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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

#301

Post by loeg »

capableweb wrote: post #286
loeg wrote: post #214

Earlier quoted context omitted.

Yeah, although SVB's failure demonstrates a major shortcoming with deposit insurance (in its role as a deterrent for bank runs). If you have more than $250k in assets, or are worried about short-term liquidity, you're still incentivized to run from the bank.

Correct me if I'm wrong, but FDIC insurance is mainly to protect individuals / small businesses from lose their entire livelihood, they're unlikely to have more than $250k in their bank account at any given time. If you do, you're most likely in/above the 1% and will survive by other means if you lose everything above $250k (or, rightly be "punished" for not having any other survival mechanism)

Part of the reason to protect retail customers is to reduce runs on banks.

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

#302

Post by prottog »

berberous wrote: post #235
hnfong wrote: post #210

Earlier quoted context omitted.

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

It says 10+. I wonder what the average duration is.

According to their filing[0], the securities they were forced to sell at a loss had durations of 3-6 years.

[0]: https://www.sec.gov/Archives/edgar/data/719739/0001193125230...

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

#303

Post by glasshug »

gabrielgrant wrote: post #293
glasshug wrote: post #230

Earlier quoted context omitted.

You're also forgetting about clawbacks of preferential transfers that happened less than 90 days before bankruptcy. 11 U.S.C. 547.

I don't believe the bankruptcy clawback provisions you're referring to apply here, because this is an FDIC conservatorship/receivership, not a bankruptcy proceeding. I don't fully understand why this particular part of the processes differs, but I'd argue it's that it does unfortunate, as it incentivizes bank runs like this. There is an extensive comparison of the two processes in [1]. Specifically: > the Bankruptcy…

I do love a CRS report, but that was written before Dodd–Frank imported the bankruptcy code rules for preferential transfers into FDIC receivership.

> The Corporation as receiver for any covered financial company may avoid a transfer of an interest of the covered financial company in property [...] that enables the creditor to receive more than the creditor would receive if [...] the covered financial company had been liquidated under chapter 7 of the Bankruptcy Code... (12 U.S.C. 5390(a)(11)(b))

It also calls the 90-day clawback period out explicitly.

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

#304

Post by whitemary »

samstave wrote: post #299
whitemary wrote: post #260

Earlier quoted context omitted.

> The fed provides guarantees to banks but not to retail and that's a policy decision we could change, if we wanted to. Who is "we?" The US is not a democracy. Nothing could stop US elites from overturning the Bretton Woods system, passing NAFTA, and bailing out the banks in the mortgage crisis, so what makes you think "we" could change this policy decision? Karl Marx showed us how capitalism works 150 years ago. The…

>> Who is "we?" Guns

Is that a joke or do you lack even a passing clue about the weapon power of the US military?

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

#305

Post by TMWNN »

moondistance wrote: post #15
jpmattia wrote: post #11

I don't understand the incentive for a bank to buy them at this point, because any potential buyer might as well wait until the FDIC steps in to resolve the bank. Any banking wizards at HN who can explain the dynamics? edit: At the very least, FDIC should issue a statement guaranteeing beyond the $250K/depositor limit sooner rather than later in order to stem some of the outflow.

There has been interest in acquiring SVB for a long time. There will be multiple bidders and a deep discount. Suspect a sale will happen this weekend.

A Bloomberg reporter said that Goldman people had told her many times that they would love to own SVB, but that it was too expensive. Not anymore!

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

#306

Post by TMWNN »

jpmattia wrote: post #44
alex_young wrote: post #33

Earlier quoted context omitted.

The current limit is the result of such action in 2008: https://archive.fdic.gov/view/fdic/3388

They went beyond it for several banks: To my knowledge, nobody lost money in the dozens of banks that the FDIC closed in the 2008 meltdown, despite several depositors being beyond the FDIC limits.

Not true. IndyMac customers got 50 cents on the dollar, even with the retroactive raising of the FDIC insurance limit to $250K.

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

#307

Post by paulddraper »

capableweb wrote: post #284
ebiester wrote: post #281

Earlier quoted context omitted.

https://www.fdic.gov/resources/resolutions/bank-failures/fai... Four failed in 2020. Four failed in 2019. None failed in 2022 or 2018. Banks fail fairly regularly, but it's the size of the bank and the types of deposits that are concerning in this case.

SVB was the biggest bank in Silicon Valley (2nd in California), and the 18th largest bank in the entire US. I knew this whole thing was big as I personally know a lot of friends use SVB for their startups, but I failed to realize how big deal this is. How can the 16th biggest bank in the country fail so rapidly?

> so rapidly?

Bank runs are rapid.

They wouldn't be runs if they weren't.

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

#308

Post by paulddraper »

ValG wrote: post #186
cjblack wrote: post #101

Earlier quoted context omitted.

Management and shareholders would not be personally on the hook for missed payroll in the event of insolvency. If all the cash evaporated from my company's account, we were forced to declare bankruptcy, that's pretty much game over. The employees would be among other creditors figuring out their turn to pick over the remains. The employees may end up near the top of the list, but they wouldn't get to hold the C-Suite…

I don't which other states may do this, but in Cali Labor Code Section 558.1 - company managers and owners are personally liable for missed wages. It is a codified approach to piercing the corporate veil. I learned this well when we had a single digit bank account and were waiting on funding to get wired in as payroll was coming due.

Geez, lesson learned don't be a manager.

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

#309

Post by paulddraper »

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…

That's true, but it doesn't take that many leaving to fail the bank, so usually not many are able to leave.

We'll see what happens, but I would be surprised if more than 20% of deposits were withdrawn.

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

#310

Post by lazide »

nemo44x wrote: post #188
HDThoreaun wrote: post #157

Earlier quoted context omitted.

No, they did not have to put the money somewhere. They could've kept the cash as cash if they wanted to. Holding cash is free for a bank, it's not like their costs increased since they weren't paying any interest on deposits. They could've bought derivatives to hedge against the likely scenario that interest rates increase. They could've bought 1 year bonds instead of 10. They really fucked up here. > But this is a s…

I don't think you're right. Here is an article from 2021 describing this. [1] Everyone has been doing it. SVB is unique in that its customers relied on financing to continue and because it hasn't they have been drawing their runway down. Other banks don't face this dilemma necessarily. Or they do and are coming up next. I don't know if you noticed, but a lot of banks stocks are down massively this week. [1] https://w…

Folks knew it was going to happen - but banks are highly regulated and don't have a lot of choice in what they can invest in, it has to be 'safe'. Which means specific types of bonds.

It's why the fed is currently bailing out the industry by being willing to take them all at par value, not market value, in exchange for cash.

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