SVB goes under

[gary3411]

In just 48 hours. Silicon Valley Bank has gone from the 16th largest bank in the US, to insolvent.

This is quite big. The ramifications are unpredictable.

The story is very intriguing for those that enjoy following financial and economic news. Their bond duration risk management is a good lesson, even for individual investors.

Over half of all US startups have deposits in SVB. Many of these are well above the 250k FDIC insured limit.

SVB has attempted to raise capital and seek a buyout this morning. Both have failed.

SVB has been closed by California regulators and all accounts transferred to a new bank set up by FDIC.

Imagine you are a startup with maybe 15M of cash on hand and 5M of that you thought was completely safe in SVB. All of a sudden that money is gone. Incredible.

The big question is, will the government step in and make depositors whole?? I think it is reasonable to expect they will. The devil is in the details though and how this will occur. Also, will the government be quick enough to step in before any other banks face a similar fate? If they drag their feet, and in fact other banks are in a similar position, things could get very, very interesting. Think Lehman.

[farmecologist]

So what happened to the "resiliency" requirements that were put into place after the great recession? 

Oh yeah...the requirements were gradually chipped away at and loosened.   

And.....history repeats itself.   

[gary3411]

So what happened to the "resiliency" requirements that were put into place after the great recession? 

Oh yeah...the requirements were gradually chipped away at and loosened.   

And.....history repeats itself.   

It has only been 1 bank so far. I wouldn't rush to any conclusion in that regard. We shouldn't live under the assumption that NO bank can ever fail because of our robust regulations. The regulations required to live in that world would make doing business very very difficult.

[Stimpy]

So what happened to the "resiliency" requirements that were put into place after the great recession? 

Oh yeah...the requirements were gradually chipped away at and loosened.   

And.....history repeats itself.   

It has only been 1 bank so far. I wouldn't rush to any conclusion in that regard. We shouldn't live under the assumption that NO bank can ever fail because of our robust regulations. The regulations required to live in that world would make doing business very very difficult.

True it is ONLY 1 bank, and there IS something to be said for too much or too little regulation...   (I lean on more = better in most situations but not all...)   Could the regulations that were chipped away have saved the bank.... maybe.   No way to know for certain, but I'd put money down that it would have probably made the situation not as bad. 

Do I think we are headed for another 2008? or 1929?  No.   But given that FTX had lots of funds from many venture capitalists....  AND that this was venture capital bank...  I expect more fallout to come.   Though whether it is fear monger-y  enough for news outlets to put out is in question.

Edit: To be clear, FTX was NOT the reason for this failure, but I am sure it played a part, probably a small part at most.

[ChpBstrd]

It's not just one bank. All banks have seen their bond holdings drop in value since early 2022. Those bonds are what back your checking account deposits.

According to the Treasury Secretary:

"There are recent developments that concern a few banks that I'm monitoring very carefully and when banks experience financial loss it is and should be a matter of concern," Yellen told lawmakers.

https://finance.yahoo.com/news/yellen-says-treasury-department-carefully-watching-crisis-at-a-few-banks-153243680.html

Banks can continue to meet their obligations as long as there's not a bank run. Due to bond losses, they lack reserves to be able to handle a bank run. Additionally, as they move bonds from their "held to maturity" account to their "available for sale" account, they have to recognize losses, which means now they have to sell more bonds to cover the losses, which means they have to recognize more losses, and so forth.

I'm confident the FDIC can step in and cover depositors up to the insured amounts, but given the common practice of holding funds in excess of FDIC limits, I think we could see more bank runs. The runs will start at banks with a concentration of high net worth clients.

[seattlecyclone]

Fun fact! I was recently laid off from a Silicon Valley startup, and I was due to receive a severance payment sometime in the next few days. I received an email today that the startup banks with SVB and so there may be some delay there. This should be interesting...

[gary3411]

It's not just one bank. All banks have seen their bond holdings drop in value since early 2022. Those bonds are what back your checking account deposits.

According to the Treasury Secretary:

"There are recent developments that concern a few banks that I'm monitoring very carefully and when banks experience financial loss it is and should be a matter of concern," Yellen told lawmakers.

https://finance.yahoo.com/news/yellen-says-treasury-department-carefully-watching-crisis-at-a-few-banks-153243680.html

Banks can continue to meet their obligations as long as there's not a bank run. Due to bond losses, they lack reserves to be able to handle a bank run. Additionally, as they move bonds from their "held to maturity" account to their "available for sale" account, they have to recognize losses, which means now they have to sell more bonds to cover the losses, which means they have to recognize more losses, and so forth.

