191–200 of 310 posts
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A bank that can't pay back 100% of deposits has failed. This isn't equity where haircuts can be expected at times; depositors absolutely expect to be able to get back all of their money when requested.
> A bank that can't pay back 100% of deposits has failed. Well, not at the same time. No bank can do that.
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It’s really mind boggling that SVB put so much money into bonds with long maturations at essentially zero or negative interest rates. I wonder how many others did similar?
It's not like they wanted to. Loads of money was coming in from funded companies but the demand for loans was low. So they had to put the money somewhere and banks (not just SVB) began putting record amounts into treasuries. At least they got something from them so they could pay interest on things and keep the lights on. The government printed a ton of money and demand for loans crashed after the pandemic started. P…
The short interest in SVB would indicate that alot of people saw this failure moths ago.
That and SI have been two of the most crowded trades by hedge funds since December. Borrow has been 50%+ for the banks. That would indicate that alot of people saw this coming 4 months go.
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If it were to ever run out, though, it's generally assumed taxpayers would make up the rest.
No, the bank could be allowed to collapse or the Fed could arrange a meeting (LTCM style) and basically force a buyout. Nothing is assumed.
In the extremely unlikely case that the fdic insurance fund couldn’t make insured deposits while the tax payer is on the hook.
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It seems like we've had just as many financial crises before the advent of the Federal Reserve in 1913 than after, so it remains unclear to me the benefits of having it around, particularly as its nominal independence from the political process is eroding. Sure, keep the lender of last resort; but maybe let the market determine interest rates through money markets, with incentive-control through judicious laws, inste…
Hmm, I suggest reading about some of the pre-fed crises to understand better why these modern problems are much better to have if given the choice…
Instead of letting that lead to complete chaos we let it lead to some chaos and some inflation.
The FDIC / Fed are currently on-site working on SVB resolution.
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I’d argue preventing a total financial collapse in 2020 is more important than SVB and some startups failing.
Yup. FDIC insurance exists for this reason -- you can let a bank that made bad decisions fail without causing a chain reaction through the economy.
Good luck to all the startups that might have just lost anything they had in SVB over $250k.
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Well if a startup just closed a $20MM round they'll get back $250,000 after a long unwinding from the FDIC. So that's a pretty big haircut. I look to Sequoia because, of any VC fund, they are the most likely to be able to pull off a takeover of SVB. I am still gobsmacked that they invested hundreds of millions in a company with no board or CFO (FTX)
That's not remotely true, for a couple reasons. 1) FDIC insurance only applies in situations where the bank doesn't have the assets to make depositors whole. SVB has a ton of assets; most sources I've found asserting 100% deposit coverage, just not liquid. Even if the FDIC takes over (which isn't even likely) (edit: this aged well), the insurance element is irrelevant; its about operations and finding funding to driv…
I've never heard of the "just in time" funding - and if that's more common than I think I'm also very surprised that we don't hear more of the "fund committed $100M, but the business went south and they declined to fund it fully" sort of stories.
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> That's a lot but also means depositors get 80-85% of their money back That's not what happens. Let's say 100 clients each deposited $1 in the bank, and the bank loses $20, so only has $80 to pay out when liquidated. Let's say half (50) depositors withdraw their funds early, they each get $1 back. So now the bank has $30 in assets and has to pay 50 people. Suppose 20 people demand withdrawals, and the bank pays $20…
This isn't bitcoin world though, deposits are FDIC insured to stop this
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> That's a lot but also means depositors get 80-85% of their money back That's not what happens. Let's say 100 clients each deposited $1 in the bank, and the bank loses $20, so only has $80 to pay out when liquidated. Let's say half (50) depositors withdraw their funds early, they each get $1 back. So now the bank has $30 in assets and has to pay 50 people. Suppose 20 people demand withdrawals, and the bank pays $20…
This isn't bitcoin world though, deposits are FDIC insured to stop this
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Inflation is still 6% YoY. Fed hasn't raised fast enough and is looking at +.50% next meeting.
There's ample reason to believe that the Fed delayed starting its current rate hike process due to political reasons; Chair Powell wanted to be re-appointed and felt that no chair who championed rate hikes back in 2021, which is when it should have started, stood a chance.
Powell was kept on by both Trump and Biden. For all of the hoopla about "politicalization of the Fed", Powell has kept his chair.
Its not perfectly insulated. Both Trump and Biden can whisper to Powell and encourage certain behaviors. Ex: Trump pushed for lower rates, and Biden pushed for higher rates respectively.