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90% of the customers had way, way over the $250K insurance limit.
Were they worried ? No. And they had no reason to because...Fed to the rescue to make them whole.
This time Congress didn't even need to get involved. Crash on Friday, bailed out by Sunday night.
And their investments that have losses will be valued at par by the government for loans.
90% of the customers had way, way over the $250K insurance limit.
Were they worried ? No. And they had no reason to because...Fed to the rescue to make them whole.
This time Congress didn't even need to get involved. Crash on Friday, bailed out by Sunday night.
And their investments that have losses will be valued at par by the government for loans.
Correct. The banks can redeem their HTM assets at par value, and the paper "losses" no longer exist.
Who would possibly want to own an insolvent bank, let alone pay good money for one???
Think of it this way. An insurance company declares a car a total loss, cuts the owner a check, then takes possession of the car. Who would want a totaled out car? But they do sell it, because the seats and the mirror and the engine and whatever else isn't damaged all have value.
So it is with a busted bank. They have outstanding loans, those are worth something. They have buildings and computers and chairs and whatnot. All that's worth something. They have $X amount of long term treasury bills or other assets.
So, the FDIC comes in, and takes bids, and whatever costs them the least to payout, they'll take that bid.
Quote:
Originally Posted by MKTwet
Typically in a capitalist society we should let this bank fail. But there's serious implications here of not bailing out SVB here.
The Government isn't bailing out SVB. They're bailing out their depositors. SVB will be no more; JP Morgan Chase or BofA or Goldman Sachs or Wells Fargo will submit a bid and they'll make a deal with the fed since SVB has been given Systemic Risk designation. The shareholders and execs that had big stock options and anyone that owned shares of the bank are out cold.
Quote:
Originally Posted by k374
everyone is getting their money back despite being well over the FDIC insurance limits... looks like some rich people made some phone calls to their contacts in Washington DC.
companies go bankrupt all the time, people lose their jobs and their livelihoods, how is this any different? why are selective entities being bailed out and others are not? And if such entities pose such systemic risks to the economy then why are their activities not regulated to prevent the cause of this failure - clearly this bank was doing some sleazy things that were completely unregulated.
Again, SVB as a going venture is gone. Only Depositors are being insured. And if I had to guess, the financials of the bank aren't as bad as they seem. The bank was $1 Billion short on liquid cash when they were shuttered, but what's the value of their outstanding loans, lines of credit, other assets? I bet its more than $1 billion. So, if a bigger bank can spend $1 billion to basically shore up depositors in the short term while making billions more over the coming years, why wouldn't they?
Quote:
Originally Posted by amil23
This bailout will only encourage and support even bigger stupid actions by bank execs. I'm not saying bank execs are criminals or anything like that. But seriously do you think a bank's executives won't push when there is essentially and ever-expanding envelope?
One would think after the 2000 collapse that bankers would realize Tech money is hot money and not try to get rich off of long-dated securities. As long as depositers don't have to worry about being reimbursed, why should they care who is watching the hen house?
I don't see that bailout coming without more stringent regulations/stress testing required.
...
Again, SVB as a going venture is gone. Only Depositors are being insured. And if I had to guess, the financials of the bank aren't as bad as they seem. The bank was $1 Billion short on liquid cash when they were shuttered, but what's the value of their outstanding loans, lines of credit, other assets? I bet its more than $1 billion. So, if a bigger bank can spend $1 billion to basically shore up depositors in the short term while making billions more over the coming years, why wouldn't they?
...
I heard someone call this "unwinding" their position.
And if it can be unwound, successfully, and everyone (except shareholders and executives) made whole in the long run, then great. (Although, it still creates something of a moral hazard.)
But Biden said (sort of) that the FDIC would foot the bill. If the FDIC gets reimbursed, in whole, great. If not, this is a bail out, and creates an even greater moral hazard. Should that be the case, the right thing to do is give the larger depositors a portion of what they stand to lose, based on what can be recovered, as the bnak assets are sold off.
The money to fully reimburse depositors of the collapsed Silicon Valley Bank and the shuttered Signature Bank will be furnished by other banks, not taxpayers, Treasury officials said.
The Deposit Insurance Fund, which will cover the deposits, is funded with quarterly fees assessed on financial institutions and interest on government bonds.
Uhhhh. I'm sorry but that is absolutely false. Feel free to read up how having a concentrated investor base with primarily large (uninsured) deposits was precisely the reason that it led to a bank run. You seem like a smart guy, I'm sure you'll be able to find some articles in WSJ or Bloomberg that explain this just like I did.
An "unnamed bank" wanted to acquire SVB over the weekend, but the head of the FDIC - Martin Gruenberg - objected. He didn't want a larger bank to acquire SVB.
Gruenberg is a long-time inside-the-beltway "capitalism is bad" Democratic operative.
The unnamed bank was PNC. And while Gruenberg is definitely against further consolidation among big banks, the reason it was not approved is that PNC wanted downside protection from the FDIC in case any of the assets sustained significant losses. I.e. PNC gets all the upside, FDIC gets all the downside. Considering the movement in bond pricing over the past 3 days, I'd rather keep the upside (and downside). Guess Gruenberg did the right thing.
Think of it this way. An insurance company declares a car a total loss, cuts the owner a check, then takes possession of the car. Who would want a totaled out car? But they do sell it, because the seats and the mirror and the engine and whatever else isn't damaged all have value.