I'm confident the FDIC can step in and cover depositors up to the insured amounts, but given the common practice of holding funds in excess of FDIC limits, I think we could see more bank runs. The runs will start at banks with a concentration of high net worth clients.

That could certainly happen. It won't take much. However, where would they put their money? These deposits are usually money that needs to be "available" (payroll for example) otherwise it would already be held in other investments of some sort. I think another bank or 2 could experience a run here soon, but I don't think there can be a widespread enough run, due to no other options, to cause systemic risk.

[gary3411]

Fun fact! I was recently laid off from a Silicon Valley startup, and I was due to receive a severance payment sometime in the next few days. I received an email today that the startup banks with SVB and so there may be some delay there. This should be interesting...

Yup, there could be a heck of a lot of people/companies in this situation. Especially in California.

BUY non-California biotechs?? Something to think about.

[ChpBstrd]

That could certainly happen. It won't take much. However, where would they put their money? These deposits are usually money that needs to be "available" (payroll for example) otherwise it would already be held in other investments of some sort. I think another bank or 2 could experience a run here soon, but I don't think there can be a widespread enough run, due to no other options, to cause systemic risk.

A corporate treasurer with deposits in excess of FDIC insurance could do a few things:

1) Move the company to a better-capitalized bank or a network of separate bank accounts, which would force the original bank to sell their bonds and recognize a loss.
2) Move funds in excess of FDIC limits to treasuries (i.e. just click buy on TreasuryDirect). For the bank, it's a withdraw like #1.
3) Pay for supplemental deposit insurance. This would be hard to justify when treasuries are yielding 5%.
4) Hedge against a bank run by shorting the bank's stock, the VIX, etc. This would be hard to justify for the same reasons as insurance would be hard to justify. And if you're going to set up a second account, why not just use multiple bank accounts to stay under FDIC limits?

A run is possible because if enough corporate treasurers made withdraws as in #1 and #2, the banks would have to sell treasuries and recognize losses to fund those withdraws. Then they would end up undercapitalized and subject to FDIC intervention.

Fun fact! I was recently laid off from a Silicon Valley startup, and I was due to receive a severance payment sometime in the next few days. I received an email today that the startup banks with SVB and so there may be some delay there. This should be interesting...

That means payroll was missed too! According to the FDIC, depositors will have access to funds by Monday morning, and the bank's assets (mark to market?) exceeded liabilities.

The bank had $209 billion in assets and $175.4 billion in deposits. The FDIC, which serves as a backstop for deposits at U.S. banks up to a limit of $250,000, said all insured depositors would have access to their funds "no later" than Monday morning.

https://finance.yahoo.com/news/silicon-valley-bank-fdic-closed-largest-failure-financial-crisis-182643368.html

Also, this bank catering to people with deposits larger than FDIC insurance would cover was a natural first domino to fall. Check out this statistic:

Roughly 87% of Silicon Valley Bank's deposits were uninsured as of December 2022, according to its annual report. Uninsured depositors will receive an advance dividend within the next week and a receivership certificate for the remaining out of their uninsured funds, the FDIC said. It could make future dividend payments as it sells Silicon Valley Bank's assets.

No wonder there was a risk of a bank run. 87%???
In light of this failure of risk management, I think a lot of corporate board members are emailing their CFO's today to ask about uninsured deposits.

[Telecaster]

Fun fact! I was recently laid off from a Silicon Valley startup, and I was due to receive a severance payment sometime in the next few days. I received an email today that the startup banks with SVB and so there may be some delay there. This should be interesting...

Ugh.  Bummer. 

[seattlecyclone]

Fun fact! I was recently laid off from a Silicon Valley startup, and I was due to receive a severance payment sometime in the next few days. I received an email today that the startup banks with SVB and so there may be some delay there. This should be interesting...

That means payroll was missed too! According to the FDIC, depositors will have access to funds by Monday morning, and the bank's assets (mark to market?) exceeded liabilities.

The company normally does payroll on the 15th and last day of the month, so they have until next Wednesday to figure that out. I gather they were doing this severance payment outside of the normal payroll cycle. They had intended to pay it today, though they still have a bit of time per the agreement we signed.

