If No one buys SVB this weekend - will it shut down half Silicon Valley?

[Unionville]

UPDATE on this post:  I just saw they are having an action - so my question might not be relevant anymore. https://www.cnbc.com/2023/03/12/auction-process-is-reportedly-underway-to-find-a-buyer-for-silicon-valley-bank.html

I've been following the Silicon Valley Bank failure and listening to some Venture Capital firms discuss their concerns.  They sound terrified that the whole tech economy in Silicon Valley could come to a screeching halt Monday and businesses won't be able to pay staff  (unless SVB is sold this weekend). They are even saying all companies should not pay any creditors/venders and only pay staff as an emergency action. One person had a list of businesses who had holdings there and it was extensive - it covered almost all VC firms. Your thoughts? Are they being over dramatic? Most of these businesses aren't helped by $250,000 FDIC insurance - because they have millions of dollars in limbo.

[jim555]

I've been following the Silicon Valley Bank failure and listening to some Venture Capital firms discuss their concerns.  They sound terrified that the whole tech economy in Silicon Valley could come to a screeching halt Monday and businesses won't be able to pay staff  (unless SVB is sold this weekend). They are even saying all companies should not pay any creditors/venders and only pay staff as an emergency action. One person had a list of businesses who had holdings there and it was extensive - it covered almost all VC firms. Your thoughts? Are they being over dramatic?

Boo hoo, rich morons lose some cash, big deal.

[Unionville]

It's not about a rich few - it's the spillover of large amount of employees (perhaps a million) who will lose jobs.  Many people who work at tech companies are support staff, not all programmers.

[jim555]

It's not about a rich few - it's the spillover of large amount of employees who will lose jobs (including unskilled labor).

McDonald's is hiring.

[Unionville]

It's not about a rich few - it's the spillover of large amount of employees who will lose jobs (including unskilled labor).

McDonald's is hiring.

Well, obviously you don't take my question as a serious one.  If someone shut down your bank account and you couldn't pay your bills, I doubt McDonalds job is going to help much.

[jim555]

It's not about a rich few - it's the spillover of large amount of employees who will lose jobs (including unskilled labor).

McDonald's is hiring.

Well, obviously you don't take my question as a serious one.  If someone shut down your bank account and you couldn't pay your bills, I doubt McDonalds job is going to help much.

I wouldn't have over $250,000 in one bank.  They would get unemployment or live on savings.

[mistymoney]

I've been following the Silicon Valley Bank failure and listening to some Venture Capital firms discuss their concerns.  They sound terrified that the whole tech economy in Silicon Valley could come to a screeching halt Monday and businesses won't be able to pay staff  (unless SVB is sold this weekend). They are even saying all companies should not pay any creditors/venders and only pay staff as an emergency action. One person had a list of businesses who had holdings there and it was extensive - it covered almost all VC firms. Your thoughts? Are they being over dramatic? Most of these businesses aren't helped by $250,000 FDIC insurance - because they have millions of dollars in limbo.

quite a few companies had significant sums there that are potentially lost, I do worry how that will impact those companies and their employees. roku and rocketlab are among the ones I saw listed that I recognized.

not sure how deep the ripples will be - I don't think there is any way to know - just going to have to watch the fall out unfold.

if I was in a situation where my company suddenly couldn't make payroll, I can't imagine. Like you suddenly don't get paid for the last few weeks you worked and you vacation payout is cancelled?

[GilesMM]

It is being overly dramatic to say the entire tech economy will come to a screeching halt Monday if SVB is not open for business.


It is true that most of the funds there were not insured.  And it seems likely that most of those funds are either gone or will be hard to access for a while.  And the firms who banked there will have a lot of difficulty and some may go out of businesses. Some jobs will be lost. 


But the contagion is limited mostly to shakey startups and the newest of companies.  If they all disappear a new crop will appear to replace them in short order.  The startup business will be difficult for a year or two, but then resume normality.


Non-startup tech, which is most of it, should be fine.  Some will see this as an opportunity to swoop in with cash and snap up promising startups for pennies on the dollar.


The sky is not falling, just a passing storm.

[snic]

It is true that most of the funds there were not insured.  And it seems likely that most of those funds are either gone or will be hard to access for a while.  And the firms who banked there will have a lot of difficulty and some may go out of businesses.

It's debatable whether "most of those funds" are "gone". As I understand it, there was a run on SVB and the bank tried to sell treasuries it had bought when rates were 0.2%. They had to sell them at a steep discount (~4-5%) because anyone can now buy treasuries that pay 4-5%. So it's not as if the bank has suddenly lost all its money and if you had $10 million on deposit, you'll get only $1 million back or something on that order. They still own hundreds of millions (or billions?) of dollars in treasuries.

