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

Emergency bridge loan for SVB customers

brex.com

Post reply on HN
Print view View original

151–160 of 173 posts

Re: Emergency bridge loan for SVB customers

#151

Post by beberlei »

joefigura wrote: post #26
nostrebored wrote: post #6

Earlier quoted context omitted.

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.

Brex could offer loans up to 25% of the borrower's funds stuck in SVB. As long as depositors receive at least 25 cents on the dollar, the loans would be paid back in full, and the borrower would have gotten significant working capital in the interim. SVB's carcass still has significant assets, so Brex can set that % number based on what they know about SVB's state, to make the loans almost risk-free. I'm not a banker…

Loaning money to a startup in this economy is far from risk free. Companies can go bust regardless of getting a part of their cash back

Re: Emergency bridge loan for SVB customers

#152

Post by delusional »

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…

What would happen if SVB customer themselves went bankrupt? Say some risky investment startup was banking with SVB and had $1 million with them. They can now take out a bridge loan. What if that investment startup now suffers its own liquidity crisis (or even just waste all the money) and default themselves. How is brex covered in such a case? Wouldn't they have to get in line with all the other creditors/investors?

Re: Emergency bridge loan for SVB customers

#153

Post by mcherm »

beberlei wrote: post #151
joefigura wrote: post #26

Earlier quoted context omitted.

Brex could offer loans up to 25% of the borrower's funds stuck in SVB. As long as depositors receive at least 25 cents on the dollar, the loans would be paid back in full, and the borrower would have gotten significant working capital in the interim. SVB's carcass still has significant assets, so Brex can set that % number based on what they know about SVB's state, to make the loans almost risk-free. I'm not a banker…

Loaning money to a startup in this economy is far from risk free. Companies can go bust regardless of getting a part of their cash back

Loaning money to a risky borrower can be practically risk free if the borrower provides collateral. And the deposits in SVB are an excellent example of collateral. They are illiquid, but the funds are being held by the FDIC, which is highly reliable about (eventually) paying out (some portion, not necessarily the full amount).

Re: Emergency bridge loan for SVB customers

#154

Post by user_named »

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.

Wrong. SVIB is exempt from reserve requirements since 2018 as their assets are below 250b.

Re: Emergency bridge loan for SVB customers

#155

Post by user_named »

ummonk wrote: post #66
hackernewds wrote: post #45

Earlier quoted context omitted.

That's a liquidity crisis

It's insolvency if the current market value (not the hold to maturity value) of the assets is less than the liability. As far as I can tell though, SVB was solvent despite its losses, and just needed to raise money to cover reserve requirements after it realized the losses. What did it under was a lack of liquidity after everyone panicked and did a run on the bank, with 45 billion (out of ~175 billion in deposits) in…

There's no reserve requirements

Re: Emergency bridge loan for SVB customers

#156

Post by shawabawa3 »

fnordpiglet wrote: post #122
tekla wrote: post #114

Earlier quoted context omitted.

https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/03/DFP... California has declared it insolvent. It literally by definition is now.

No, it’s not. SBV was unable to meet its obligations and was insolvent. Then the FDIC stepped in and a part of its function will be to ensure liquidity. So it’s is therefore not insolvent. The FDIC won’t take a loss so it may become insolvent again and might have to resort to insurance to make depositors partially whole. The fact that it has a) access to sufficient credit liquidity via governmental ownership b) asset…

> SBV was unable to meet its obligations and was insolvent. Then the FDIC stepped in and a part of its function will be to ensure liquidity. So it’s is therefore not insolvent. The FDIC won’t take a loss so it may become insolvent again

This is nonsense and contradictory

The bank was insolvent. FDIC took over (due to insolvency) and has no obligation to make the bank solvent again (other than the 250k insurance limit)

Re: Emergency bridge loan for SVB customers

#157

Post by shawabawa3 »

fnordpiglet wrote: post #123
IG_Semmelweiss wrote: post #117

Earlier quoted context omitted.

it is insolvent. It sold assets at firesale. That wiped out SVB's entire equity!! If SVB literally had a way to hack the time-space continuum and wait out for asset prices they own , to stabilize ("maturity") , or to pay them back in full ( a loan)...SVB would STILL likely lack enough funds to pay back their deposits.

That hack of space time is called “credit,” and they can collateralize their entire liability sheet if they had a credit willing to lend them massive amounts of cash on their illiquid assets. The FDIC owns them now and has access to credit. As a business they’re fine. The issue wasn’t the selling of assets, it was the panic that their actions took to prop up a balance sheet hole. It’s not like Enron or Lehman.

Credit doesn't help

If you need $80B before your 10Y bonds mature and borrow it today, you're paying minimum 4% interest. By the time your $80B in bonds mature you owe $118B

If you're saying it doesn't matter to FDIC because they can get "free" credit, that's equivalent to a bail out

Re: Emergency bridge loan for SVB customers

#158

Post by NovemberWhiskey »

pseudo0 wrote: post #81
NovemberWhiskey wrote: post #70

Earlier quoted context omitted.

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.

Let me give you a simple example.

Imagine a bank takes demand deposits and pays a variable rate of the base rate minus 1%. The bank then makes fixed rate, 30 year mortgage loans that it intends to service itself at the base rate plus 2% (portfolio loans).

Interest rates then go up.

Bang: that bank just became insolvent. Is this actually the model of the world you want?

Re: Emergency bridge loan for SVB customers

#159

Post by cesarb »

arcticbull wrote: post #132
nostromo wrote: post #76

Earlier quoted context omitted.

Treasuries can and do lose value. They are not like cash which does not lose face value. Long term treasuries have declined 40% in value since they peaked in 2020. https://www.google.com/finance/quote/TLT:NASDAQ Banks hold a lot of treasuries as part of their capital requirements. So long as they intend to hold them to maturity, they don't have to mark them to market. Banks collectively hold about $620 billion in los…

> Treasuries can and do lose value. They are not like cash which does not lose face value. > Long term treasuries have declined 40% in value since they peaked in 2020. This is inaccurate. What you linked to (TLT) aren't bonds, these are bond funds . The way a bond ETF works is that they have a stack of bonds that track the benchmark interest rate. They periodically sell off their old bonds and buy new ones, they don'…

> Treasuries cannot lose value just like cash. They are as good as cash in almost every context. You can always sit on them until they mature and you'll get the full amount plus interest. You cannot lose money this way.

Be careful with absolute statements like that. While it hasn't happened so far with USA treasuries, its equivalents in many countries have lost value in the past.

Re: Emergency bridge loan for SVB customers

#160

Post by SteveNuts »

delusional wrote: post #152
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…

What would happen if SVB customer themselves went bankrupt? Say some risky investment startup was banking with SVB and had $1 million with them. They can now take out a bridge loan. What if that investment startup now suffers its own liquidity crisis (or even just waste all the money) and default themselves. How is brex covered in such a case? Wouldn't they have to get in line with all the other creditors/investors?

That's why they charge interest, they would have calculated the risk of that happening to make sure the amount they charge in interest would still net them the desired profit.
Post reply on HN