For the record the after-tax amount of the severance will be on the order of 0.1% of my net worth so it's not like I'll lose a bunch of sleep over it if a bunch of startups go bankrupt over this.

[Paper Chaser]

If what I'm reading is true, more than 94% of SVB deposits ($152 billion) were not FDIC insured.


The only larger bank failure was Washington Mutual in 2008. They had more total deposits ($188 billion to SVB's $161 billion), but only $45 billion was uninsured. This might actually impact more people and companies than the largest bank failure in US history.

[gary3411]

IF SVB isn't bailed out (privately or publicly), and folks with deposits can't access that money for an extended period of time (I don't expect this to happen, but there is a chance, call it 15%). Boy, you are staring at a 2008-style event. Another bank will get run on, then another. Eventually, the Treasury will have to step in. Also, it wouldn't be unreasonable in this event, to see the FED convene in an emergency meeting and completely stop QT, if not even initiate QE, as well as drop rates close to zero, once again.

Again, this is if nobody bails out SVB, which I don't expect to happen, but boy it's going to be a tough political move to bail out a bunch of VC's and businesses in Silicon Valley, even if it was the right move.

[reeshau]

Morningstar analysis of top 20 banks with unrealized losses, which is one part of why SVB got in trouble:

https://www.morningstar.com/news/marketwatch/20230310718/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb

[Stimpy]

IF SVB isn't bailed out (privately or publicly), and folks with deposits can't access that money for an extended period of time (I don't expect this to happen, but there is a chance, call it 15%). Boy, you are staring at a 2008-style event. Another bank will get run on, then another. Eventually, the Treasury will have to step in. Also, it wouldn't be unreasonable in this event, to see the FED convene in an emergency meeting and completely stop QT, if not even initiate QE, as well as drop rates close to zero, once again.

Pretty sure the

all accounts transferred to a new bank set up by FDIC

means zero bail out for SVB as a company.  Period.

However, the holders who are effected by this is probably a different matter.   Depending on lobbying/public pressure it would not surprise me if many of them got bailed out in part so as to stall/stop some bank runs by showing the feds will help out the holders even if uninsured.  Yea wouldn't make me cry to see them NOT helped out but as with the 2008 crisis...  In order to avoid a larger explosion it makes some sense....   What will actually happen, guess we shall all see!

[ChpBstrd]

@Paper Chaser - good research! I trust this over Yahoo Finance!

Here's a good update on the overall picture: https://www.youtube.com/watch?v=kxcwn7xoXhU

[Michael in ABQ]

There are several online-only banks that have popped up in the last few years funded by venture capital; along with a host of other fintech companies. I was always leery of them as they can just decide one day that they want to focus on larger customers and drop you. I would expect some of the online lenders who provided unsecured loans for high-growth companies may be the next to fall. They make it look like a 9% interest rate when in reality it can be 50-100% APR.

I believe Silicon Valley Bank required you to be registered as a C-Corp and do some other things to prove you were a startup. They weren't looking to attract deposits from main street businesses. I guess we see another good example of customer concentration (high-risk startups) and the downside of not having a diversified portfolio.

[the_gastropod]

Matt Levine, once again, knocks it out of the park in explaining what happened here: https://archive.ph/Ger2q

It will be interesting to see if someone bails them out, and if so, who. Could be quite a mess if nobody steps up.

[Painters Brush]

So... SVB is a tech startup bank and financials are down about 1.7%, IT is down 1.7% but Real Estate is down 3.25%

The media is talking about SVB.

What happened to Real Estate? Is there a link?

[FINate]

Matt Levine, once again, knocks it out of the park in explaining what happened here: https://archive.ph/Ger2q

It will be interesting to see if someone bails them out, and if so, who. Could be quite a mess if nobody steps up.

Great write up. I know next to nothing about banking, wondering why another bank would pay 100 cents on the dollar for SVB deposits? SVB deposits are backed by long-term fixed-rate bonds that have taken a beating by increasing interest rates. And the Fed is signaling that they will keep raising rates and keep them high for a long time. Why would another bank agree to taking on a guaranteed loss?

[gary3411]

So... SVB is a tech startup bank and financials are down about 1.7%, IT is down 1.7% but Real Estate is down 3.25%

The media is talking about SVB.