What SVB (or its new owner) needs is cash or credit to cover withdrawals. Once that's in place, any depositor should be able to get pretty close to all their money out - naively, I'd calculate ~99.9%, because SVB only sold a few tens of millions of the hundreds of millions or billions of dollars in treasuries it owns at a loss, not its entire portfolio. So it's more a question of how long it will take for customers to be able to access their money, than one of whether they've lost all their cash on deposit. If it takes a few days or weeks and the companies can't pay their obligations, it could be dire. Hopefully that won't happen.

EDITED TO ADD: These are the actual numbers, from a MarketWatch article: Total assets $212B, sold $21B at a loss of $1.8B. So their asset loss is 0.85%. I think that gives an idea of how much uninsured customers will get back (>99%).
https://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2

[snic]

Boo hoo, rich morons lose some cash, big deal.

I hear this sentiment a lot, but it really misunderstands how the whole system works. Where do you expect a large corporation to keep its cash? In 1,000 banks with each account containing $250,000? Does that make any sense?

Of course not. A large corporation might have a few different banks. A smaller company, such as a tech start-up, will probably have just one. This is completely common, and it is based on the uncontroversial idea that a bank is a safe place to keep sizable sums of money. If only "rich morons" did this, then thousands of companies in the country (and world) are run by "rich morons."

[gary3411]

You're talking about mostly the folks on All-In podcast. Good show, but they are very emotional right now as this is hitting them right in the gut. If nothing else happens (no other bank runs), things in the Valley will be dreary but not extinction-level like they say, but here are some facts:

1. FDIC already announced all depositors are getting 50% of their money on Monday. Then they will get 80-90% of the rest of their money over some time. Probably pretty quick, a few weeks. They have paperwork all stating this.

2. Some companies were very stupid literally had all their cash in one single bank, well over the FDIC insurance amount. That is a colossal mistake. Some may have just did it out of ignorance, or out of laziness, or because SVB was offering great perks. Either way, there is a cost to great perks, it's called risk. Any company could've avoided this situation by simply keeping its cash needs in a diversified way, which corporate treasuries have been taught to do and have been doing forever.

3. Even if a company had all their cash in SVB (very dumb), they are getting 50% of it back Monday. If they can't operate on 50% of their cash they were doomed to fail anyway. OR, if they have such a great product, some investor will come in and give them a loan to cover the short term needs, especially because they have a certificate from the FDIC proving they have funds but it'll just take some time to get.

So yes, these VC types are freaking out because in general folks will wake up to how overvalued some of these companies probably were. But the idea of millions getting laid off just won't happen.

HOWEVER, all of what I just stated assumes there are no other bank runs. If there are other banks runs, all bets are off and no one knows what will happen.

[daverobev]

HOWEVER, all of what I just stated assumes there are no other bank runs. If there are other banks runs, all bets are off and no one knows what will happen.

Thinking out loud, but... the money has to run to somewhere, and presumably it'll be a large US bank. Could the govt enforce something whereby new business in big banks (ie, new deposits by the 24th of March cf a month prior) directly caused by this nonsense are pooled with the unfortunate smaller banks who have been subject to the run..?

Bank runs are stuuupid. I mean, SVB is stupid too, but... it's a self-fulfilling prophecy. I'm sure bad actors could easily enough spread a rumour that bank X is going to be next and profit on that.

[jim555]

Boo hoo, rich morons lose some cash, big deal.

I hear this sentiment a lot, but it really misunderstands how the whole system works. Where do you expect a large corporation to keep its cash? In 1,000 banks with each account containing $250,000? Does that make any sense?

Of course not. A large corporation might have a few different banks. A smaller company, such as a tech start-up, will probably have just one. This is completely common, and it is based on the uncontroversial idea that a bank is a safe place to keep sizable sums of money. If only "rich morons" did this, then thousands of companies in the country (and world) are run by "rich morons."

Companies deal with this issue all the time and find ways to mitigate the risk of a bank failure.  Only morons expose themselves to risk that is easily avoided.  They will get most if not all the money back eventually.

[nereo]

Boo hoo, rich morons lose some cash, big deal.

I hear this sentiment a lot, but it really misunderstands how the whole system works. Where do you expect a large corporation to keep its cash? In 1,000 banks with each account containing $250,000? Does that make any sense?

Of course not. A large corporation might have a few different banks. A smaller company, such as a tech start-up, will probably have just one. This is completely common, and it is based on the uncontroversial idea that a bank is a safe place to keep sizable sums of money. If only "rich morons" did this, then thousands of companies in the country (and world) are run by "rich morons."

