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FDIC Takes over Silicon Valley Bank

fdic.gov

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Re: FDIC Takes over Silicon Valley Bank

#421

Post by gumby »

briandear wrote: post #77
woeirua wrote: post #52

LMAO. Can't even believe how many people were confidently asserting that nothing was wrong yesterday. If you had more than $250k in SVB yesterday you probably just took a huge haircut. Hundreds of startups will become illiquid as a result of SVB's collapse, and there will be major layoffs here in the next 90 days as founders realize that they lost their funds and cannot raise in the current VC environment.

I bet a lot of VCs had significant money in that bank as well. Even if companies could raise money, there wouldn't be as money available.

VC firms don't generally have tons of cash sitting around compared to their fund size. When you raise a fund, an LP does't just hand you $20 mil, then simply promise to send you up to $20 mil when you ask for it.

Re: FDIC Takes over Silicon Valley Bank

#422

Post by pbourke »

mywittyname wrote: post #352
yeahsure22 wrote: post #32

Earlier quoted context omitted.

It’s not interesting because of its name, it’s the 18th largest bank in the US. A domino that big usually doesn’t fall alone. Also, FDIC hasn’t taken over a bank since 2020. This isn’t exactly a common occurrence.

"Since 2020" is not a great metric, since a lot happened in 2020. Here is a chart that shows the number of bank failures over the past decade [0]. As you can see, having a year with 0 failures is actually the outlier. The average annual bank failure over the past 20 years is roughly 20 per year and the median number is 8 per year. [0] https://www.fdic.gov/bank/historical/bank/

A failure in “First Community Bank of Left Buttcheek, GA” is not the same as the failure of a $200B institution.

Re: FDIC Takes over Silicon Valley Bank

#423

Post by cragfar »

morpheuskafka wrote: post #218
woeirua wrote: post #52

LMAO. Can't even believe how many people were confidently asserting that nothing was wrong yesterday. If you had more than $250k in SVB yesterday you probably just took a huge haircut. Hundreds of startups will become illiquid as a result of SVB's collapse, and there will be major layoffs here in the next 90 days as founders realize that they lost their funds and cannot raise in the current VC environment.

> Hundreds of startups will become illiquid as a result of SVB's collapse, I know SVB was like a "high tech bank" that partnered with things like Stripe Atlas, but is there any reason that startups were using it for their regular operating funds? Other than the name, was there something that actually made this bank particularly suitable for them?

I can't say specifically for tech startups, but a lot of times lenders will require you to use their banking services as a funding requirement.

Re: FDIC Takes over Silicon Valley Bank

#425

Post by JumpinJack_Cash »

somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

> > 97% of these MBS were 10+ year duration, with a weighted average yield of 1.56%.

But why didn't they just hold money at the Fed given that they are a bank and they can?

It's literally splitting hairs between what the Fed Fund Rate is and what they got on their MBS.

Explainer post says end of 2021 they made that trade, in March the Fed raised the Fed Fund Rate to 0.20%, and by April it was 0.77%.

Had they waited just 5 months they'd have got a better Risk adjusted return by just keeping the money at the Fed

Re: FDIC Takes over Silicon Valley Bank

#426

Post by Me1000 »

prasadjoglekar wrote: post #174
vineyardmike wrote: post #127

Earlier quoted context omitted.

> If you had more than $250k in SVB yesterday you probably just took a huge haircut. You may not lose money. The money isn’t gone yet. The restructuring may save the money. There’s a playbook for this sort of thing.

You most definitely will. SVB already fire-sold 21Bn in MBS and took a 1.8Bn loss on that. Someone is eating that loss.... Separately, this is going to cause a lot of finance vultures to look at other banks who also have MBS portfolios on their books. The show's only beginning.

Is there any reason the FDIC itself cant just hold onto the bonds until they mature? The federal government doesnt need liquidity the same way a bank does, they wouldn't need to sell them for less than face value.

Edit: this is actually a serious question, if someone knows the actual answer.

I understand that ideally the government wouldn't want to hold onto the bonds, but is there any statutory (or other real) reason why they would _have_ to sell them at less than face value? If you could guarantee 100% of deposits could be returned by just holding onto the bonds until maturity, that seems like a worthwhile trade.

Re: FDIC Takes over Silicon Valley Bank

#427

Post by cjbgkagh »

Does the US and SVB have bail-in laws? There is a huge difference between a preferred creditor and being at the back of the line. As SVB has a rather low percentage of FDIC insured coverage at ~5.69% compared to a more normal 40-60% they can't rely on FDIC to get the more typical 90c on the dollar. But then again SVB might have been healthier than other banks so maybe the dilution won't be so bad. Historically depositors were first in line but bail-in laws (depending on how they're written) has the depositors balances converted to equity which is last in line. Such laws are totally crazy but didn't have an impact because few people knew about them so depositors were taking big risks and not knowing about it there by not demanding the interest rates needed to cover such risk. In effect it decreased the risk to the prefered debtors, preference shares, bonds, etc lowering the interest cost to the bank. Basically by transferring risk to those who don't know better the bank makes free money. The idea is sold as a win-win for taxpayers and bank health but only works as long as depositors stay ignorant. If SVB is bailed-in with conversion to equity then knowledge about that risk will spread quickly and the follow on effects could be very substantial. I think that can't be allowed to happen, which is probably why even with such laws depositors tend to be a bit blase. But if that does happen then holy shit look out.

Re: FDIC Takes over Silicon Valley Bank

#428

Post by Someone1234 »

davidw wrote: post #415
somenameforme wrote: post #367

An explainer post [1] connected to that Tweet is something I found extremely informative (assuming it's accurate): "- In 2021 SVB saw a mass influx in deposits, which jumped from $61.76bn at the end of 2019 to $189.20bn at the end of 2021. - As deposits grew, SVB could not grow their loan book fast enough to generate the yield they wanted to see on this capital. As a result, they purchased a large amount (over $80bn!…

> 10+ year duration, with a weighted average yield of 1.56%. > the value of SVB’s MBS plummeted. How much 'plummeting' did they do in numerical terms? Something with those kinds of yields doesn't sound like it ought to be a super risky asset. The mortgage lending market tightened up a lot after the great recession...right?

That has to be an inflation adjusted yield, right? Why would anyone do anything remotely risky for such terrible returns? You can almost find government bonds with similar average yields.

Re: FDIC Takes over Silicon Valley Bank

#429

Post by cglace »

chernevik wrote: post #418

I don't understand why anyone would park any sum larger than, say, $5mm in a bank deposit for more than a minute. It isn't hard to dump those funds into a money market fund backed by short-term commercial paper or even short-term Treasury bills. Or to just buy the Treasury bills outright. Such holdings are quite liquid and can be absolutely secure. Use the bank account for clearing, keep a couple million in it and se…

If you take an SVB loan you have to keep your money in SVB.

Re: FDIC Takes over Silicon Valley Bank

#430

Post by p_j_w »

cal5k wrote: post #313
stephenhuey wrote: post #225

Earlier quoted context omitted.

Disrupt disrupt disrupt! Those old stodgy banks just slow us down with their old-fashioned risk-averse ways! The cool kids can do it better! If I had a nickel for every time I heard this from actual friends in the past couple decades, or for when I said it myself a few times... :)

In fairness, it wasn't the risk-taking that did them in... it was the fact that they went all-in on 10-yr bonds at low interest rates and didn't adequately account for duration risk.

>it wasn't the risk-taking that did them in [...] didn't adequately account for duration risk.

This sounds like risk taking to me.

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