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Silicon Valley Bank Failure [pdf]

am.jpmorgan.com

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Re: Silicon Valley Bank Failure [pdf]

#41

Post by ericpauley »

dhbanes wrote: post #37
ericpauley wrote: post #10

This really sheds clarity on the situation. SVB was in bad shape long before the run, and there is no apparent next domino to fall. FDIC limits are very well understood and relatively easy to work with (despite the rampant FUD about “who’s going to use multiple bank accounts”, deposit sweep programs are highly available and convenient). This is a risk management failure by depositors (in addition to the bank of cours…

There is an apparent next domino to fall - First Republic Bank.

We’ll see, but tweets last night to this effect were pretty clearly FUD.

Re: Silicon Valley Bank Failure [pdf]

#42

Post by patientplatypus »

ericpauley wrote: post #10

This really sheds clarity on the situation. SVB was in bad shape long before the run, and there is no apparent next domino to fall. FDIC limits are very well understood and relatively easy to work with (despite the rampant FUD about “who’s going to use multiple bank accounts”, deposit sweep programs are highly available and convenient). This is a risk management failure by depositors (in addition to the bank of cours…

This appears to be the case - the JPMorgan analyst is (paraphrasing) saying that if you did a fire sale on all of the assets of the banks in isolation the difference between their capital ratios (the amount that they have to have on hand to meet depositors) is minimal. Notice that of all of the banks in the fifth chart the blue line and the bronze line are nearly even - except for SIVB, which has no bronze line. That's not good. I can't speak to this person's methodology, but if what he is saying is true there's almost no risk of contagion in the broader banking sector. And if that's true then there's $152 billion dollars of VC capital that's going to evaporate Monday morning.

It should be noted that JPMorgan participated in the bailout in 2008, with the resulting headaches that that entailed, and Dimon has explicitly stated that he wouldn't participate in a current bailout. So JPMorgan may not be entirely objective. However, to my eyes, this appears rather clear.

Re: Silicon Valley Bank Failure [pdf]

#43

Post by dboreham »

On reflection, one wonders why all bank deposits don't have insurance.

I'm guessing the answer is: something something make more profit...

E.g. my businesses are required to carry liability insurance. I have to do that because we have big company customers who made it a condition of doing business with them. So why do big companies hand $nB over to another company for safe keeping but not require insurance?

Re: Silicon Valley Bank Failure [pdf]

#44

Post by notmindthegap »

itsoktocry wrote: post #34
notmindthegap wrote: post #17

Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.

> How can a business model rely on this? Customers also want to earn easy, high interest, that's the main issue. You're taking a risk (albeit a small one) with your deposits; your money is being lent by the bank and they pay you interest in return. If you only want your cash to be held safely, put it in a safety deposit box.

How many people are actually parking their money at a bank to earn high interest? My guess is for most, the safety deposit box is their bank account.

Re: Silicon Valley Bank Failure [pdf]

#46

Post by chewz »

This is rather silly explanation of what happend, especially from JP Morgan...

Everyone who have ever managed bond portfolio knows that he must hedge interest rate risk. And every bank is doing that. SVB didn't.

Since April 2022 till January 2023 SVB had vacant position of Credit Risk Officer.. And the explanation is simple - SVB's former head of risk, Laura Izurieta had left after 1Q2022 when looses from bond portfolio started to grow. She has probably already realized the final outcome as this is ABC of risk management (and in April 2022 the path of rate increases had been already set in motion by FED).

Now look at the timing of insiders selling shares of SVB...

Re: Silicon Valley Bank Failure [pdf]

#47

Post by compiler-guy »

LandR wrote: post #38
yCombLinks wrote: post #26

Earlier quoted context omitted.

Most depositor's money is insured by the government, so there is no reason people would panic withdrawal their money

In the UK, you are only covered up to £80k though... I could understand people wanting to get at least money over £80k out, but also how long does it take to get access to your cash if you have to go through the government insurance procedure. Is it days, weeks, months ? I have no idea and wouldn't want to have to find out.

In the US, typically the bank is closed Friday afternoon and depositors have access to their insured money Monday morning.

In this case, depositors lost access to their money in the middle of Friday morning and will have access to their insurances deposits Monday morning.

So a very brief outage in the typical case. And about five or so extra hours in the SVB case. An FDIC takeover is efficient and well oiled.

Re: Silicon Valley Bank Failure [pdf]

#48

Post by mghfreud »

yCombLinks wrote: post #26
notmindthegap wrote: post #17

Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.

Most depositor's money is insured by the government, so there is no reason people would panic withdrawal their money

But if they panic, bank will go down.

Re: Silicon Valley Bank Failure [pdf]

#49

Post by schrodinger »

cm2187 wrote: post #4

I am surprised they show JPM in all their comparison charts (typically research doesn't cover their own employer). By showing JPM as an outlier on the opposite of the spectrum to SVB, it feels a little bit like a marketing document.

It can be marketing and accurate at the same time. I.E. conduct an honest analysis and then decide to share it only if it reflects positively on you.

Re: Silicon Valley Bank Failure [pdf]

#50

Post by htag »

notyourwork wrote: post #14
wojcikstefan wrote: post #9

Earlier quoted context omitted.

Coca Cola & Red Bull are massive, they surely have tiny marketing spend… Right?

You’re missing the point. This isn’t a marketing piece. JPM doesn’t need to compare themselves to SVB for any reason, that’s like comparing David and Goliath. What’s purpose would that accomplish?

This is a marketing piece the same way an engineering blog post is a marketing piece. It demonstrates expertise and helps influence others. I can think of two audience members:

* Those with cash in SVB, or another regional bank, and want to find a 'safer' bank.

* The relatively uniformed that are nervous about banking.

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