Companies deal with this issue all the time and find ways to mitigate the risk of a bank failure.  Only morons expose themselves to risk that is easily avoided.  They will get most if not all the money back eventually.

I don’t believe you are accounting for how responsible small businesses actually work. I’m currently upper management for a small company with 18 FTE.  We have a LOC in the low six-figures with a regional bank, not unlike SVB.  We also have a similar amount of cash on hand in that bank. On any given month we have roughly 300k in revenue and almost as much in expenses, making us a profitable entity. Like most businesses our expenses and revenue are very mismatched; we

However, if we suddenly couldn’t access our LOC - even for a few weeks, we’d fail to make payroll, we’d be unable to pay vendors and we wouldn’t be able to placer the orders for supplies that generated the income we needed. Within days we would rack up tens-of-thousands in fees with our existing vendors, or lose them entirely (continued supply-chain issues).  In short - it would do us considerable (possibly irreparable) harm, all because  we couldn’t access the cash we already have or use the line of credit we had previously signed for.

OR: consider what it could do for a typical household.  They might have 2-3 months expenses in their bank account which suddenly they can’t access, and ironically their paycheck gets auto-deposited into that account.  Within a week they miss payments on their CC and their rent, triggering late fees and interest. Their credit score takes a sizeable hit. Sure, it might get sorted out in a couple months, but not before doing considerable economic damage.

[mistymoney]

Well, as more info has trickled, I guess we'll get a good glimpse on Monday's market where this is going.....maybe?

New York
CNN
 —
Silicon Valley Bank’s collapse last week sent tingles of panic down investors’ spines as it highlighted a larger problem across the banking sector: The widening gap between the value large lenders place on the bonds they hold and what they’re actually worth on the market.

SVB’s downfall was tied, in part, to the plunge in the value of bonds it acquired during boom times, when it had a lot of customer deposits coming in and needed somewhere to park the cash.

But SVB isn’t the only institution with that issue. US banks were sitting on $620 billion in unrealized losses (assets that have decreased in price but haven’t been sold yet) at the end of 2022, according to the FDIC.

https://www.cnn.com/2023/03/12/investing/stocks-week-ahead/index.html


Even if other banks don't collapse - looks like the might feel a bit faint and sustain some heavy bruising.

I don't think the next bull run is going to be just around the corner!!

(checks watch.....OMY coming up.....)

[GilesMM]

It is true that most of the funds there were not insured.  And it seems likely that most of those funds are either gone or will be hard to access for a while.  And the firms who banked there will have a lot of difficulty and some may go out of businesses.

It's debatable whether "most of those funds" are "gone". As I understand it, there was a run on SVB and the bank tried to sell treasuries it had bought when rates were 0.2%. They had to sell them at a steep discount (~4-5%) because anyone can now buy treasuries that pay 4-5%. So it's not as if the bank has suddenly lost all its money and if you had $10 million on deposit, you'll get only $1 million back or something on that order. They still own hundreds of millions (or billions?) of dollars in treasuries.

What SVB (or its new owner) needs is cash or credit to cover withdrawals. Once that's in place, any depositor should be able to get pretty close to all their money out - naively, I'd calculate ~99.9%, because SVB only sold a few tens of millions of the hundreds of millions or billions of dollars in treasuries it owns at a loss, not its entire portfolio. So it's more a question of how long it will take for customers to be able to access their money, than one of whether they've lost all their cash on deposit. If it takes a few days or weeks and the companies can't pay their obligations, it could be dire. Hopefully that won't happen.

EDITED TO ADD: These are the actual numbers, from a MarketWatch article: Total assets $212B, sold $21B at a loss of $1.8B. So their asset loss is 0.85%. I think that gives an idea of how much uninsured customers will get back (>99%).
https://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2

You seem to be assuming a white knight will step in and buy the bank and make everyone whole. That could happen but I doubt anyone wants to buy a bank full of underwater bonds. 


They lost 10% on the bonds they sold before the run on the bank, which I would expect were their better bonds. If the rest are farther underwater, depositors will get less than 90% of face value for their deposits. I’m guessing somewhere between 60-80%. Better than nothing!

[mistymoney]

also for @TodayOhBoy and others - more discussion on this in the investor board.

[Ron Scott]

“Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full.”