What happened to Real Estate? Is there a link?

I think there is worry that this same type thing could happen to office real estate focused banks in the near future. SVB just opened peoples' eyes to the possibilities, not necessarily a direct link.

[reeshau]

Matt Levine, once again, knocks it out of the park in explaining what happened here: https://archive.ph/Ger2q

It will be interesting to see if someone bails them out, and if so, who. Could be quite a mess if nobody steps up.

Great write up. I know next to nothing about banking, wondering why another bank would pay 100 cents on the dollar for SVB deposits? SVB deposits are backed by long-term fixed-rate bonds that have taken a beating by increasing interest rates. And the Fed is signaling that they will keep raising rates and keep them high for a long time. Why would another bank agree to taking on a guaranteed loss?

Back in 2008, banks paid for WaMu, Wachovia, and others, then *faced federal fines* for the businesses they had acquired....voluntarily, after consultation with Treasury.

[Painters Brush]

So... SVB is a tech startup bank and financials are down about 1.7%, IT is down 1.7% but Real Estate is down 3.25%

The media is talking about SVB.

What happened to Real Estate? Is there a link?

I think there is worry that this same type thing could happen to office real estate focused banks in the near future. SVB just opened peoples' eyes to the possibilities, not necessarily a direct link.

Was thinking about it and wondered if financial institutions with a lot of assets in SVB needed to raise cash. When I scan RE ETF tickers, there is no news on this and having a 1.5% greater drop on a day would justify a comment in the news because it would either speak to their vulnerability or to their robustness depending on your view of that. I'm merely speculating on this topic.

As the SVB story unfolds, I'll be watching the RE angle to see if an opportunity arises.

[Dicey]

If nothing else, it's a reminder to all of us to make sure we are well within the FDIC limits. We have a side hustle that sometimes brings in large amounts of money. We then tend to hold large cash positions we call "dry powder". Fortunately [grimace] we spent a chunk of it buying a condo for cash, intending to get a mortgage after renovations were complete. Hahaha, that was in early April 2022. I guess the silver lining of that adventure is we're back within FDIC guidelines. Check your account balances, mustachians.

[the_gastropod]

Great write up. I know next to nothing about banking, wondering why another bank would pay 100 cents on the dollar for SVB deposits? SVB deposits are backed by long-term fixed-rate bonds that have taken a beating by increasing interest rates. And the Fed is signaling that they will keep raising rates and keep them high for a long time. Why would another bank agree to taking on a guaranteed loss?

Yea, I’m not totally sure, either. I guess the idea is that—assuming you’re a well-funded financially stable bank—it’s a relatively cheap way to acquire a bunch of customers. The problem is, I don’t know how valuable many of SVB’s customers actually are. As Levine pointed out: they’re not in positions to take out bank loans. And given the current market, they’re primarily interested in withdrawing their deposits right now.

[LateStarter1]

My company solely banks with SVB. (tech startup).

All $25 million of our capital is tied up with them. Only $250k is insured it sounds like.

We will get our $250k next week and our employees will get paid next week. After that, is the grave unknown of what will happen.

It sounds like the hope is another bank or brokerage will purchase the assets and then start divvying out the uninsured amounts to companies. Over 90+% of the $160 billion dollars in that bank are uninsured funds.

[moof]

Fun fact! I was recently laid off from a Silicon Valley startup, and I was due to receive a severance payment sometime in the next few days. I received an email today that the startup banks with SVB and so there may be some delay there. This should be interesting...

Check your state labor laws, some have teeth to them for companies that don’t pay owed wages in a timely fashion.  Usually a terminated employee is owed their final check for labor (maybe not severance beyond earned wages) within a couple business days.

Here in Oregon even if you just quit on the spot it is due within 5 business days, and then the ex-worker can start going after them for rapidly accruing penalties.

[Michael in ABQ]

Fun fact! I was recently laid off from a Silicon Valley startup, and I was due to receive a severance payment sometime in the next few days. I received an email today that the startup banks with SVB and so there may be some delay there. This should be interesting...

Check your state labor laws, some have teeth to them for companies that don’t pay owed wages in a timely fashion.  Usually a terminated employee is owed their final check for labor (maybe not severance beyond earned wages) within a couple business days.

Here in Oregon even if you just quit on the spot it is due within 5 business days, and then the ex-worker can start going after them for rapidly accruing penalties.

