1] https://www.bloomberg.com/opinion/articles/2023-03-10/startu...

Re: FDIC Takes over Silicon Valley Bank

#950

Post by chewz »

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!…

> - This is not a liquidity issue as long as SVB maintains their deposits, since these securities will pay out more than they cost eventually.

This is exactly a definition of liquidity issue... Owning enough assets but not being able to cover short term liabilities.

In opposition to not owning enough assets to cover liabilities.

Post reply on HN