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FDIC Takes over Silicon Valley Bank

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Re: FDIC Takes over Silicon Valley Bank

#901

Post by hayd »

bumbledraven wrote: post #886
ecshafer wrote: post #860

I am naive in this area. But what I don't really understand is.. why are all of these start ups using Silicon Valley Bank? It's a relatively small regional bank, that happens to have a ton of cash. Why aren't start ups using Bank of America, Wells Fargo, etc. It's odd to me that >90% of a sector uses this one regional bank.

https://www.fastcompany.com/90864382/silicon-valley-bank-was... : > In many cases, startups exclusively banked with SVB because doing so was listed as a covenant of their debt! > So CEOs across the tech sector on March 9 faced a hard choice: You can pull your deposits from the bank in order to save them, but then you would be in breach of covenant, and at risk of default on your venture debt. Of course, the alternati…

> doing so was listed as a covenant of their debt!

why??

Re: FDIC Takes over Silicon Valley Bank

#902

Post by CydeWeys »

csomar wrote: post #872
nr378 wrote: post #639

Earlier quoted context omitted.

SVB held $21bn of 'available for sale' bonds and $91bn of 'held to maturity' bonds on its balance sheet, that were actually only worth $19bn an $76bn respectively on a mark-to-market basis, which means a total unrecognised hole its in balance sheet of $17bn. SVB's total equity was only $16bn[1][2] That means it didn't have a liquidity crisis, and it didn't have reserves in excess of it's liabilities, it had a solvenc…

> The crux of the issue here is that, for many types of assets, banks are able to test whether they meet capital requirements based on the price they paid for the assets, rather than the price the assets are currently worth. I think this will limit the types of assets banks can purchase. They'll need to purchase only assets that regularly trade (and thus are quoted) on the market.

The assets they were holding do regularly trade and could easily be valued. They knew that the value was down. The problem was they didn't actually have to do anything about it.

Re: FDIC Takes over Silicon Valley Bank

#903

Post by tomhallett »

joosters wrote: post #480
duxup wrote: post #435

Earlier quoted context omitted.

I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…

At first glance, bank balance sheets are unintuitive and feel 'the wrong way round'. When someone deposits $1m at a bank, the bank doesn't have $1m more assets, it has $1m more liabilities. (Yes, this is a gross over-simplification)

If a bank is noticing they are getting more deposits then they can safely make returns for (like SVB in 2020), can banks "simply" return deposits to customers and/or decline new customers/deposits? Is there a precedent to doing this? Or does everyone decide it's better to take risky bets to grow with the increasing deposits and we'll keep seeing runs when those bets go south?

Re: FDIC Takes over Silicon Valley Bank

#905

Post by gst »

robertwt7 wrote: post #847
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!…

Please correct me if i'm wrong since i'm not a finance guy, apart from the loss of $1.8bn and the delta of the interest - growth from their assets. Isn't everyone still going to get their money back - the percentage of the loss that SVB has which should be less than 5-9%? Sure FDIC has to liquidate all the money from the assets and it takes time. But at least the impact is not going to be as hard as losing all the mo…

> But at least the impact is not going to be as hard as losing all the money like FTX or Maedoff in 2008 right.

The recovery rate for the Madoff Ponzi is 88.35%: https://www.justice.gov/opa/pr/justice-department-announces-...

Re: FDIC Takes over Silicon Valley Bank

#906

Post by vivegi »

From SVB Financial Group's latest 10-K filing (Source: https://d18rn0p25nwr6d.cloudfront.net/CIK-0000719739/f36fc4d..., p12, Jan 31, 2023):

> Liquidity Requirements. Category IV organizations with greater than $50 billion in WSTWF, as well as Category I-III organizations, are subject to LCR and net stable funding ratio (“NSFR”) requirements and must maintain high-quality liquid assets in accordance with specific quantitative requirements. However, the above-mentioned Category IV organizations, as well as Category III organizations with less than $75 billion in WSTWF, are subject to reduced LCR and NSFR requirements. Category III organizations with greater than $75 billion in WSTWF and all Category I-II organizations are subject to the full LCR and NSFR requirements. As of December 31, 2022, we have less than $50 billion in WSTWF, therefore, we are currently not subject to LCR and NSFR requirements.

Any other financial institutions that was exempted under same conditions as SVB should also be looking at the quality of their liquid assets.

Re: FDIC Takes over Silicon Valley Bank

#907

Post by arbuge »

joosters wrote: post #480
duxup wrote: post #435

Earlier quoted context omitted.

I have some family who (with some other partners) founded a small community bank that has grown over the years. They expanded in some areas by buying other small community banks, specifically in areas where there was a big increase in income in the local area (from mineral rights, etc). The smaller banks that they bought were in a situation where suddenly they had large amounts of cash incoming, and customers who wer…

At first glance, bank balance sheets are unintuitive and feel 'the wrong way round'. When someone deposits $1m at a bank, the bank doesn't have $1m more assets, it has $1m more liabilities. (Yes, this is a gross over-simplification)

> When someone deposits $1m at a bank, the bank doesn't have $1m more assets, it has $1m more liabilities.

Not quite. It actually has both.

Yes, it owes $1m to the depositor, but it also has $1m in cash now, at least for a while. Until it does something with it, like loaning it out or investing it in some debt instrument. The cash is an asset, as is the loan or debt instrument it exchanges the cash for.

Re: FDIC Takes over Silicon Valley Bank

#908

Post by abhiminator »

resource0x wrote: post #707
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!…

Ackman panics, appeals for a bailout https://www.msn.com/en-us/money/other/billionaire-investor-b...

Bailout? Sounds like an '08 déjà vu again.

It's crazy to realize how brazen Wall Street bankers and Hedge Fund managers are when it comes to asking for taxpayer dollars during distress, while decrying any attempt to add to that taxpayer dollar pool from their billions in earnings when the times are good.

Re: FDIC Takes over Silicon Valley Bank

#909

Post by yibg »

kuczmama wrote: post #361

What I don't understand is why do banks work this way? Imagine you were designing the bank from scratch having no knowledge of the current banking system. How would you do it? The most obvious thing would be if a customer deposits money, you would hold 100% of the money 1 to 1 exactly how they deposited it. Then the bank could make money by providing services to their customers. If I had to bet, most people who have…

If all banks worked like this, how would people get mortgages? Can’t loan out the money with interest.

Re: FDIC Takes over Silicon Valley Bank

#910

Post by DonsDiscountGas »

tbarbugli wrote: post #754

Dumb question perhaps: why only SVB crashed? I imagine all banks in US had an influx on money deposited in the same period as SVB

Presumably they did a better job managing liquidity risk. Or maybe the recent tech downturn has disproportionately affected startups, so a bank for startups would have issues.

Then again, you never know what tomorrow/next week/next month will bring. It may not only be SVB, it may be that they just happened to be first.

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