This assumes the business survives and has the assets to pay. Most tech startups are pretty light on assets, at least easily salable ones like real estate or equipment. You can't get blood from a stone.


There are definitely some businesses that will go under from this. Even if it's just a couple of weeks before they can make payroll, they could have employees start jumping ship to better capitalized companies.

[MustacheAndaHalf]

It is rare to see someone with relevant expertise, but to me Matt Levine qualifies:

"After graduating Harvard, Levine was a high school Latin teacher. He left that profession for law school and became a mergers and acquisitions lawyer for the law firm Wachtell, Lipton, Rosen & Katz. He later went on to become an investment banker for Goldman Sachs, where he structured and marketed corporate equity derivatives for four years. Levine was also a law clerk for the U.S. Court of Appeals for the 3rd Circuit."
https://en.wikipedia.org/wiki/Matt_Levine_(columnist)

Note that most banks do not focus solely on Silicon Valley startups owned by a handful of VC firms.  That concentration caused the bank run to be larger than it normally would, and all SVB had to sell were U.S. long-term treasuries which had taken significant mark to market losses.  Held to maturity, SVB had enough money... but selling 20+ years too soon, they had to accept a lower market price, and no longer had enough assets to cover customer deposits.
https://archive.ph/Ger2q#selection-3463.0-3463.11

Startups need cash to stay in business.  Some will go under because they counted on deposits at SVB.  Others will watch as the combination of SVB and scared Venture Capital does not provide ongoing funding, and they no longer have enough to stay in business.  My guess is that these startups are about to be pounding on the doors of private equity (PE) firms, desperate to be bought.

[vand]

So what happened to the "resiliency" requirements that were put into place after the great recession? 

Policy makers are always fighting the last war.

[chasesfish]

I've been glued to the news since Wednesday when SVB announced the stock offering, they've been mathematically insolvent since November but HTM accounting rules kept them alive.

I've answered so many posts / questions, I ended up writing a longer form summary.  Such a series of unique and unfortunate events, I don't think it's contagious.

https://stopironingshirts.com/silicon-valley-bank-what-happened/

The former banker in me is still fascinated.

[blue_green_sparks]

Question: As the bankers watched the yield curve inversion, inflation rate, and slowing deposit rates continue; I just wonder why they didn't sell their depreciating long bonds at a loss in favor of the short-term, higher-yielding money market to remain liquid? They surely had a few very good years prior to all this. Maybe there just wasn't enough time. Perhaps the recent inflation rate recent slow-down served as a head fake?

[vand]

"Raise until something breaks" policy just found the uncle point.

[gary3411]

Question: As the bankers watched the yield curve inversion, inflation rate, and slowing deposit rates continue; I just wonder why they didn't sell their depreciating long bonds at a loss in favor of the short-term, higher-yielding money market to remain liquid? They surely had a few very good years prior to all this. Maybe there just wasn't enough time. Perhaps the recent inflation rate recent slow-down served as a head fake?

I'm sure that was quite the debate inside the company. Had to be. But as soon as they start doing that, everyone notices. If they started really early and were real deliberate about it, sure they probably could have gotten it done. But they waited too long and then probably just had to gamble that deposits would keep up or rates would come down, neither of which happened.

[Dicey]

My company solely banks with SVB. (tech startup).

All $25 million of our capital is tied up with them. Only $250k is insured it sounds like.

We will get our $250k next week and our employees will get paid next week. After that, is the grave unknown of what will happen.

It sounds like the hope is another bank or brokerage will purchase the assets and then start divvying out the uninsured amounts to companies. Over 90+% of the $160 billion dollars in that bank are uninsured funds.

Is it common for banks to hold high levels of uninsured funds? Was this ratio in part because they do things differently in Silly Valley? Are there so many casually rich people there that just don't know any better?

[HPstache]

My company solely banks with SVB. (tech startup).

All $25 million of our capital is tied up with them. Only $250k is insured it sounds like.

We will get our $250k next week and our employees will get paid next week. After that, is the grave unknown of what will happen.

It sounds like the hope is another bank or brokerage will purchase the assets and then start divvying out the uninsured amounts to companies. Over 90+% of the $160 billion dollars in that bank are uninsured funds.

