In widely underreported news, before anyone blames looser regulations, Barney Frank of the Dodd-Frank Act fame was literally on the board of Signature Bank, which also collapsed. He also has stated the regulation reduction under the last administration has nothing to do with this situation, whatever you make of that.
Update from Silicon Valley Bridge Bank CEO
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Re: Update from Silicon Valley Bridge Bank CEO
#22I read that there was only one person on the board with experience in banking. Is this normal for the board of a bank?
Re: Update from Silicon Valley Bridge Bank CEO
#23Earlier quoted context omitted.
There is no way this is permanent, right? What's the end goal of this? Rebuild confidence in SVB and then return to normal insurance? I think the first step they have to do if there is any hope of a successful relaunch, is a full rebrand.
My guess is they are probably looking for a buyer, who will likely roll everything into their offering. So, the more they can get back, the higher the sale price.
Which makes for fewer banks and more consolidation. That sounds like it has its own risks, echos of "too big to fail"
Re: Update from Silicon Valley Bridge Bank CEO
#24It's quite an ingenious situation.
- FDIC guarantees that every deposit at these banks up to an unlimited amount will be paid out by the US government.
- Because of that guarantee, the bank run stops and people leave their money there (and in fact deposit more).
- Because of the influx of cash the bank solves its liquidity issues and the government doesn't actually have to spend a single penny.
In theory all of this works. But the next question is – how far will this go? Will FDIC do the same for every bank in the country? Can they all just start taking more and more risk? Do customers not need to care about how well their bank is run, because ultimately the US government is everyone's bank?
Did we just accidentally invent a fully socialized national banking system?
Re: Update from Silicon Valley Bridge Bank CEO
#25It's quite an ingenious situation. - FDIC guarantees that every deposit at these banks up to an unlimited amount will be paid out by the US government. - Because of that guarantee, the bank run stops and people leave their money there (and in fact deposit more). - Because of the influx of cash the bank solves its liquidity issues and the government doesn't actually have to spend a single penny. In theory all of this…
If I were head of a smaller or regional bank, I’d be running for the lawyers, because I would find it very hard to believe that FDIC would extend their offer in a fair and reasonable manner to smaller banks. If they don’t, it’s arguably a form of extortion, using mandatory fees on small banks to only protect big ones. How would that be legal?
To avoid legal hot water, the FDIC may find themselves to equally protect every bank which might quickly turn out regrettable…
> Did we just accidentally invent a fully socialized national banking system?
According to Kevin O’Leary, YES. He also makes a point about how the management was "idiotic" because if they had just gone to JP Morgan, or Wells Fargo, or another big bank - and said, "hey, we got a short term cash problem with a lot of treasuries," they almost certainly could have come to a very low-interest loan arrangement that would have prevented this outcome.
Re: Update from Silicon Valley Bridge Bank CEO
#26Earlier quoted context omitted.
Don’t all banks have that right now?
No, only SVB and Signature enjoy infinity insurance. Everyone else that played by the rules gets a measly $250k max...
Re: Update from Silicon Valley Bridge Bank CEO
#27Earlier quoted context omitted.
Don’t all banks have that right now?
No, only SVB and Signature enjoy infinity insurance. Everyone else that played by the rules gets a measly $250k max...
In writing yes, but the FDIC always makes depositors whole somehow. Otherwise the banking system would collapse.
If some bizarre scenario were to happen (a failure of two of the big four) which the FDIC couldn’t recover, in the words of Dwight Schrute, “you’ve all been dead for weeks”.
Re: Update from Silicon Valley Bridge Bank CEO
#28Earlier quoted context omitted.
All of the funds are provided from a fund the banks pay into. There is no taxpayer money supporting the depositors.
This is the biggest lie you will ever read (not you specifically, but this pitch). The funds will be recovered from special bank assessments, which means you and I will pay to bail out SVB and Signature via increased bank fees and more over the next decade. Not to mention the FDIC is guaranteeing depositors will be made 100% whole, which means again, you and I are guaranteeing the deposits if this special bank assess…
The depositors will be paid back by their own money. The money hasn’t disappeared anywhere. It still exists, and the bank will still make a profit as the MBSes it paid into will continue returning money to the bank. It will simply make a profit that’s less than what it could have made with the same shareholder equity with way less risk in other investments. Which is why shareholders got wiped out.
This was a classic bank run. A combination of the concentration of depositors from a single industry, massive swings in the monetary flow of that industry, poor investment decision making, and having regulations loosened on it meant that SVB saw far too many short term depositors call for their money and had too much of that money tied up in long term investments.
The government has the liquidity and the reputation that is needed to prevent this from becoming a problem.
The cost that is being borne by the taxpayers is the cost of people depositing money in smaller industry focused banks, which have greater risk, and lower efficiency. If you really wanted to eliminate the cost, the solution would be to have everyone deposit their money in a handful of Too big to fail banks, which would almost certainly be cheaper and more efficient, but is also a bad economic system because of the political power those entities gain.
Re: Update from Silicon Valley Bridge Bank CEO
#29Earlier quoted context omitted.
No, only SVB and Signature enjoy infinity insurance. Everyone else that played by the rules gets a measly $250k max...
https://www.federalreserve.gov/monetarypolicy/bank-term-fund...
That's a loan, not insurance. Not the same thing, and a bank in SVB's situation last week would not be able to pay back a loan anyway.
Re: Update from Silicon Valley Bridge Bank CEO
#30Earlier quoted context omitted.
No, only SVB and Signature enjoy infinity insurance. Everyone else that played by the rules gets a measly $250k max...
In writing yes, but the FDIC always makes depositors whole somehow. Otherwise the banking system would collapse. If some bizarre scenario were to happen (a failure of two of the big four) which the FDIC couldn’t recover, in the words of Dwight Schrute, “you’ve all been dead for weeks”.
> the FDIC always makes depositors whole somehow. Otherwise the banking system would collapse.
When was the last time any of this happened?