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Startup lender Silicon Valley Bank to sell stock to cope with cash burn

reuters.com

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Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#91

Post by resters »

WJW wrote: post #72
toomuchtodo wrote: post #70

Earlier quoted context omitted.

While it’s unlikely we’re going to see a meme stock moment, a bank run by a collection of risk adverse founders already facing a challenging macro pulling their deposits is entirely possible. And those cash balances are likely much more than 10k assuming runway liquidity. https://news.ycombinator.com/item?id=35086853 https://news.ycombinator.com/item?id=35086888

Yes but people rationally pulling money from a failing bank is very different than a subreddit banding together to kill the bank on purpose.

It really shouldn't matter. An elevator full of people shouldn't fail just because they all jump in unison, so long as the number of people / weight is below the maximum capacity.

We view banking differently because ultimately banking is political and powerful people benefit from being able to leverage without a pre-defined plan to handle some aspects of the downside risk, even though creating such a plan is straightforward. Creating such a plan would surface the cost of the plan in advance and it's easier to pretend it was an "impossible" and unanticipated phenomenon rather than just greed.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#92

Post by athinggoingon »

nostrademons wrote: post #73
JohnFen wrote: post #68

Earlier quoted context omitted.

> is potentially a civilization-ending event. Civilization-ending? How is that even remotely in the realm of possibility?

These banking failures and mass unemployment would come right as interest rates are spiking. They also go hand in hand with banks dumping Treasury Bills for liquidity, which would cause a sharp decline in T-bill prices and a rise in T-bill rates. The government finances its operations by issuing T-bills. If nobody is willing to buy T-bills, the government can't get cash to pay government employees, including the FBI,…

> The government finances its operations by issuing T-bills. If nobody is willing to buy T-bills, the government can't get cash to pay government employees, including the FBI, CIA, military, etc.

If nobody is willing to buy T-bills, the Fed will just monetize the debt, which is something they have been doing since 2008.

There's a reason the Fed's balance sheet is now around 8 trillion dollars.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#93

Post by cameldrv »

slt2021 wrote: post #14

SVB is inderwater not only because of tech decline, but mostly because they bought huge amount of agency MBS at the generational high prices (during low rates), thus tying lot of capital for a very long time. If they were to sell those MBS today to get cash, bank’s equity would be wiped out Source: https://twitter.com/ragingventures/status/161582608803847373...

If you mark the bonds to market, the bank's equity is wiped out, and logically, that's what you should do.

Given that the law allows them not to if they're HTM, you get the same result, just with some delay. Their deposits are short term, and will leave the bank if SVB is not providing competitive interest rates. They cannot afford to pay competitive interest rates if they've loaned out the deposits at a lower rate than depositors now expect.

Once depositors realize this, it's a classic bank run scenario. They know that without help, the bank goes bust, and there's no point in taking any significant risk with bank deposits that aren't even paying any interest, so they take them out. As more people withdraw, the chance of a failure increases, and more people withdraw, etc.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#94

Post by cameldrv »

JumpCrisscross wrote: post #50
slt2021 wrote: post #45

Earlier quoted context omitted.

liquidating HTM will mean bankruptcy, because bank will realize mark to market losses on MBS that exceed equity. They will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot. Even if bank will go bankrupt and sold to another buyer - new owner will still have to hold onto these MBS

> will hold onto these MBS with their "Diamond Hands" (r) and hope for Fed pivot No, they’ll hold them to maturity and get back their principal.

With what funds are they going to hold them to maturity? Are the depositors going to be willing to finance these bond purchases with zero interest deposits indefinitely when they could be earning more interest at another bank?

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#95

Post by nostrebored »

CapstanRoller wrote: post #84
nostrademons wrote: post #63

Earlier quoted context omitted.

It still can trigger bank failures like the article is describing, though. Consumer pulls it out of one bank, creating a cash crunch there, and forces them to liquidate treasuries and realize large losses that had previously only been on paper. That bank is now insolvent. The bank that the recipient deposits them into now has more cash in hand, but they weren't facing a cash crunch in the first place. Some (bigger an…

Why would it get pulled out of the bank? Where would it go? I don't believe we'll see an epidemic of folks suddenly wanting to store their life savings under the mattress.

My family has withdrawn ~95% of our bank holdings after looking into the health of banks and the broader financial system. Not going to say too much, but the funds didn’t reenter the banking system.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#96

Post by toomuchtodo »

toomuchtodo wrote: post #17
TuringNYC wrote: post #13

Earlier quoted context omitted.

>> Is there a way to tell how close SVB is to failing? If SVB fails does the cash kept in it simply disappear or does the fed step in? As they say themselves, Category IV organizations, like SVBFG, are subject to supervisory stress tests conducted by the Fed "every other year." So you can get Stress Test results, but they will be stale. See Page 13 here: https://www.svb.com/globalassets/library/uploadedfiles/conte...…

Too much latency with official reporting to suss out an insured institution going over the cliff, indicator would be SVB reps meeting with FDIC examiners around receivership and liquidation. Doors close on Friday, receiving bank opens all the branches back up as them on Monday. https://www.npr.org/2009/03/26/102384657/anatomy-of-a-bank-t...

It is done.

https://news.ycombinator.com/item?id=35096877

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#97

Post by p10_user »

nostrademons wrote: post #73
JohnFen wrote: post #68

Earlier quoted context omitted.

> is potentially a civilization-ending event. Civilization-ending? How is that even remotely in the realm of possibility?

These banking failures and mass unemployment would come right as interest rates are spiking. They also go hand in hand with banks dumping Treasury Bills for liquidity, which would cause a sharp decline in T-bill prices and a rise in T-bill rates. The government finances its operations by issuing T-bills. If nobody is willing to buy T-bills, the government can't get cash to pay government employees, including the FBI,…

Will banks dump that many short term t bills to cause a problem? Short term t bills are very popular- I’m sure some b2b loans could be settled with a t bill as payment. As long as the us govt is still good for the interest payments I think plenty will be happy with that arrangement, reducing need to convert so much into cash.

Re: Startup lender Silicon Valley Bank to sell stock to cope with cash burn

#98

Post by morninglight21 »

makaimc wrote: post #2

Do other US financial institutions have the same exposures, or is this a one-off situation based on SVB's closeness to the US tech sector?

does anyone have a list of venture debt firms exposed to this SVB collapse, like PFG which I believe had a close relation with SVB?
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