Oh shit, that is horrible

[chasesfish]

Question: As the bankers watched the yield curve inversion, inflation rate, and slowing deposit rates continue; I just wonder why they didn't sell their depreciating long bonds at a loss in favor of the short-term, higher-yielding money market to remain liquid? They surely had a few very good years prior to all this. Maybe there just wasn't enough time. Perhaps the recent inflation rate recent slow-down served as a head fake?

Specifically with SVB, their Chief Risk Officer and Chief Investment Officer turned over and were new to the position in early 2022.  Yes, they should have sold some and generated liquidity earlier, but were likely under pressure to "not show a loss".  Their resumes / backgrounds plus the series of events would suggest they were not qualified for the job.   CRO was with AIG in 2008 and was never a deputy CRO at a major US bank or a CRO at a smaller regional bank.  The experience was with an international conglomerate.   The CIO came from a 17 branch bank they purchased in Boston.

They failed because of the $42bil withdrawn in one day.  Had that been spread out over even a week or two, the funds could have been replaced with high cost deposits (brokered CDs, fed window borrowings, ect) and the bank would have been handicapped with a higher cost of funds but survived.

[chasesfish]

My company solely banks with SVB. (tech startup).

All $25 million of our capital is tied up with them. Only $250k is insured it sounds like.

We will get our $250k next week and our employees will get paid next week. After that, is the grave unknown of what will happen.

It sounds like the hope is another bank or brokerage will purchase the assets and then start divvying out the uninsured amounts to companies. Over 90+% of the $160 billion dollars in that bank are uninsured funds.

That's horrible.

I think the company will get access to some percentage (50-75%) of those funds in the next week.  The remainder will take time.

SVB bonds are priced for a full recovery of all deposits plus a little residual value to the debt holders.

[chasesfish]

It is rare to see someone with relevant expertise, but to me Matt Levine qualifies:

"After graduating Harvard, Levine was a high school Latin teacher. He left that profession for law school and became a mergers and acquisitions lawyer for the law firm Wachtell, Lipton, Rosen & Katz. He later went on to become an investment banker for Goldman Sachs, where he structured and marketed corporate equity derivatives for four years. Levine was also a law clerk for the U.S. Court of Appeals for the 3rd Circuit."
https://en.wikipedia.org/wiki/Matt_Levine_(columnist)

Note that most banks do not focus solely on Silicon Valley startups owned by a handful of VC firms.  That concentration caused the bank run to be larger than it normally would, and all SVB had to sell were U.S. long-term treasuries which had taken significant mark to market losses.  Held to maturity, SVB had enough money... but selling 20+ years too soon, they had to accept a lower market price, and no longer had enough assets to cover customer deposits.
https://archive.ph/Ger2q#selection-3463.0-3463.11

Startups need cash to stay in business.  Some will go under because they counted on deposits at SVB.  Others will watch as the combination of SVB and scared Venture Capital does not provide ongoing funding, and they no longer have enough to stay in business.  My guess is that these startups are about to be pounding on the doors of private equity (PE) firms, desperate to be bought.

I think the beginning is correct, the conclusion is not.  The SIVB bond pricing expects a 100% recovery on deposits.  The question is how much and how quick.

[lhamo]

Question: As the bankers watched the yield curve inversion, inflation rate, and slowing deposit rates continue; I just wonder why they didn't sell their depreciating long bonds at a loss in favor of the short-term, higher-yielding money market to remain liquid? They surely had a few very good years prior to all this. Maybe there just wasn't enough time. Perhaps the recent inflation rate recent slow-down served as a head fake?

Specifically with SVB, their Chief Risk Officer and Chief Investment Officer turned over and were new to the position in early 2022.  Yes, they should have sold some and generated liquidity earlier, but were likely under pressure to "not show a loss".  Their resumes / backgrounds plus the series of events would suggest they were not qualified for the job.   CRO was with AIG in 2008 and was never a deputy CRO at a major US bank or a CRO at a smaller regional bank.  The experience was with an international conglomerate.   The CIO came from a 17 branch bank they purchased in Boston.

They failed because of the $42bil withdrawn in one day.  Had that been spread out over even a week or two, the funds could have been replaced with high cost deposits (brokered CDs, fed window borrowings, ect) and the bank would have been handicapped with a higher cost of funds but survived.

The bolded would have made me throw that virtual CV straight into the virtual circular file....

