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SVB in talks to sell itself after attempts to raise capital fail

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Re: SVB in talks to sell itself after attempts to raise capital fail

#271

Post by ProjectArcturis »

hnfong wrote: post #148
rich_sasha wrote: post #87

One thing to bear in mind is that "failing" is not binary. The story seems to be that SV put all their deposits into 10 y bonds in 2021. I'll use that as an approximation. A 10Y bond will usually move about 8x as much as the underlying interest rate (it's called "duration"). So if SVB did nothing but buy these bonds and sit on them, then they would have lost about 36% on these (8 x 4.5% rate movement). That's a lot b…

> 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 is precisely why we have the FDIC -- if deposits are federally insured, there is much smaller incentive for depositors to withdraw their money out of fear of a bank run.

Re: SVB in talks to sell itself after attempts to raise capital fail

#272

Post by [deleted] »

strbean wrote: post #262
afavour wrote: post #177

Earlier quoted context omitted.

“It’s the governments fault the bank mismanaged the money given to them” is certainly one perspective. If it were true why aren’t all banks facing the problem SVB has?

Other banks have diversity of depositors. SVB didn't implode on their own, Thiel decided all the startups he backed should withdraw their deposits. Then other VCs followed the trend. SVB was what, $2B short on their balance sheets, out of >$200B assets? VC initiated bank run is the only real issue here. Waiting to see how this all benefits Thiel.

[deleted]

Re: SVB in talks to sell itself after attempts to raise capital fail

#273

Post by jrumbut »

Zetice wrote: post #221
jrumbut wrote: post #194

Earlier quoted context omitted.

And this situation is similar. A bad thing happened, so we were going to feel some pain. Instead of letting that lead to complete chaos we let it lead to some chaos and some inflation.

Exactly, and just to drive it home, I’m going to feel zero pain as a result of SVB imploding, Thanks to the fed. I felt no pain in ‘08, in ‘20, also thanks to the fed. It was just news to me, abstract and happening to other people. That would not have been true without the fed.

I do wish we could get beyond the idea of "I don't like this system, get rid of it."

It's not realistic in a society this size to just chuck something like the Federal Reserve.

You'd think technologists of all people would understand that to get rid of a legacy system you need to make something so much better it becomes obsolete (or, at the very least, the embrace-extend-extinguish approach).

Re: SVB in talks to sell itself after attempts to raise capital fail

#274

Post by chollida1 »

hnfong wrote: post #210
chollida1 wrote: post #183

Earlier quoted context omitted.

> The story seems to be that SV put all their deposits into 10 y bonds in 2021. Not sure who told you that, its incorrect. https://twitter.com/jamiequint/status/1633956163565002752?s=...

Seems a bit pedantic, MBS are basically bonds. The important part is the 10 year term.

Perhaps but I’d argue it makes a huge difference.

Svb had to sell at a huge loss for two reasons.

- the duration risk, this applies to both assets. Though shortened dates treasuries would have far less loss due to duration than MBS would.

- the size of the trade compared to the market. Treasuries are treasuries but each MBS has specific terms that make the market for them much smaller.

This only affects their MBS

If the held treasuries they’d be in far better shape due to the much smaller haircut they’d take.

Sadly this wasn’t th care.

Re: SVB in talks to sell itself after attempts to raise capital fail

#275

Post by zamnos »

rosywoozlechan wrote: post #224
ncallaway wrote: post #203

Earlier quoted context omitted.

Deposits ate FDIC insured up to 250k per depositor per bank. Companies with > $250k in the bank need to take the risk that they really can lose that money into account.

Per bank and per account with different ownership categories, so if a company had multiple accounts in different ownership categories those would each be insured up to $250,000

Why would a company have different ownership categories for their accounts? Wouldn't all of their accounts be wholly owned by the company and no one else?

Re: SVB in talks to sell itself after attempts to raise capital fail

#276

Post by brianwawok »

ProjectArcturis wrote: post #271
hnfong wrote: post #148

Earlier quoted context omitted.

> 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 is precisely why we have the FDIC -- if deposits are federally insured, there is much smaller incentive for depositors to withdraw their money out of fear of a bank run.

250k per account.

Imagine all the big businesses with millions in the bank. FDIC will not help them.

Re: SVB in talks to sell itself after attempts to raise capital fail

#277

Post by HDThoreaun »

prottog wrote: post #168
Zetice wrote: post #153

Earlier quoted context omitted.

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…

Which pre-Fed crises were worse than the Great Depression or the GFC?

Literally the entire second half of the 19th century.

Re: SVB in talks to sell itself after attempts to raise capital fail

#278

Post by krustyburger »

ancorevard wrote: post #270
mrguyorama wrote: post #259

Earlier quoted context omitted.

If the tide goes out and certain groups turn out to be naked, we shouldn't blame the tide going out and try to prevent that.

Tide is a natural occurring phenomenon. There is nothing natural about the interest rates policies and stimulus packages from the governments last couple of decades.

They’re still supposed to have swimsuits on, to continue the metaphor. If anything, their customers are relying on trusting them more during turbulence.

Re: SVB in talks to sell itself after attempts to raise capital fail

#279

Post by swyx »

vishnugupta wrote: post #233

The bank has officially failed, as per FDIC. "Silicon Valley Bank is the first FDIC-insured institution to fail this year." https://www.fdic.gov/news/press-releases/2023/pr23016.html

"first... this year" is it me or is that unintentionally foreboding

Re: SVB in talks to sell itself after attempts to raise capital fail

#280

Post by [deleted] »

prottog wrote: post #140
ancorevard wrote: post #112

In hindsight they shouldn't have bought those MBSs, should have foreseen the coming inflation and the following interest rate hikes, and of course shouldn't have said those words yesterday. However, sad to see what looks to be another government caused implosion. - First, via the massive government stimulus COVID19 SVB got enormous amount of deposits in 2020/2021. They have to put that money to work, and the traditio…

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…

[deleted]
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