So it is with a busted bank. They have outstanding loans, those are worth something. They have buildings and computers and chairs and whatnot. All that's worth something. They have $X amount of long term treasury bills or other assets.
So, the FDIC comes in, and takes bids, and whatever costs them the least to payout, they'll take that bid.
The Government isn't bailing out SVB. They're bailing out their depositors. SVB will be no more; JP Morgan Chase or BofA or Goldman Sachs or Wells Fargo will submit a bid and they'll make a deal with the fed since SVB has been given Systemic Risk designation. The shareholders and execs that had big stock options and anyone that owned shares of the bank are out cold.
Again, SVB as a going venture is gone. Only Depositors are being insured. And if I had to guess, the financials of the bank aren't as bad as they seem. The bank was $1 Billion short on liquid cash when they were shuttered, but what's the value of their outstanding loans, lines of credit, other assets? I bet its more than $1 billion. So, if a bigger bank can spend $1 billion to basically shore up depositors in the short term while making billions more over the coming years, why wouldn't they?
I don't see that bailout coming without more stringent regulations/stress testing required.
There is a massive profit left over that other banks wanted to buy at a big discount. Short term liquidity in rough times always is golden. This is basically the Icahn model. Buy distressed assets, keep them afloat until better times come and then sell them for many times more. That's really all there is here. They didn't have enough cash to pay depositors because no bank around does when their entire customer base wants to withdraw funds. The VCs who told their portfolio companies are holding their hands up saying we didn't do anything wrong but their are effectively what led to the end. Yes the company made mistakes that got them to that point but if the VCs didn't tell everyone get your money out little would have happened.
This whole episode worries me because we have so many sheep in the world and so many state actors who would love to take advantage of this. Imagine if TikTok at the behest of the CCP concocted a story about another major bank doing something that made a large number of depositors go take out their funds? That momentum would lead to insolvency rumors and that bank would be wiped out just the same in days. Could be any top 10 bank. It's always been a worry that the shorts and vulture funds could collaborate to do this as well but most have acted responsibly enough. Do we trust foreign nations in times like these not to take advantage of the idiocy of the American public?
I heard someone call this "unwinding" their position.
And if it can be unwound, successfully, and everyone (except shareholders and executives) made whole in the long run, then great. (Although, it still creates something of a moral hazard.)
But Biden said (sort of) that the FDIC would foot the bill. If the FDIC gets reimbursed, in whole, great. If not, this is a bail out, and creates an even greater moral hazard. Should that be the case, the right thing to do is give the larger depositors a portion of what they stand to lose, based on what can be recovered, as the bnak assets are sold off.
Uhhhh. I'm sorry but that is absolutely false. Feel free to read up how having a concentrated investor base with primarily large (uninsured) deposits was precisely the reason that it led to a bank run. You seem like a smart guy, I'm sure you'll be able to find some articles in WSJ or Bloomberg that explain this just like I did.
Respectfully, I disagree with you.
I suspect when you say "concentrated investor base" you really mean "concentrated customer base."
The concentration or diffusion of customers is irrelevant to a bank run.
Let's do a hypothetical.
Let's say SVB had a broad diversified customer base serving, say, building supply companies and REITs and wholesalers and wealth managers and physical therapy chains and ski rental companies and hotels and CPAs and restaurants and motel chains and light manufacturers and grocery store chains and convenience store chains and... well, mid-sized businesses of all shapes & sizes, some smaller businesses, and a few larger successful businesses.
Even then, SVB's treasury function failure coupled with its regulator's comatose oversight would have resulted in the exact same run on the bank.
SVB's portfolio of long-dated Treasury Bonds would still have been worth much less than face value due to the Fed's increase of interest rates, just as happened in real life.
SVB would still have needed to raise capital, just as happened in real life.
SVB would have hired Goldman Sachs in February to raise capital, just as they did in real life.
Moody’s would still be preparing SVB for a downgrade, just as they did in real life.
SVB would still have targeted the two private-equity firms, General Atlantic and Warburg Pincus, as possible investors, just as they did in real life.
SVB would still have attempted a private placement of equity, just as they did in real life.
Moody's would have downgraded SVB on March 8, just as happened in real life.
SVB would still have completed its sale of marketing securities to Goldman Sachs, recognizing a $1.8 Billion loss, just as happened in real life.
SVB would have announced they were raising $2.5 Billion in fresh capital, just as happened in real life.
... and on March 9, the next day, the bad news would have caused the prudent CFOs of all those hypothetical diversified customers - building supply companies and REITs and wholesalers and wealth managers and physical therapy chains and ski rental companies and hotels and CPAs and restaurants and motel chains and light manufacturers and grocery store chains and convenience store chains - all of them would have initiated the movement of their funds away from the bank.
And by end-of-day the $2.5 Billion capital raise would have failed because of news of the run on the bank, just as happened in real life.
Once SVB's financial troubles surfaced, everyone runs, not just a concentrated customer base of high tech companies.
Last edited by moguldreamer; 03-16-2023 at 08:50 AM..
FDIC balance is less than SVB uninsured deposits. The Fed said they had a special fund for the rest
That’s a red herring, irrelevant. Even Moodys said that in the event of failure with no intervention on uninsured depositors, ~85% of uninsured deposits would be recovered. Which indicates that the fed is theoretically on the hook for 15%. And that assumes a deal can’t be struck for their productive assets.
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