[chasesfish]

Question: As the bankers watched the yield curve inversion, inflation rate, and slowing deposit rates continue; I just wonder why they didn't sell their depreciating long bonds at a loss in favor of the short-term, higher-yielding money market to remain liquid? They surely had a few very good years prior to all this. Maybe there just wasn't enough time. Perhaps the recent inflation rate recent slow-down served as a head fake?

Specifically with SVB, their Chief Risk Officer and Chief Investment Officer turned over and were new to the position in early 2022.  Yes, they should have sold some and generated liquidity earlier, but were likely under pressure to "not show a loss".  Their resumes / backgrounds plus the series of events would suggest they were not qualified for the job.   CRO was with AIG in 2008 and was never a deputy CRO at a major US bank or a CRO at a smaller regional bank.  The experience was with an international conglomerate.   The CIO came from a 17 branch bank they purchased in Boston.

They failed because of the $42bil withdrawn in one day.  Had that been spread out over even a week or two, the funds could have been replaced with high cost deposits (brokered CDs, fed window borrowings, ect) and the bank would have been handicapped with a higher cost of funds but survived.

The bolded would have made me throw that virtual CV straight into the virtual circular file....

The CROs probably split the responsibility here, as well as not having a competent Asset Liability Committee.   The prior CRO made the long duration bets, the current one failed to unwind them early.

As Jeremy Irons eloquently said in Margin Call:  It's not panic selling if you're first.

[MacGyverIt]

IF SVB isn't bailed out (privately or publicly), and folks with deposits can't access that money for an extended period of time (I don't expect this to happen, but there is a chance, call it 15%). Boy, you are staring at a 2008-style event. Another bank will get run on, then another. Eventually, the Treasury will have to step in. Also, it wouldn't be unreasonable in this event, to see the FED convene in an emergency meeting and completely stop QT, if not even initiate QE, as well as drop rates close to zero, once again.

Again, this is if nobody bails out SVB, which I don't expect to happen, but boy it's going to be a tough political move to bail out a bunch of VC's and businesses in Silicon Valley, even if it was the right move.

Yep… privatize profit, socialize loss. Again.

[chasesfish]

FWIW - This is an FDIC resolution.  The FDIC is funded by insurance premiums (taxes) levied against banks.

[JupiterGreen]

I've been reading about this all week. It's terrible. I feel especially bad for all the people at the end of the line, the workers whose paychecks will be delayed (or who just won't get paid).

There have been a number of articles on how the last Administration's rollback of Dodd Frank may have come into play here. I haven't see anyone comment on that in this thread yet.

"In 2015, SVB President Greg Becker submitted a statement to a Senate panel pushing legislators to exempt more banks — including his own — from new regulations passed in the wake of the 2008 financial crisis. Despite warnings from some senators, Becker’s lobbying effort was ultimately successful."

And their desire to ease restrictions with financial regulatory reform was successful with the last Administration:

"The measure eases restrictions on all but the largest banks. It raises the threshold to $250 billion from $50 billion under which banks are deemed too important to the financial system to fail. Those institutions also would not have to undergo stress tests or submit so-called living wills, both safety valves designed to plan for financial disaster. It eases mortgage loan data reporting requirements for the overwhelming majority of banks. It would add some safeguards for student loan borrowers and also require credit reporting companies to provide free credit monitoring services."

And so

"In 2021, SVB passed the threshold of $100 billion under management, triggering some additional scrutiny as a Category IV bank but remaining exempt from the more frequent and detailed analyses that regulators perform to determine whether banks above $250 billion of assets have sufficient capital to withstand a crisis."

[VanillaGorilla]

My company solely banks with SVB. (tech startup).

All $25 million of our capital is tied up with them. Only $250k is insured it sounds like.

We will get our $250k next week and our employees will get paid next week. After that, is the grave unknown of what will happen.

It sounds like the hope is another bank or brokerage will purchase the assets and then start divvying out the uninsured amounts to companies. Over 90+% of the $160 billion dollars in that bank are uninsured funds.

Is it common for banks to hold high levels of uninsured funds? Was this ratio in part because they do things differently in Silly Valley? Are there so many casually rich people there that just don't know any better?

My company banks with SVB, but we're not very exposed to any risk. The bank caters exclusively to institutional clients - there are such high levels of uninsured funds because 250k is nothing for a company.

