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How the last-ditch effort to save Silicon Valley Bank failed

wsj.com

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Re: How the last-ditch effort to save Silicon Valley Bank failed

#41

Post by lazide »

fsckboy wrote: post #21
notch898a wrote: post #19

Earlier quoted context omitted.

Honestly I just thought that was the way banking was done. I don't send a lot of wires (and everybody else I have dealt with were even worse).

it is the way banking is done, these other people are believing the promises that their black platinum club card entitles them to be whisked along a red carpet no matter what they want to do

If you go off the rails a bit, it does get pretty muddy.

That said, even wiring 6-7 figures isn’t a big deal as long as it’s normal for your account and there are some basic security things setup.

Re: How the last-ditch effort to save Silicon Valley Bank failed

#42

Post by renewiltord »

fsckboy wrote: post #30
ozi wrote: post #8

Earlier quoted context omitted.

No business is going to park their working capital with a bank that has those requirements.

no bank is going to give carte blanche to large customers to run the bank, they can't, and even if they promise it... As with all businesses, like a restaurant wants you to enjoy your food so you come back, the bank wants to provide the services the customers need. But everybody can't have everything especially all at once, and banks can't provide liquidity that has dried up. sure, customers will periodically get mad…

We moved our stuff out of First Republic. Everything but $250k. Happened without a hitch. No one was mad.

Re: How the last-ditch effort to save Silicon Valley Bank failed

#43

Post by [deleted] »

hackly wrote: post #4

My bank (in Canada) has limits on how much I can withdraw per day, per week, per month. Furthermore, there could be a delay of up to 5 business days before I can get the money to its destination. And that’s for money in the thousands only. How is that money in the billions can be withdrawn so quickly esp. since these were high value accounts each in the millions/billions? Couldn’t they just use one of their terms or…

[deleted]

Re: How the last-ditch effort to save Silicon Valley Bank failed

#44

Post by 8ytecoder »

hackly wrote: post #4

My bank (in Canada) has limits on how much I can withdraw per day, per week, per month. Furthermore, there could be a delay of up to 5 business days before I can get the money to its destination. And that’s for money in the thousands only. How is that money in the billions can be withdrawn so quickly esp. since these were high value accounts each in the millions/billions? Couldn’t they just use one of their terms or…

Demand Deposit Accounts also allow you to withdraw without any advance notice. Most companies will have one. They wouldn’t want to sit around and wait for a banker to pay their suppliers or make payroll. Usually, most operational expenses like that are integrated into whatever systems they use and money moves where they want it to.

Re: How the last-ditch effort to save Silicon Valley Bank failed

#45

Post by stephen_g »

I don't think it would have mattered. A loan wouldn't have helped their situation much - the extra liquidity might have kicked the can down the road a few days or weeks, but they still would have been basically insolvent. Probably only a big capital injection and the interest rate quickly dropping by a significant amount would have saved them (or being bought by a bigger bank that could absorb the losses and hold the long-term bonds to maturity).

Re: How the last-ditch effort to save Silicon Valley Bank failed

#46

Post by chmod600 »

stephen_g wrote: post #45

I don't think it would have mattered. A loan wouldn't have helped their situation much - the extra liquidity might have kicked the can down the road a few days or weeks, but they still would have been basically insolvent. Probably only a big capital injection and the interest rate quickly dropping by a significant amount would have saved them (or being bought by a bigger bank that could absorb the losses and hold the…

How does holding the bonds to maturity help? Sure, interest rates might go down, but the expectations are already factored into the market price. If they go down more than expected, the bigger bank wins. If they go down less than expected, the bigger bank loses. Overall, should be neutral.

Re: How the last-ditch effort to save Silicon Valley Bank failed

#47

Post by appleiigs »

fsckboy wrote: post #28
appleiigs wrote: post #27

Earlier quoted context omitted.

They're conflating 2 issues. The first issue is liquidity management. The second is accounting. If the accounting auditors are doing their job then the bank managers don't get to cook the books. The accounting rules are set by the accounting industry. If the financial statements don't reflect what's happening, it's the accountants fault. So, it's incorrect to imply that bankers are doing something nefarious. At this…

> What's more likely is just the incompetence with liquidity management, incompetence with the crisis handling. no, what's more likely (if what has been said between the two of us comports with reality) is that the incentives for the officers of the bank are in conflict with the healthy management of the bank. Bankers running a bank into the ground cannot be blamed on regulators or the accounting profession which onl…

If the accounting and regulations reflected what was actually happening (mark-to-market) instead of some accounting non-sense (book-value), then the performance of the bankers would be reported accordingly.