Here we go: Another government bailout! They get a do-over…

[Taran Wanderer]

The way I understand it, the Fed is guaranteeing the depositors will get their money. Holders of the bank’s debt may or may not get paid. Stockholders may lose everything. But money in the accounts will be guaranteed. I’m guessing the reason this is even possible is that SVB has adequate assets to cover this expense as long as the bonds are held to maturity and not liquidated at a discount right now. Also, if depositors know they won’t lose their money, there is less incentive to withdraw everything right now.

I’m sure more details will come out tomorrow and this week, but the important thing is that this is a guarantee to the depositors to provide systemic stability, not to the management, holders of SVB debt, or the SVB shareholders, who will still face significant moral hazard… which needs to happen.

[GilesMM]

“Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full.”


Here we go: Another government bailout! They get a do-over…

Except the fed also said "“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer".  The "bailout" is government credit against existing collateral.  Unless it is at terms more favorable than market rates, it is not a bailout.

[Ron Scott]

“Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full.”


Here we go: Another government bailout! They get a do-over…

Except the fed also said "“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer".  The "bailout" is government credit against existing collateral.  Unless it is at terms more favorable than market rates, it is not a bailout.

I think you’re largely right, but if the government guarantees a corporation with major deposits in a bank that fails like SVB, and that corporation’s stock price is salvaged, then the government has ensured the stock can trade at a value higher than the market would have allowed without the “bailout”, no?

[LibrarIan]

Except the fed also said...

Are we trusting the fed now? I can never keep up.

[Must_ache]

I assume the investors will take it on the chin, and the government is only there to provide liquidity in the interim.   

[Taran Wanderer]

That’s the way I read it.

[JLee]

“Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full.”


Here we go: Another government bailout! They get a do-over…

Except the fed also said "“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer".  The "bailout" is government credit against existing collateral.  Unless it is at terms more favorable than market rates, it is not a bailout.

I think you’re largely right, but if the government guarantees a corporation with major deposits in a bank that fails like SVB, and that corporation’s stock price is salvaged, then the government has ensured the stock can trade at a value higher than the market would have allowed without the “bailout”, no?

I suppose so, as the company would survive - but how is that relevant?

[Ron Scott]

“Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full.”


Here we go: Another government bailout! They get a do-over…

Except the fed also said "“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer".  The "bailout" is government credit against existing collateral.  Unless it is at terms more favorable than market rates, it is not a bailout.

I think you’re largely right, but if the government guarantees a corporation with major deposits in a bank that fails like SVB, and that corporation’s stock price is salvaged, then the government has ensured the stock can trade at a value higher than the market would have allowed without the “bailout”, no?

I suppose so, as the company would survive - but how is that relevant?

You’d have to read up the chain. The issue is whether it’s a bailout.

In addition to the bailout, I find it hard to see how the taxpayer isn’t a player in this affair too.

Is there any such thing as uninsured deposits in banks in America anymore?

[nouseforausername]

@Ron Scott  I just read that U.S. banks were holding about a trillion in "uninsured" deposits at the end of 2022.

So, a trillion of de facto "insured" uninsurable deposits... wild.

[snic]

It is true that most of the funds there were not insured.  And it seems likely that most of those funds are either gone or will be hard to access for a while.  And the firms who banked there will have a lot of difficulty and some may go out of businesses.

It's debatable whether "most of those funds" are "gone". As I understand it, there was a run on SVB and the bank tried to sell treasuries it had bought when rates were 0.2%. They had to sell them at a steep discount (~4-5%) because anyone can now buy treasuries that pay 4-5%. So it's not as if the bank has suddenly lost all its money and if you had $10 million on deposit, you'll get only $1 million back or something on that order. They still own hundreds of millions (or billions?) of dollars in treasuries.

What SVB (or its new owner) needs is cash or credit to cover withdrawals. Once that's in place, any depositor should be able to get pretty close to all their money out - naively, I'd calculate ~99.9%, because SVB only sold a few tens of millions of the hundreds of millions or billions of dollars in treasuries it owns at a loss, not its entire portfolio. So it's more a question of how long it will take for customers to be able to access their money, than one of whether they've lost all their cash on deposit. If it takes a few days or weeks and the companies can't pay their obligations, it could be dire. Hopefully that won't happen.

EDITED TO ADD: These are the actual numbers, from a MarketWatch article: Total assets $212B, sold $21B at a loss of $1.8B. So their asset loss is 0.85%. I think that gives an idea of how much uninsured customers will get back (>99%).
https://www.marketwatch.com/story/20-banks-that-are-sitting-on-huge-potential-securities-lossesas-was-svb-c4bbcafa?siteid=yhoof2

You seem to be assuming a white knight will step in and buy the bank and make everyone whole. That could happen but I doubt anyone wants to buy a bank full of underwater bonds. 