I have friends at other local tech companies who's entire lump sum value is in cash at SVB and they're all terrified right now.

[pianomom]

My company solely banks with SVB. (tech startup).

All $25 million of our capital is tied up with them. Only $250k is insured it sounds like.

We will get our $250k next week and our employees will get paid next week. After that, is the grave unknown of what will happen.

It sounds like the hope is another bank or brokerage will purchase the assets and then start divvying out the uninsured amounts to companies. Over 90+% of the $160 billion dollars in that bank are uninsured funds.

Is it common for banks to hold high levels of uninsured funds? Was this ratio in part because they do things differently in Silly Valley? Are there so many casually rich people there that just don't know any better?

Startup companies are also unique in that if they're early stage they may have raised a lot of money through funding but then it sits in a bank account as they spend it down. They may not have recurring cashflow to mitigate some of the risk of where their money is. We own a small business (<15 employees) and if we were 10x - 20x the size that we are, our payroll would be significantly more than $250K in a month, not even considering what we'd have to pay vendors. And if you try to have 3 months on hand....Yes, at some point you try to diversify where you hold the funds, but large companies just need access to a lot of cash to operate their business.

[chasesfish]

@JupiterGreen There will be many questions about what / why the regulators did what they did.   Lots of lessons will be learned in hindsight on this. 

The company was known to be insolvent back in November.  It wasn't a secret, but people (including myself) thought they were just being given time to work out of the hole.   Mathematically the security value recovers if held to maturity and the solvency problem is resolved.

The VCs decided to do a bank run on their own company on Wednesday / Thursday, voiding the thought above.

[LaineyAZ]

I've been reading about this all week. It's terrible. I feel especially bad for all the people at the end of the line, the workers whose paychecks will be delayed (or who just won't get paid).

There have been a number of articles on how the last Administration's rollback of Dodd Frank may have come into play here. I haven't see anyone comment on that in this thread yet.

"In 2015, SVB President Greg Becker submitted a statement to a Senate panel pushing legislators to exempt more banks — including his own — from new regulations passed in the wake of the 2008 financial crisis. Despite warnings from some senators, Becker’s lobbying effort was ultimately successful."

And their desire to ease restrictions with financial regulatory reform was successful with the last Administration:

"The measure eases restrictions on all but the largest banks. It raises the threshold to $250 billion from $50 billion under which banks are deemed too important to the financial system to fail. Those institutions also would not have to undergo stress tests or submit so-called living wills, both safety valves designed to plan for financial disaster. It eases mortgage loan data reporting requirements for the overwhelming majority of banks. It would add some safeguards for student loan borrowers and also require credit reporting companies to provide free credit monitoring services."

And so

"In 2021, SVB passed the threshold of $100 billion under management, triggering some additional scrutiny as a Category IV bank but remaining exempt from the more frequent and detailed analyses that regulators perform to determine whether banks above $250 billion of assets have sufficient capital to withstand a crisis."

Makes me furious.  Another set of serious consequences for individuals and taxpayers thanks to corporate greed and the politicians they own. 
And we're not even done dealing with the Norfolk Southern disaster and the financial and environmental fallout from that. 

A handful of people can make life hell for millions and then walk away with no punishment whatsoever.

[dandarc]

What is likely to happen is the bank's assets will be bought up by one of the major banks with an agreement with the FDIC to make all depositors whole, even the uninsured amounts. Probably by Monday. Because there is a huge incentive to just about everyone to keep this to a blip.

[JupiterGreen]

What is likely to happen is the bank's assets will be bought up by one of the major banks with an agreement with the FDIC to make all depositors whole, even the uninsured amounts. Probably by Monday. Because there is a huge incentive to just about everyone to keep this to a blip.

I've seen this prediction too and I understand that technically SVB is solvent (if they could only reallocate or wait for funds to mature and of course if there wasn't a run at all). But what I'm wondering is what bank is going to want to take this on with the 1% bonds in place? If they fire sale those bonds it doesn't seem like they will have enough money to cover all the over 250k account. Plus since the run was psychological, the bank that takes this on might end up with a run too. I guess if it was broken up between financial institutions, the psychology part could be mitigated.  And we could be looking at another government bail out of some sort....but Americans are still pretty salty about 08 (especially Millennials).

Anyway, it's going to be interesting to see how this plays out.   

thanks @chasesfish