The accountants don’t just review. As i mentioned, they established the accounting rules for the financial statements - which incentives are measured against.

The accounting is so far off that financial analysts spend a significant amount of time un-doing the obsfuscation the accounting does. And if they can’t see it, stuff like SVB happens

Re: How the last-ditch effort to save Silicon Valley Bank failed

#48

Post by tripletao »

quesera wrote: post #38
fsckboy wrote: post #36

Earlier quoted context omitted.

> the bank is legally obligated to honor outflow transfers of any size, at any time they should have legally obligated SVB to remain solvent!

> they should have legally obligated SVB to remain solvent! They did! When SVB failed to meet those regulatory obligations, the bank was seized and the depositors were made whole. So the system worked, right?

The FDIC and Fed made policy changes in response to the SVB's failure--the FDIC is insuring all the SVB's deposits, including those >$250k, and the Fed is allowing all banks to borrow more than the FMV against certain assets that lost value when interest rates increased.

Without these changes, the SVB's depositors would have had access to maybe 50% or more of their uninsured money immediately, and maybe 90% or more eventually. They'd maybe have been made whole eventually; but the FDIC's inability to find a buyer over the weekend suggests that the SVB's assets weren't obviously greater than its liabilities to depositors, so maybe not.

The SVB's depositors have been made whole now only because regulators intervened with emergency policy changes to rescue them. That might have been a good idea, since it stopped contagion; or it might have been a bad idea, since it encouraged future risk-taking in anticipation of a similar ad hoc rescue. It certainly wasn't any kind of rules-based system working, though.

The SVB had been insolvent on a mark-to-market or NPV basis since around September. Accounting rules on bonds they intended to hold to maturity allowed them to ignore that, but didn't change economic reality.

Re: How the last-ditch effort to save Silicon Valley Bank failed

#49

Post by seanhunter »

fsckboy wrote: post #24

there was an interesting interview on Kudlow the other day (which I guess was a WSJ piece also? https://www.youtube.com/watch?v=D2OELV5vVZU ) about "how it happened" at SVB. I don't know if "the experts" all agree with "this expert" but he pointed out that in buying all the mortgage backed securities, SVB got to put them in a "hold to maturity" account that is not "marked to market" (the value in the account does not…

The difference between mark to market and hold to maturity is an accounting difference to do with when profits and losses get realised. Secondly the rules about MTM vs HTM accounting tend to be dominated by whether or not there is a liquid market price for an asset (these are known as Level 1 mark to market assets), a liquid market price only for hedges or hedge equivalents of an asset (level 2) or whether a price has to be synthesised via a model (level 3, colloquially known as “mark to myth” during the crisis). There was a liquid market price for the vast majority of the assets in SVB’s portfolio. In any case P&L realisation wasn’t at all an issue relevant to the failure of SVB as I understand it.

My understanding was that realising losses on swaps used to hedge their MBS portfolio led them to require more regulatory capital and when they mishandled communication during the raise, it failed leaving them essentially dead in the water. The next day all the VCs who had been in conversations about the raise told their portfolio cos to move funds out, those founders told their friends and SVB was a dead bank.

Re: How the last-ditch effort to save Silicon Valley Bank failed

#50

Post by anonymouskimmer »

chmod600 wrote: post #46
stephen_g wrote: post #45

I don't think it would have mattered. A loan wouldn't have helped their situation much - the extra liquidity might have kicked the can down the road a few days or weeks, but they still would have been basically insolvent. Probably only a big capital injection and the interest rate quickly dropping by a significant amount would have saved them (or being bought by a bigger bank that could absorb the losses and hold the…

How does holding the bonds to maturity help? Sure, interest rates might go down, but the expectations are already factored into the market price. If they go down more than expected, the bigger bank wins. If they go down less than expected, the bigger bank loses. Overall, should be neutral.

My guess is that bond prices drop because there are better yielding things to buy instead. But for a bank the solvency concern is not that the yield will be "better" yielding, but merely sufficient to cover the obligations it owes along with its operating expenses.

Having to fire sale bonds (to meet withdrawal obligations) that are selling at a discount because any potential buyers have better yielding instruments to buy results in solvency concerns from the relative excess losses.

As long as the bonds yield more at maturity than you paid for them (along with the cost of the money you used to pay for them, which is very cheap for most large banks), then holding them to maturity is guaranteed to pay off. Whereas we have no idea how cheap they could ultimately become on the spot market at any given time that the owner may need to fire sale them.

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