They lost 10% on the bonds they sold before the run on the bank, which I would expect were their better bonds. If the rest are farther underwater, depositors will get less than 90% of face value for their deposits. I’m guessing somewhere between 60-80%. Better than nothing!

And you are assuming that the only source of funds that the new owner could use to cover withdrawals are SVB's existing assets. The whole point of another bank buying SVB would be that they would have a large cash base to pay out those withdrawals while waiting for the US treasury bonds that SVB holds to mature. In exchange for the costs of waiting that long (including inflation), the bank would get a solid customer base of tech movers and shakers. I have no idea whether that's worth it TBH, but the Fed has an interest in incentivizing such a sale to the extent possible.

[fuzzy math]

“Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full.”


Here we go: Another government bailout! They get a do-over…

Except the fed also said "“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer".  The "bailout" is government credit against existing collateral.  Unless it is at terms more favorable than market rates, it is not a bailout.

And PPP loans were only loans, and only loaned to legit businesses.

It'll take years for the results to shake out on this one. I find it hard to believe that it won't have a cost and won't cause other banks to seek out more sketchy $$ generating scenarios as a result of this new insurance for them.

[Sibley]

“Federal regulators announced on Sunday that another bank had been closed and that the government would ensure that all depositors of Silicon Valley Bank — which failed Friday — would be paid back in full.”


Here we go: Another government bailout! They get a do-over…

Except the fed also said "“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer".  The "bailout" is government credit against existing collateral.  Unless it is at terms more favorable than market rates, it is not a bailout.

And PPP loans were only loans, and only loaned to legit businesses.

It'll take years for the results to shake out on this one. I find it hard to believe that it won't have a cost and won't cause other banks to seek out more sketchy $$ generating scenarios as a result of this new insurance for them.

The way it has been communicated thus far is that the bank's stockholders and bondholders will be the losers here, that depositors will get their money at the expense of investors. If that holds true, than I would think that would incentivize banks to make prudent decisions because otherwise the people at the top will get burned hard if the bank fails. Thus, the new "insurance" is really the government forcing the loses to be taken by share- and bond holders, not the depositors.

There's also the unknown factor of what changes to bank regulations might go into place after this.

[fuzzy math]

The way it has been communicated thus far is that the bank's stockholders and bondholders will be the losers here, that depositors will get their money at the expense of investors. If that holds true, than I would think that would incentivize banks to make prudent decisions because otherwise the people at the top will get burned hard if the bank fails. Thus, the new "insurance" is really the government forcing the loses to be taken by share- and bond holders, not the depositors.

There's also the unknown factor of what changes to bank regulations might go into place after this.

SVB's CEO did a massive insider dump a month ago. The bigwig shareholders will be just fine.

I'd be pleased to be wrong... just not feeling the "this is ultimately a good thing for banking" vibes right now.

[Sibley]

The way it has been communicated thus far is that the bank's stockholders and bondholders will be the losers here, that depositors will get their money at the expense of investors. If that holds true, than I would think that would incentivize banks to make prudent decisions because otherwise the people at the top will get burned hard if the bank fails. Thus, the new "insurance" is really the government forcing the loses to be taken by share- and bond holders, not the depositors.

There's also the unknown factor of what changes to bank regulations might go into place after this.

SVB's CEO did a massive insider dump a month ago. The bigwig shareholders will be just fine.

I'd be pleased to be wrong... just not feeling the "this is ultimately a good thing for banking" vibes right now.

Well, duh. There's a reason why I won't work at banks. The entire industry should not exist as it currently does.

I will also be perfectly ok if there's an investigation into the CEO's stock dump and he gets the money clawed back or something. We'll see what happens.

[Ron Scott]

The way it has been communicated thus far is that the bank's stockholders and bondholders will be the losers here, that depositors will get their money at the expense of investors. If that holds true, than I would think that would incentivize banks to make prudent decisions because otherwise the people at the top will get burned hard if the bank fails. Thus, the new "insurance" is really the government forcing the loses to be taken by share- and bond holders, not the depositors.

There's also the unknown factor of what changes to bank regulations might go into place after this.

SVB's CEO did a massive insider dump a month ago. The bigwig shareholders will be just fine.

I'd be pleased to be wrong... just not feeling the "this is ultimately a good thing for banking" vibes right now.

Well, duh. There's a reason why I won't work at banks. The entire industry should not exist as it currently does.

I will also be perfectly ok if there's an investigation into the CEO's stock dump and he gets the money clawed back or something. We'll see what happens.

I believe the shares were traded under a 10b5 so while management doesn’t look too swift overall I’d wait to get more info before crying foul on the stock sale.